[Federal Register Volume 84, Number 76 (Friday, April 19, 2019)]
[Proposed Rules]
[Pages 16415-16419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07919]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 84, No. 76 / Friday, April 19, 2019 /
Proposed Rules
[[Page 16415]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-117062-18]
RIN 1545-BO93
Electing Small Business Trusts With Nonresident Aliens as
Potential Current Beneficiaries
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This notice of proposed rulemaking provides rules regarding
the recent statutory expansion of the class of permissible potential
current beneficiaries (PCBs) of an electing small business trust (ESBT)
to include nonresident aliens (NRAs). In particular, these proposed
regulations would ensure that the income of an S corporation will
continue to be subject to U.S. Federal income tax when an NRA is a
deemed owner of a grantor trust that elects to be an ESBT.
DATES: Comments and requests for a public hearing must be received by
June 3, 2019.
ADDRESSES: Submit electronic submissions via the Federal Rulemaking
Portal at www.regulations.gov (indicate IRS and REG-117062-18) by
following the online instructions for submitting comments. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comment received to its public
docket, whether submitted electronically or in hard copy. Send hard
copy submissions to: CC:PA:LPD:PR (REG-117062-18), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC
20044. Submissions may be hand-delivered Monday through Friday between
the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-117062-18),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Cynthia Morton, (202) 317-5279; concerning submissions and the hearing,
Regina Johnson, (202) 317-6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
1. Overview
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under sections 641 and 1361 of the Internal
Revenue Code (Code).
Section 13541(a) of ``An Act to provide for reconciliation pursuant
to titles II and V of the concurrent resolution on the budget for
fiscal year 2018,'' Public Law 115-97,131 Stat. 2054, 2154 (TCJA)
amended section 1361(c)(2)(B)(v) of the Code to allow NRAs to be PCBs
of ESBTs. As amended, section 1361(c)(2)(B)(v) provides that NRA PCBs
will not be taken into account for purposes of the S corporation
shareholder-eligibility requirement that otherwise prohibits NRA
shareholders. See section 1361(b)(1)(C).
A. S Corporations and NRAs
An S corporation is a ``small business corporation'' for which an
election, made under section 1362(a), is in effect. Section 1361(b)(1)
defines the term ``small business corporation'' as a domestic
corporation that (i) is not an ineligible corporation (as defined in
section 1361(b)(2)); (ii) does not have more than 100 shareholders;
(iii) does not have a shareholder who is not an individual, estate, a
certain type of trust, or a certain type of tax-exempt organization;
(iv) does not have more than one class of stock; and (v) as relevant to
these proposed regulations, does not have an NRA as a shareholder.
Section 7701(b)(1)(B) defines an NRA as an individual who is
neither a citizen of the United States nor a resident of the United
States, within the meaning of section 7701(b)(1)(A). Section
7701(b)(1)(A) provides that an alien individual is treated as a
resident of the United States with respect to any calendar year if (and
only if) such individual (i) is a lawful permanent resident of the
United States at any time during such calendar year; (ii) meets the
substantial presence test of section 7701(b)(3); or (iii) makes the
first-year election provided in section 7701(b)(4).
B. Categories of Trusts Permitted To Be S Corporation Shareholders
Only certain trusts are permitted to be an S corporation
shareholder. Specifically, sections 1361(c)(2) and (d)(1)(A) provide
that the following trusts may be an S corporation shareholder: (i) A
grantor trust wholly owned by an individual who is a citizen or
resident of the United States; (ii) a voting trust; (iii) certain
grantor trusts that continue to exist for a period generally not longer
than two years after the grantor's death; (iv) certain testamentary
trusts for two years after the S corporation stock is transferred to
it; (v) a qualified subchapter S trust; (vi) certain individual
retirement accounts under section 408(a) that hold certain bank or
company stock; and (vii) as relevant to these proposed regulations, a
domestic trust that qualifies as an ESBT.
