Hi and welcome to Just Answer!The first step - you need to determine the fair market value of the subsidiary.For the C-corporation - that disposition will be reported as a sale of the subsidiary at its fair market value - so the taxable gain will be based on the basis. I assume - it will be an asset sale - so the gain will be determined separately for each asset. The transfer to the employee will be treated as compensation for services and will be reported as wages - subject of employment taxes - again based on the fair market value of the subsidiary. Generally - that will be deductible for the C-corporation as wages and taxable for the employee as such.The employee will start depreciating business assets based on their fair market value as determined above.
Would your answer change if only the capital stock of the subsidiary was tranfered to the employee?