Fewer trusts may qualify as ESBTs under new final regs

The IRS and the Treasury should be commended for providing needed guidance on difficult issues concerning the qualification and taxation of electing small business trusts (ESBTs). Nevertheless, without legislative changes, these ESBT rules require complex tax reporting for an ESBT that owns property...

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Bibliographic Details
Published in:Estate Planning 2002-12, Vol.29 (12), p.618
Main Author: Howell-Smith, Laura
Format: Article
Language:English
Subjects:
Beneficiaries
Contingent interest
Electing Small Business Trust
Estate planning
Grantor trusts
Powers of appointment
Qualified subchapter S trusts
S corporations
Small business
Stockholders
Tax elections
Tax rates
Taxation
Temp. Reg. 1.444-2T
Temporary tax regulations
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Summary:The IRS and the Treasury should be commended for providing needed guidance on difficult issues concerning the qualification and taxation of electing small business trusts (ESBTs). Nevertheless, without legislative changes, these ESBT rules require complex tax reporting for an ESBT that owns property other than S stock. Further, these rules will result in fewer trusts qualifying as ESBTs. The final Regs. also provide that an ESBT, or a trust described in Section 401(a), is not treated as a deferral entity for purposes of Temp. Reg. 1.444-2T. A corporation's S election will terminate if: 1. the corporation has a shareholder that is an ESBT, 2. the terms of the ESBT provide for a power of appointment under which the potential number of appointees will exceed 75 or the appointees are ineligible shareholders, and 3. no action is taken before Jan. 1, 2003 to eliminate the power of appointment issue.
ISSN:0094-1794