C. Overview of ESBTs
To expand the categories of trusts permitted to be S corporation
shareholders under section 1361(c)(2) and thereby, in particular, to
facilitate family financial planning, Congress added ESBTs to the list
of permitted categories of S corporation shareholders over two decades
ago. See H. Rept. 104-586, at 82 (1996); S. Rept. 104-281, at 46
(1996). An ESBT must be a domestic trust based on the flush language
under section 1361(c)(2)(A), which provides that a foreign trust cannot
be an eligible S corporation shareholder. Read together with section
1361(e)(1), an ESBT is any domestic trust that satisfies the following
requirements: (i) The trust does not have as a beneficiary any person
other than an individual, an estate, or an organization described in
section 170(c)(2) through (5), or an organization described in section
170(c)(1) that holds a contingent interest in such trust and is not a
PCB; (ii) no interest in the trust was acquired by purchase; and (iii)
an election has been made under section 1361(e) with respect to the
trust. An ESBT may hold S corporation stock as well as other property,
and may accumulate trust income. In addition, and as relevant to these
proposed regulations, (i) a PCB may be one of multiple beneficiaries of
an ESBT, and (ii) a grantor trust may elect to be an ESBT.
[[Page 16416]]
i. PCB as an ESBT Beneficiary
For purposes of determining whether a corporation is an S
corporation, each PCB of an ESBT is treated as a separate S corporation
shareholder. See section 1361(c)(2)(B)(v). A PCB, with respect to any
period, is any person who at any time during such period is entitled
to, or at the discretion of any person may receive, a distribution from
the principal or income of the ESBT (determined without regard to any
power of appointment to the extent such power remains unexercised). See
section 1361(e)(2). As relevant to these proposed regulations, a PCB
also can be the deemed owner of a grantor trust that elects to be an
ESBT.
ii. ESBTs Divided Into Portions for Tax Liability Determinations
An ESBT that owns stock of an S corporation, as well as other
property, is treated as two separate trusts (S portion and non-S
portion, respectively) for purposes of chapter 1 of subtitle A of the
Code (chapter 1), even though the ESBT is treated as a single trust for
administrative purposes. See Sec. 1.641(c)-1(a). Specifically, section
641(c)(1)(A) provides that the S portion, which consists solely of S
corporation stock, is (i) treated as a separate trust for purposes of
chapter 1, and (ii) taxed in accordance with section 641(c)(2). The
non-S portion of the ESBT remains subject to the normal trust income
taxation rules of subparts A through D of subchapter J of chapter 1
(subchapter J) that govern simple and complex trusts. In addition, the
S portion or non-S portion (or both) can be treated as owned by a
grantor under Sec. 1.641(c)-1(b)(1), referred to as the ``grantor
portion,'' and is subject to the rules under subpart E of subchapter J.
iii. Effect of ESBT Election by a Grantor Trust
A grantor trust generally is a trust over which the grantor or
other deemed owner retains the power to control or direct the trust's
income or assets. If a trust is a grantor trust, then (i) the deemed
owner is treated as the owner of the assets, (ii) the trust is
disregarded as a separate entity for Federal income tax purposes, and
(iii) all items of income, deduction, and credit are taxed to the
deemed owner. Wholly or partially-owned grantor trusts can make an ESBT
election but the grantor trust taxation rules of the Code override the
ESBT provisions. Therefore, an ESBT pays tax directly at the trust
level on its S corporation income and that income is not passed through
to the beneficiaries, except for the amount that is taxed to the owner
of the grantor trust portion.
The Department of the Treasury (Treasury Department) and the IRS
promulgated regulations in 2002 to clarify that the items of income,
deduction, and credit of the portion of an ESBT treated as owned by a
grantor or other person under the grantor trust rules are taken into
account by the deemed owner (rather than the ESBT) under section 671 in
computing the deemed owner's taxable income. See Sec. 1.641(c)-1(c).
Therefore, under those regulations, a wholly-owned grantor trust can be
an ESBT, but with no immediate change to the grantor trust's taxation.
While an ESBT may be divided into a non-S portion, an S portion, and a
grantor trust portion, the statutory definitions of an ESBT and of a
PCB focus on all the persons who are beneficiaries or PCBs of the
entire trust, rather than beneficiaries of only the S portion. As
relevant to these proposed regulations, the deemed owner of the grantor
trust portion is treated as a PCB of the ESBT.
