Tusts in Estate Planning-Sub S Corporations

USE OF TRUSTS IN ESTATE PLANNING

PLANNING WITH A SUBCHAPTER S CORPORATION

BY

MICHAEL J. LOMBARDO, ESQ.

I. INTRODUCTION

A small business often times is operated as a corporation the shares of which are owned by one or a few individuals. In addition, a tax election made under the Internal Revenue Code ("Code")^¹ may have been made to treat the business more like a partnership than a corporation. A corporation affected by such an election will be referred to as an "S Corporation".

An owner of shares of a small business corporation may consider the use of a trust to pass those shares to the owner's intended beneficiaries as part of an estate plan. However, if the corporation is an S Corporation, a trust may be restricted or prohibited from becoming a shareholder if the small business corporation is to maintain its status as an S Corporation. In order for a trust to be the owner of shares of an S Corporation, certain requirements must be satisfied, the failure of which will result in the corporation losing its treatment as an S Corporation.

II. BACKGROUND ON S CORPORATIONS

A. Generally.

An S Corporation is first and foremost a corporation that is organized under state law.^² However, when reference is made to an "S Corporation", it is a reference to a corporation that has made an election, by unanimous shareholder consent, to be treated as a small business corporation under Subchapter S of the Code.³ The election, and shareholder consent, is made under §1362(a). When an election is made, the S Corporation is generally not taxed on its income at the corporate level but rather, for tax purposes, is treated more like a partnership.⁴

B. Advantages to Conducting Business As An S Corporation.

The main advantage to conducting business as an S Corporation is that there is only one layer of tax. If a corporation is not an S Corporation, it is referred to as a "C Corporation"⁵ and is taxed under Subchapter C of the Code.^⁶ If a corporation is a C Corporation, it is taxed at the corporate level on its net income and the shareholders of the corporation are generally taxed on the distributions of earnings and profits made by the corporation to its shareholders in the form of a dividend. If the corporation is an S Corporation that generates a profit, the corporation generally does not pay tax at the corporate level. Each shareholder will report an allocated amount of income or loss on the shareholder’s personal income tax return, whether or not the income is actually distributed to the shareholder (the rules are complex with respect to the extent losses can actually be taken by a shareholder against income received from other sources by the shareholder and is beyond the scope of this material).⁷

C. Requirements to Qualify As An S Corporation.

Not every corporation can qualify to become an S Corporation. In order for a corporation to qualify as an S Corporation, the corporation must satisfy certain requirements including that (a) the corporation must be a domestic corporation, (b) the corporation must have no more than 100 shareholders, (c) all of the shareholders must be individuals, estates or certain kinds of domestic trusts, (d) there must be only one class of stock^⁸ and (e) the corporation must a adopt a tax year ending December 31.^⁹

D. Subchapter S Election.

Treatment of a corporation as an S Corporation is not automatic. The corporation must make an election and all persons who are shareholders at the time the election is made must consent to the election.^¹⁰ An election (and shareholder consent) is made by filing an election (and consent) with the Internal Revenue Service^¹¹ and with the New York State Department of Taxation and Finance.^¹² The election is generally made no later than two months and 15 days after the beginning of the tax yeare the election is to take effect.^¹³ Once the election is made, a change in shareholders does not require any new shareholders to make another election or to consent to the original election. The election will remain in effrect until there is an event that disqualifies the corporation from being an S Corporation which may include the shares of the corporation being acquired by a shareholder that is not a qualified doemestic trust.

III. A TRUST AS SHAREHOLDER OF AN S CORPORATION

A. Types of Trusts-Generally.

Although a trust may become an owner of shares, only certain types of trusts may qualify to be a shareholder of an S Corporation. There are two general classification of trusts. The first classification are those trusts that are created during the creator’s lifetime (called an “Intervivos Trust"). The second classification of trusts are those trusts that are created under a person's Last Will and Testament ("Will") after the Testator or Testatrix ("Decedent")^¹⁴ dies (called a "Testamentary Trust"). However, not all Intervivos Trusts or Testamentary Trusts can qualify to be the owner of shares of an S Corporation.

1. Intervivos Trusts.

An Intervivos Trust can either be revocable or irrevocable. A revocable trust is one that can be terminated or changed during the life of the person who created the trust (the creator of the trust is sometimes referred to as the "Grantor"). An irrevocable trust is one that, except for limited exceptions, cannot be terminated or changed once established by the Grantor.

