Under current law, ESBTs
are allowed to own S corporation stock, but are not allowed a charitable deduction for certain donations that the S corporation may make to charitable organizations.
Such trusts can be restructured or amended to qualify as a QSST or an ESBT
Regarding a request for relief for an inadvertently invalid S Corp election or an inadvertent termination of an S Corp election due to the failure to make a timely ESBT
or QSST election.
Because of these disadvantages of QSSTs and ESBTs
, grantor trust treatment often becomes the preferred way to qualify a trust as an eligible S corporation shareholder.
If the ESBT
has ineligible PCBs or too many PCBs the trust had 60 days to divest itself of the corporation stock so that the corporation could avoid the loss of its subchapter S status.
The Act allows more owners, ownership by the ESBT
or by nonresident aliens, and allows the S corp to own subsidiaries, although the S corp still may not file a consolidated return.
The Requesting Entity intended to be classified as an S Corp, intended the trust It be an ESBT
or a QSST or intended to treat a subsidiary as a QSub as of the "Effective Date," which is the date on which the S Corp election, ESBT
election(s), QSST election(s), QSub election(s) or corporate classification election is intended to be effective;
This provision places an ESBT
on par with all other taxpayers, including qualified subchapter S trusts (QSST), for the deduction.
18) An ESBT
may have as its beneficiaries, individuals, estates, or certain charitable organizations that are eligible to be S corporation shareholders.
The portion of an ESBT
that consists of stock in one or more S corporations is treated as one trust.
3) However, [section]1361(c)(2)(B)(v) prescribes that only "potential current beneficiaries" of an ESBT
are treated as shareholders of the S corporation.
is treated as two separate trusts for income tax purposes, with one trust holding all of the S corporation stock (the S portion) and the other trust holding all the other trust assets (the non-S portion).