2. TCJA Expansion of Qualifying Beneficiaries of ESBTs
A. Prior Law and TCJA Change
Prior to the enactment of the TCJA, a change in the immigration
status of a PCB of an ESBT that owns S corporation stock from resident
alien to NRA would have terminated an ESBT election, and therefore also
terminated the corporation's election as an S corporation. This result
would have occurred because, prior to the TCJA-enacted exception to the
section 1361(b)(1)(C) eligible-shareholder requirement, section
1361(c)(2)(B)(v) provided, in relevant part, that each PCB of an ESBT
must be treated as a shareholder of the S corporation. As discussed in
part 1(A) of this Background section, if a purported S corporation has
an NRA shareholder, such S corporation would fail the qualification
requirements listed in section 1361(b)(1), resulting in the termination
of its status as an S corporation.
Section 13541(a) of the TCJA amended section 1361(c)(2)(B)(v) to
provide that the rule treating each PCB of an ESBT as a shareholder
does not apply for purposes of the eligible-shareholder requirement of
section 1361(b)(1)(C). As a result of that TCJA amendment, if a
resident alien PCB of an ESBT becomes an NRA, the status of that PCB as
an NRA will not cause the S corporation of which the ESBT is a
shareholder to fail the requirement in section 1361(b)(1)(C), which
otherwise would terminate its S election. While Congress amended
section 1361(c)(2)(B)(v) to expand the scope of qualifying
beneficiaries of ESBTs, Congress left unaltered the rule under section
1361(b)(1)(C) that an S corporation cannot have an NRA as a
shareholder.
B. TCJA Expansion
Prior to the TCJA, only individuals subject to Federal income
taxation could receive an ESBT's share of S corporation income because
a grantor trust that elected ESBT status could not have had a deemed
owner who was an NRA. Without these proposed regulations, the TCJA's
expansion of an ESBT's permissible PCBs to include an NRA would allow S
corporation income attributed to the grantor portion of an ESBT that is
received by a NRA deemed owner of that portion, to escape Federal
income taxation, contrary to Congressional intent. For example, if an
NRA were to be a deemed owner of a grantor trust that elected to be an
ESBT, and thus were to be allocated foreign source income of the S
corporation or income not effectively connected with the conduct of a
U.S. trade or business under section 864(c)(4)(B), that NRA would not
be required to include such S corporation items in income under section
671 because the NRA would not be liable for Federal income tax on such
income under section 871(a) or (b). Additionally, if that NRA is a
resident of a country with which the United States has an income tax
treaty, U.S. source income of the S corporation also might be exempt
from tax or subject to a lower rate of Federal income tax in the hands
of that NRA.
Under section 672(f)(2)(A)(ii), trust income, deductions, and
credits are taxed to NRA grantors if the only amounts distributable
from such portion (whether income or corpus) during the lifetime of the
grantor are amounts distributable to the grantor or the spouse of the
grantor. Such a trust would not be a foreign trust solely because the
grantor retained this right, provided that (1) a U.S. court had primary
jurisdiction over the trust, as required by section 7701(a)(30)(E)(i),
and (2) U.S. persons controlled substantial trust decisions, as
required by section 7701(a)(30)(E)(ii). Accordingly, a domestic trust
described in section 672(f)(2)(A)(ii) that elects ESBT status would be
a grantor trust, and the income from the trust would be taxed to the
NRA grantor-owner(s) (that is, the grantor and the grantor's spouse)
during the grantor's lifetime. These NRA deemed owners would not be
subject to U.S. Federal income tax on the S corporation income unless
this income
[[Page 16417]]
was U.S. source fixed or determinable income or income effectively
connected with a U.S. trade or business.
C. Income From S Portion of ESBT Should Not Escape U.S. Federal Income
Taxation
In discussing the amendment to section 1361(c)(2)(B)(v) allowing an
NRA to be a PCB of an ESBT, the Conference Report made the following
two observations regarding present S corporation law: First, the
portion of an ESBT that consists of S corporation stock ``is treated as
a separate trust'' and generally (that is, not taking into account
capital gains) is ``taxed on its share of the S corporation's income at
the highest rate of tax imposed on individual taxpayers.'' H. Rept.