There are several types of Intervivos Trusts which, if structured properly, could result in the Grantor retaining the income stream from an asset while keeping the asset out the Grantor’s estate.^¹⁵ In order to qualify as a shareholder, the Intervivos Trust must be created so that all of the income and all of the trust assets are treated as being owned for federal income tax purposes by one individual who is a citizen of the United States.^¹⁶ The individual, and not the trust, will be treated as the shareholder in order to determine whether the eligibility requirements have been satisfied.^¹⁷ Two of the more popular types of Intervivos Trusts are the Grantor Retained Annuity Trust ("GRAT") and Intentionally Defective Grantor Trust ("IDGT").

i. GRAT.

A GRAT is a popular estate planning tool. This type of irrevocable trust allows the Grantor to transfer assets to the GRAT, such as shares of an S Corporation, in exchange for an annuity to be paid by the GRAT to the Grantor for a number of years .¹⁸ At the end of the term, the assets are distributed to the remainder beneficiaries of the GRAT. The reason a GRAT is so popular is that if the present value of the annuity^¹⁹ is equal to the value of the assets transferred to the GRAT, and if the rate used in valuing the present value of the annuity is in excess of the minimum rate of interest established for this purpose ,^²⁰ there is no gift tax consequence .^²¹ If the Grantor dies before the end of the GRAT term, the value of the assets left in the GRAT necessary to fund the annuity will be included in the Grantor's estate. If the Grantor dies after the term of the GRAT, none of the assets are included in the Grantor's estate .²²

ii. IDGT.

An IDGT is another popular estate planning tool, although there is somewhat less tax certainty with this type of trust. Using an IDGT, the Grantor will sell assets to the IDGT, such as shares in an S Corporation, in exchange for an installment promissory note. It is important that the trust be drafted in such a manner so that the Grantor will be treated as the owner of the trust for income tax purposes but will not retain benefits or powers that will result in the trust being included in the Grantor's estate for estate tax purposes .^²³ If properly structured, upon the "sale" of the shares of the S Corporation by the Grantor to the trust, no income tax will be due on the transfer since the "sale" is ignored with the Grantor and the GRAT created by the Grantor being treated as one and the same for income tax purposes .^²⁴ However, if the Grantor dies before the note is paid, there is uncertainty as to whether there is any taxable gain to the Grantor to be recognized by the Grantor .²⁵

2. Testamentary Trust.

While an Intervivos Trust may have some advantages, the use of one requires a transfer of shares during one's lifetime. This is not always desirable and some planners prefer to transfer shares upon death.

When a person dies, the Will of the Decedent will govern the distribution of his or her assets .^²⁶ A common estate planning tool is to include a Testamentary Trust in a Will that provides for distributions of income received by the Testamentary Trust, and discretionary distributions of the assets of the Testamentary Trust (called “principal”), to be made to the surviving spouse as the income beneficiary, and upon the death of the surviving spouse, the remaining principal of the Testamentary Trust is to be paid to the children of the Decedent. In some situations, it is desirable to set up a Testamentary Trust so that the income or principal can be accumulated for future distribution or “sprinkled” among the surviving spouse and children.

Although an estate of a Decedent may qualify to be a shareholder of an S Corporation, the estate cannot remain open beyond a reasonable period of time without being considered terminated .^²⁷ The Internal Revenue Service is informed when an estate has been open for more than two years and an explanation needs to be provided as to the reason for keeping the estate open .²⁸ Reasons that may justify the estate being open for longer than two years may include the need to collect assets (e.g. complete litigation that may result in a recovery by the estate), pay taxes and make distributions to beneficiaries .^²⁹ If the estate remains open beyond a reasonable period of time and is considered terminated, the beneficiary intended to receive the shares of the S Corporation (which may be the Testamentary Trust) will be considered the owner of the shares .^³⁰ Therefore, the shares will eventually have to be distributed outright to the beneficiary of the estate or to the Testamentary Trust as provided under the Will.

