A few comments on your question:
- The parent S corporation needs to make a "qualified subchapter s subsidiary" election using a form 8869.
- A link to the form https://www.irs.gov/pub/irs-pdf/f8869.pdf
- Not sure when this transaction took place, but depending on the date, you may have missed the filing deadline (see below for further discussion).
- Once the election is in place, you effectively treat the "subsidiary" as a division and only file one form 1120S. In general a QSub is not treated as a separate corporation for most federal tax purposes (although it is still treated as a separate corporation for some purposes, such as employment taxes).
- The reason for this is an S corporation can own and operate one or more chains of subsidiary C corporations or brother/sister C corporations, but it cannot file a consolidated return with them.
- You will receive notification from the IRS regarding the acceptance of the QSub status.
- If you have missed the filing deadline for form 8869, the acquired company becomes a regular C corporation. You can request relief, however, in this case you may want to consult with a tax professional.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