115-466, at 517 (2017). See also Sec. 1.641(c)-1(e)(1) (articulating
the capital gains exception regarding Congress' use of the word
``generally''). Second, Congress noted that an ``[ESBT's share of S
corporation] income (whether or not distributed by the ESBT) is not
taxed to the beneficiaries of the ESBT.'' Id. These observations
reflect the general rule of ESBT taxation that (i) subjects the ESBT to
tax on its S corporation income at the trust level, rather than the
beneficiary level, and accordingly (ii) is indifferent to the
citizenship or residence status of the ESBT's beneficiaries because the
ESBT must be domestic. The observations do not take into account the
interaction between the ESBT and grantor trust tax regimes, which
allows a trust to be an ESBT for S corporation qualification purposes
while permitting all or a portion of the trust subject to the grantor
trust provisions to be taxed as a grantor trust, rather than as an
ESBT. As described earlier, Sec. 1.641(c)-1(c) provides that the
taxable income of a grantor trust that elects to be an ESBT is treated
as the taxable income of the deemed owner of the trust (including a
deemed owner who is an NRA), regardless of whether the ESBT distributes
the income.
The report accompanying the Senate bill (Senate Report) similarly
indicates that Congress assumed that the taxation of income at the ESBT
level would protect against potential tax avoidance that might
otherwise result from permitting an NRA to be a PCB of an ESBT: ``An
ESBT that is an S corporation shareholder is taxed on its share of the
S corporation's income at the highest rate of tax imposed on individual
taxpayers. For that reason, the Committee believes that allowing a
nonresident alien individual to be a potential current beneficiary of
an ESBT presents little risk of tax avoidance.'' S. Comm. on the
Budget, Reconciliation Recommendations Pursuant to H. Con. Res. 71, S.
Print No. 115-20, at 235-236 (2017).
Based on this legislative history of section 1361(c)(2)(B)(v), the
Treasury Department and the IRS have determined that the expansion of
that clause to allow an NRA to be an ESBT PCB was not intended to
override longstanding statutory provisions that have operated to ensure
that all of the S corporation income remains subject to Federal income
tax. In the absence of regulations, the post-TCJA ability of an NRA to
be a PCB of an ESBT, in combination with the potential for a grantor
trust portion of an ESBT to be owned by an NRA under section
672(f)(2)(A)(1)(ii), could result in S corporation income passing
without tax from the domestic ESBT to the NRA and escaping Federal
income taxation.
Explanation of Provisions
These proposed regulations would ensure that, with respect to
situations in which an NRA is a deemed owner of a grantor trust that
has elected to be an ESBT, the S corporation income of the ESBT would
continue to be subject to U.S. Federal income tax. Specifically, the
proposed regulations would modify the allocation rules under Sec.
1.641(c)-1 to require that the S corporation income of the ESBT be
included in the S portion of the ESBT if that income otherwise would
have been allocated to an NRA deemed owner under the grantor trust
rules. Accordingly, such income would be taxed to the domestic ESBT by
providing that, if the deemed owner is an NRA, the grantor portion of
net income must be reallocated from the grantor portion of the ESBT to
the ESBT's S portion.
The proposed regulations also would implement Congress' amendment
to section 1361(c)(2)(B)(v) by making conforming revisions to Sec.
1.1361-1(m). For example, the proposed regulations would update the
description of PCBs in Sec. 1.1361-1(m)(4)(i) to reflect the ability
of NRAs to be PCBs of ESBTs. The proposed regulations similarly would
update other provisions in Sec. 1.1361-1(m) to reflect that ability.
Proposed Effective/Applicability Date
Section 7805(b)(1)(A) and (B) of the Code generally provide that no
temporary, proposed, or final regulation relating to the internal
revenue laws may apply to any taxable period ending before the earliest
of (A) the date on which such regulation is filed with the Federal
Register, or (B) in the case of a final regulation, the date on which a
proposed or temporary regulation to which the final regulation relates
was filed with the Federal Register. However, section 7805(b)(2)
provides that regulations filed or issued within 18 months of the date
of the enactment of the statutory provision to which they relate are
not prohibited from applying to taxable periods prior to those
described in section 7805(b)(1). Furthermore, section 7805(b)(3)
provides that the Secretary may provide that any regulation may take
effect or apply retroactively to prevent abuse.