A Testamentary Trust can be a shareholder in an S Corporation for up to two years before the corporation loses its status as an S Corporation .^³¹ If it is desirable to have the Testamentary Trust continue to be the owner of the shares of the S Corporation for more than two years, then it must meet certain qualifications if the corporation is not to lose its status as an S Corporation.

There are two types of Testamentary Trusts that will qualify as a permitted owner of S Corporation shares. The two types are a Qualified Subchapter S Trust ("QSST") and an Electing Small Business Trust ("ESBT").

B. QSST (Qualified Subchapter S Trust).

1. Requirements To Be Satisfied To Be Considered A QSST.

In order to qualify as a QSST, a trust must satisfy two general requirements. The first requirement is that the trust must provide that (1) during the lifetime of the current income beneficiary, there can be only one income beneficiary, (2) distributions of principal from the trust during the lifetime of the income beneficiary can be made only to the income beneficiary, (3) the interest of the income beneficiary in the trust must terminate on the earlier of the income beneficiary’s death or a termination of the trust, and (4) if the trust does terminate during the lifetime of the income beneficiary, the assets of the trust must be distributed to the income beneficiary .^³² The second general requirement to be satisfied is that all income received by the trust regardless of source must be distributed to the income beneficiary .^³³ Although it is possible to have multiple income beneficiaries and still qualify as a QSST, in order to maintain the qualification as a QSST each beneficiary of the trust must have a separate and independent share of the trust .^³⁴ A sprinkle trust of the kind mentioned earlier would not qualify as a QSST .^³⁵ Should the trust initially satisfy both requirements but later not meet the first requirement, then the corporation will lose its status as an S Corporation as of the date the trust fails to meet the first requirement .^³⁶ However, should the trust initially satisfy both requirements but later not meet the second requirement, then the corporation will lose its status as an S Corporation as of the first day of the first taxable year for the corporation that follows the date the second requirement is no longer satisfied .^³⁷

2. Election To Be Considered A QSST

A Testamentary Trust does not automatically become a QSST. In order to be considered a QSST, an election to be treated as a QSST must be made by the income beneficiary or the representative of the income beneficiary (not the trustee of the Testamentary Trust) with the Internal Revenue Service .^³⁸ If the election is not timely made, it is possible to file a late election, although there are time requirements that must be satisfied and the Testamentary Trust must otherwise qualify as a QSST .^³⁹ If the Testamentary Trust does not qualify as a QSST due to the failure to meet the requirements of §1361(d)(3)(A), then the defects in the trust may have to be corrected (usually with the approval of the Surrogate’s Court) and a request for a private letter ruling may have to be made to the Internal Revenue Service seeking permission for a retroactive election. The reason a request for a private letter ruling may be necessary is that although a reformation (or correction) of the provisions of the Will that create the Testamentary Trust will, under State law, have a retroactive effective to the date of the death of the Decedent, it does not have a retroactive effect for tax purposes .⁴⁰ Taking action to correct defects in a Testamentary Trust so that it qualifies as a QSST takes time and is expensive. Therefore, it is important to be sure that the Testamentary Trust is properly drafted if the desired result is that it qualify as a QSST.

3.Tax Reporting of Income From S Corporation By A QSST.

If a Testamentary Trust qualifies as a QSST, it is the income beneficiary who is treated as the owner of that portion of the Testamentary Trust that consists of shares in the S Corporation for federal income tax purposes .⁴¹ Therefore, the income from the S Corporation allocated to the interests of the Testamentary Trust will be reported by the income beneficiary on his or her personal income tax return.

4. Death of Income Beneficiary of QSST.

If the Testamentary Trust continues in existence and continues to be a shareholder in an S Corporation following the death of the income beneficiary it is possible that it will no longer qualify as a QSST the result of which may be a loss of the status of the corporation as an S Corporation. For example, if the Testamentary Trust provides for income to be distributed to a surviving spouse during the surviving spouse's lifetime, and upon the death of the surviving spouse the Testamentary Trust is to continue and provide for income to be distributed or accumulated in the discretion of the Trustee to any of the children of the Decedent (sometimes even with the right to exclude any child from such a distribution), the Testamentary Trust will no longer qualify as a QSST because all of the income no longer is to be distributed to one income beneficiary. If the Testamentary Trust no longer qualifies as a QSST due only to the failure to satisfy the requirement that all of the income be distributed to one income beneficiary, the QSST status of the Testamentary Trust will be lost as of the first day of the first taxable year immediately following the taxable year in which the qualification as a QSST is lost .^⁴² However, even if the qualification as a QSST is lost, the corporation may still be able to maintain its qualification as an S Corporation if the Testamentary Trust can qualify as an ESBT .^⁴³ If not, then the estate of the income beneficiary could be considered the shareholder for up to two years following the death of the income beneficiary without the corporation losing its status as an S Corporation with income and distributions being reported and received by the Testamentary Trust .^⁴⁴ If the non-qualifying Testamentary Trust remains a shareholder at the end of the two year period, then the S Corporation status will terminate.

