qualifying seller in a 1042 transaction

[Guest pjalazo]

A single shareholder owns 100% of a S Corp. The S Corp owns 100% of a C Corp.

The C Corp wants to establish an ESOP and the S Corp wants to sell its shares of the C Corp to the ESOP and elect 1042 treatment. Is the S Corp a qualifying seller under 1042? I realize that C Corp gain is not eleigible for 1042 deferral, so would the negative pregnant be true?

[BeckyMiller]

See IRC Section 1042©(7). That is your only restriction, but the S corporation becomes the taxpayer, has to make the reinvestment, etc.