Accordingly, to prevent abuse of sections 641 and 1361 and the
regulations thereunder, these proposed regulations are proposed to
apply to all ESBTs after December 31, 2017.
Special Analyses
This regulation is not subject to review under section 6(b) of
Executive Order 12866 pursuant to the Memorandum of Agreement (April
11, 2018) between the Department of the Treasury and the Office of
Management and Budget regarding review of tax regulations.
This notice of proposed rulemaking does not impose a collection of
information on any small entities. Accordingly, a regulatory
flexibility analysis under the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Notwithstanding this certification, the
Treasury Department and the IRS invite comments from interested members
of the public on both the number of entities affected and the economic
impact on small entities.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ADDRESSES heading.
All comments will be available at http://www.regulations.gov or
upon request. A public hearing may be scheduled if requested in writing
by any person that timely submits written comments. If a public hearing
is scheduled, notice of the date, time, and place for the public
hearing will be published in the Federal Register.
Drafting Information
The principal author of these proposed regulations is Cynthia
Morton of the Office of Associate Chief Counsel (Passthroughs and
Special Industries).
[[Page 16418]]
However, other personnel from the IRS and the Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.641(c)-1 is amended by:
0
1. Revising paragraphs (b)(1) and (2).
0
2. Adding a sentence to the end of paragraph (k).
0
3. In paragraph (l), designating Examples 1 through 5 as paragraphs
(l)(1) through (5).
0
4. In newly designated paragraph (l)(3)(i), removing the language
``Example 2'' and adding ``Example 2 in paragraph (l)(2) of this
section'' in its place.
0
5. Adding paragraph (l)(6).
The revisions and additions read as follows:
Sec. 1.641(c)-1 Electing small business trust.
* * * * *
(b) * * *
(1) Grantor portion--(i) In general. Subject to paragraph
(b)(1)(ii) of this section, the grantor portion of an ESBT is the
portion of the trust that is treated as owned by the grantor or another
person under subpart E of the Code.
(ii) Nonresident alien deemed owner. If, pursuant to section
672(f)(2)(A)(ii), the deemed owner of a grantor portion of the ESBT is
a nonresident alien, as defined in section 7701(b)(1)(B) (NRA), the
items of income, deduction, and credit from that grantor portion must
be reallocated from the grantor portion to the S portion, as defined in
paragraph (b)(2) of this section, of the ESBT.
(2) S portion--(i) In general. Subject to paragraph (b)(2)(ii) of
this section, the S portion of an ESBT is the portion of the trust that
consists of S corporation stock and that is not treated as owned by the
grantor or another person under subpart E of the Code.
(ii) NRA deemed owner of grantor portion. The S portion of an ESBT
also includes the grantor portion of the items of income, deduction,
and credit reallocated under paragraph (b)(1)(ii) of this section from
the grantor portion of the ESBT to the S portion of the ESBT.
* * * * *
(k) * * * Paragraphs (b)(1) and (2) of this section, and Example 6
in paragraph (l)(6) of this section, apply to all ESBTs after December
31, 2017.
(l) * * *
(6) Example 6: NRA as potential current beneficiary. Domestic
Trust (DT) has a valid ESBT election in effect. DT owns S
corporation stock. The S corporation owns U.S. and foreign assets.
The foreign assets produce foreign source income. B, an NRA, is the
grantor and the only trust beneficiary and potential current
beneficiary of DT. B is not a resident of a country with which the
United States has an income tax treaty. Under section 677(a), B is
treated as the owner of DT because, under the trust documents,
income and corpus may be distributed only to B during B's lifetime.
Paragraph (b)(2)(ii) of this section requires that the S corporation
income of the ESBT that otherwise would have been allocated to B
under the grantor trust rules must be reallocated from B's grantor
portion to the S portion of DT. In this example, the S portion of DT
is treated as including the grantor portion of the ESBT, and thus
all of DT's income from the S corporation is taxable to DT.
