S to C Conversion and 1042 elections

[Griswold]

If a company wants to convert from an S to a C so that the owner/seller can make a 1042 election, will the owner have to then wait three years to meet that holding requirement of 1042? Or does their ownership of the S stock (assuming for three years) tack over?

 

I could have sworn that the ownership "tacks" but I can't find much support out there. If anyone has some support, I would appreciate it.

 

Thanks!

[QDROphile]

You may be conflating tax concepts with corporate concepts.  Stock ownership is stock ownership; ownership is changed by acquisition/sale of the stock.  A tax election does not change ownership, but it may change the tax consequences of ownership.  Tacking is an ownership concept that treats changes in form (e.g. ownership of an option changed to ownership of a share by exercise of the option) or title as continuity of ownership (e.g. beneficial ownership changed to legal ownership by distribution of stock from a trust to a beneficiary of the trust). 

[BeckyMiller]

Assuming that there has not been any change in ownership associated with the return to C corporation status, then the holding period of the S corporation stock is the holding period of the C corporation stock.  I can't really give you a cite other than the normal basis tracking rule.  See IRC Section 1223.