Subchapter S Corporations &

Estates/Trusts as Shareholders

Presented by

Joe Lancaster, CPA

I.S Corporation Taxation

II. Who May Be a Shareholder in an S Corporation (IRC Section 1361)A. IndividualsB. Estates & Certain TrustsC. Certain Exempt Organizations (Mainly ESOP’s)

III. Estates & Certain Trusts as Shareholders

A. Estates1. No “Bright Line” Time Limit, But

Cannot Be IndefiniteB. Grantor Trusts

1. Grantor Must Be an Eligible Shareholder

2. Only One Grantor (Spouses Can Count as One)

3. Many Rulings

III. Estates & Certain Trusts as Shareholders

C. Certain Testamentary Trusts (Two- Year Rule – Was 60 Days Before 1997)

D. Voting TrustsE. Qualified Subchapter S Trusts

(QSST’s)F. Electing Small Business Trusts

(ESBT’s)

IV. Qualified Subchapter S Trusts (QSST’s) (IRC Section 1361(d))

A. Only One Income Beneficiary (Current Lifetime)

B. Corpus Distributions Only to That BeneficiaryC. Income Interest Terminates on Earlier of

Trust Termination or Beneficiary’s DeathD. If Trust Terminates During Beneficiary’s Life, All

Assets Go to BeneficiaryE. All Income Distributed or Required to be

DistributedF. Beneficiary Makes ElectionG. Treated as Grantor Trust With respect to the

S Corporation Stock

V. Electing Small Business Trusts (ESBT’s) (IRC Section 1361(e))

A. Specified Trust BeneficiariesB. No Interest in Trust Acquired by PurchaseC. Trustee Makes ElectionD. Part of Trust Consisting of S Corporation Stock is a Separate TrustE. Taxed at Maximum Rate (IRC Section 641(c))

VI. Relief for Late QSST & ESBT Elections

A. IRC § 1362(f) & Revenue Procedure 2013-30

1. All Eligible Requirements Met2. All Entities Filed Returns Consistent With S Status3. Relief Requested Within 3 Years & 75 Days of Effective Date

B. Flow Chart (next slide)

VI. Relief for Late QSST & ESBT Elections

If you have any questions please feel free to

contact Joe at:

214-635-2563jlancaster@gppcpa.com