What Types of Trusts Are Permitted Shareholders of an S Corporation?

S corporations are the most common types of corporate tax filings, representing 3.5 million corporations as of 2004. For tax years beginning after Dec 31, 2004, an S corporation can have up to 100 shareholders but is allowed only certain types of shareholders. Only certain types of grantor trusts ar...

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Bibliographic Details
Published in:Estate Planning 2007-06, Vol.34 (6), p.26
Main Author: Howell-Smith, Laura
Format: Article
Language:English
Subjects:
Beneficiaries
Crummey trusts
Electing Small Business Trust
Elections
Estate planning
Gift taxes
Grantor retained annuity trusts
Grantor trusts
Income taxes
Qualified subchapter S trusts
Revocable trusts
S corporations
Stockholders
Tax regulations
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Summary:S corporations are the most common types of corporate tax filings, representing 3.5 million corporations as of 2004. For tax years beginning after Dec 31, 2004, an S corporation can have up to 100 shareholders but is allowed only certain types of shareholders. Only certain types of grantor trusts are allowed to hold S stock. Section 1361(c)(2)(A)(i) permits a trust to hold S corporation stock if it is a trust all of which is treated as owned by an individual who is a US citizen or resident. Section 1361(c)(2)(A)(iv) and Reg. 1.1361-1(h)(1)(v) define a voting trust as a trust created primarily to exercise voting power over S corporation stock. Because S corporations are closely held, they are frequently the subject of estate planning that inevitably involves the need to establish trusts to hold the S stock. The types of trusts that are permitted to hold S corporation stock under Subchapter S are limited, and the eligibility and operational rules are extensive and unique.
ISSN:0094-1794