QSSTs.A new proposed regulation provides guidance on qualified subchapter S Subchapter S IRS regulation that gives a corporation with 35 or fewer shareholders the option of being taxed as a partnership to escape corporate income taxes. trust (QSST QSST Qualified Subchapter S Trust QSST Quiet Small Supersonic Transport QSST Quiet Supersonic Transport ) elections for testamentary trusts testamentary trust n. a trust created by the terms of a will. Example: "The residue of my estate shall form the corpus (body) of a trust, with the executor as trustee, for my children's health and education, which shall terminate when the last child attains the age under Sec. 1361. The proposal incorporates changes made to Sec. 1361 by the Small Business Job Protection Act of 1996 (SBJPA SBJPA Small Business Job Protection Act of 1996 ) to provide that a testamentary trust could be a permitted S shareholder for two years. Also, a former qualified subpart E trust would be a permitted shareholder for two years, whether or not the entire corpus was included in the deemed owner's gross estate. The proposed regulation would eliminate the special rules for determining whether trusts consisting of community property qualify for the two-year period. Prior to the law change, testamentary trusts and former qualified subpart E trusts could be shareholders for only 60 days. Additionally, the proposal refers to electing small business trusts (ESBTs), which were added by the SBJPA, and provides that certain former qualified subpart E trusts and testamentary trusts could continue as S shareholders after the end of the two-year period by becoming ESBTs. Further, the regulation reflects law changes (1) allowing certain exempt organizations to be S shareholders for post-1997 tax years and (2) increasing the number of permissible S per·mis·si·ble adj. Permitted; allowable: permissible tax deductions; permissible behavior in school. per·mis shareholders from 35 to 75. The proposed regulation also would clarify that a current income beneficiary Income beneficiary One who receives income from a trust. of a testamentary trust that meets the requirements could make a QSST election at any time during the two-year period in which the trust is a permitted shareholder or the 16-day-and-two-month period beginning on the date after the two-year period ends. Under this provision, a testamentary trust would continue as a permitted shareholder after the end of the two-year period by becoming an electing QSST. Once the trust becomes an electing QSST, the beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. would be treated as the shareholder as of the QSST election's effective date. Interested parties have until Nov. 23, 2001, to submit comments and requests for a public hearing on the proposed regulation to: Internal Revenue Service P.O. Box 7604 Ben Franklin Station Room 5226 Attn: CC:IT&A:RU (REG-106431-01) Washington, DC 20044 Comments may also be submitted electronically by selecting the "Tax Regs" option on the IRS's homepage, at www.irs.gov. |
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