0
Par. 3. Section 1.1361-1 is amended by:
0
1. Revising paragraph (m)(1)(ii)(D).
0
2. Revising paragraph (m)(2)(ii)(E)(2).
0
3. Adding two sentences to the end of paragraph (m)(4)(i).
0
4. Revising the second sentence of paragraph (m)(5)(iii).
0
5. In paragraph (m)(8), designating Examples 1 through 9 as paragraphs
(m)(8)(i) through (ix).
0
6. Redesignating paragraphs (m)(8)(i)(i) through (iii) as paragraphs
(m)(8)(i)(A) through (C).
0
7. Redesignating paragraphs (m)(8)(ii)(i) and (ii) as paragraphs
(m)(8)(ii)(A) and (B) and revising the second sentence of newly
redesignated paragraph (m)(8)(ii)(A).
0
8. In newly redesignated paragraph (m)(8)(ii)(B), removing the language
``Example 2(i)'' and adding ``Example 2 in paragraph (m)(8)(ii)(A) of
this section'' in its place.
0
9. Redesignating paragraphs (m)(8)(vi)(i) through (iii) as paragraphs
(m)(8)(vi)(A) through (C) and revising the first sentence of newly
redesignated paragraph (m)(8)(vi)(B).
0
10. In newly redesignated paragraph (m)(8)(vi)(C), removing the
language ``paragraph (i) of this Example 6'' and adding ``Example 6 in
paragraph (m)(8)(vi)(A) of this section'' in its place.
0
11. In paragraph (m)(9):
0
i. Removing the language ``Paragraphs (m)(2)(ii)(A), (m)(4)(iii) and
(vi), and (m)(8), Example 2, Example 5, Example 7, Example 8, and
Example 9'' and adding ``Paragraphs (m)(2)(ii)(A) and (m)(4)(iii) and
(vi) of this section and Examples 2, 5, and 7 through 9 in paragraphs
(m)(8)(ii), (v), and (vii) through (ix)'' in its place.
0
ii. Adding a sentence at the end of the paragraph.
The revisions and additions read as follows:
Sec. 1.1361-1 S corporation defined.
* * * * *
(m) * * *
(1) * * *
(ii) * * *
(D) Nonresident aliens. A nonresident alien (NRA), as defined in
section 7701(b)(1)(B), is an eligible beneficiary of an ESBT and an
eligible potential current beneficiary.
* * * * *
(2) * * *
(ii) * * *
(E) * * *
(2) All potential current beneficiaries of the trust meet the
shareholder requirements of section 1361(b)(1); for this purpose, an
NRA potential current beneficiary does not violate the requirement
under section 1361(b)(1)(C) that an S corporation cannot have an NRA as
a shareholder.
* * * * *
(4) * * *
(i) * * * An NRA potential current beneficiary of an ESBT is
treated as a shareholder for purposes of the 100-shareholder limit
under section 1361(b)(1)(A). However, an NRA potential current
beneficiary of an ESBT is not treated as a shareholder in determining
whether a corporation is a small business corporation for purposes of
the NRA-shareholder prohibition under section 1361(b)(1)(C).
* * * * *
(5) * * *
(iii) * * * For example, the S corporation election will terminate
if a charitable remainder trust becomes a potential current beneficiary
of an ESBT. * * *
* * * * *
(8) * * *
(ii) * * *
(A) * * * On January 1, 2006, A, a partnership, becomes a potential
current beneficiary of Trust. * * *
* * * * *
(vi) * * *
(B) * * * Assume the same facts as Example 6 in paragraph
(m)(8)(vi)(A) of this section except that D is a charitable remainder
trust. * * *
* * * * *
(9) * * * Paragraphs (m)(1)(ii)(D), (m)(2)(ii)(E)(2), (m)(4)(i),
(m)(5)(iii), and
[[Page 16419]]
(m)(8) of this section apply to all ESBTs after December 31, 2017.
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-07919 Filed 4-17-19; 4:15 pm]
BILLING CODE 4830-01-P