If following the death of the income beneficiary the QSST has one or more successor income beneficiaries, no new election to be treated as a QSST is required, provided the successor income beneficiaries are individuals and further provided that each individual has a separate share under the Trust .^⁴⁵ However, any successor income beneficiary may terminate the QSST election within two (2) months and fifteen (15) days following the date he or she first became the successor income beneficiary .^⁴⁶ Also, if the successor in interest to the shares in the S Corporation is a new trust, then the income beneficiary of the new trust must make an election to have the new trust treated as a QSST .^⁴⁷

5. Disposition of S Corporation Shares.

If the shares of the S Corporation owned by a Testamentary Trust are sold before the income beneficiary dies, the QSST, and not the income beneficiary, is taxed on the gain or loss realized from the sale of the stock .^⁴⁸

C. ESBST (Electing Small Business Trust).

In developing an estate plan, it may be determined that the restrictions placed on a Testamentary Trust in order to qualify as a QSST do not meet the planner's needs. For example, it may be desirable to have multiple income beneficiaries and allow for a sprinkling of income rather than require that the income be distributed to just one income beneficiary (e.g. allow the Trustee to sprinkle the income among the surviving spouse and children of the Decedent), allow for the Trustee to accumulate income instead of distributing it, or allow for distributions of principal to someone other than the income beneficiary. If it is the planner's desire to have the Testamentary Trust administered in such a manner that precludes the Testamentary Trust from qualifying as a QSST, it is still possible for the Testamentary Trust to be an owner of shares of an S Corporation without jeopardizing the S Corporation status by qualifying as an ESBT.

1. Requirements To Be Satisfied To Be Considered An ESBT.

A trust is eligible to be an ESBT if all beneficiaries of the trust are individuals, estates or certain charitable organizations or a governmental entity that has a contingent interest and is not a potential current beneficiary .^⁴⁹ However, no interest in the trust may be acquired by purchase^⁵⁰ nor can the trust be a QSST .⁵¹ Purchasing an interest in the trust (e.g. the donee paying the gift tax on the beneficial interest in the trust gifted to the donee^⁵² ) is not the same as a trust purchasing shares of a corporation that otherwise qualifies as an S Corporation .^⁵³ If the Testamentary Trust provides for the payment of principal to another person or trust, then a careful examination must be conducted to make sure that the intended recipient qualifies as a shareholder in an S Corporation. For example, if payments of principal are permitted to be made to another trust (called a “distributee trust”), any person who has a beneficial interest in the distributee trust will be considered a beneficiary of the ESBT (unless the other trust qualifies as a certain charitable trust, then the trust will be considered the beneficiary) .^⁵⁴ In addition, the person or trust receiving principal from the Testamentary Trust that attempts to qualify as an ESBT (and trust beneficiaries of the that trust that has a beneficial interest in the Testamentary Trust) could be counted for purposes of determining whether the permitted number of shareholders in an S Corporation (presently 100) has been exceeded .⁵⁵ If these tests are not satisfied, then the corporation could lose its status as an S Corporation.

2. Election To Be Treated An ESBT.

In order for a Testamentary Trust to be treated as an ESBT, the Trustee of the Testamentary Trust, and not the current income beneficiary, must make an election .^⁵⁶ Once the election is made, the Testamentary Trust will be treated as an ESBT for income tax purposes effective the date of the ESBT election .^⁵⁷

3. Tax Reporting of Income from S Corporation Shares By An ESBT.

A major disadvantage of an ESBT is with respect to the tax reporting of income received from the S Corporation. An ESBT is taxed at the highest applicable rates .^⁵⁸ An ESBT will have two tax portions making up the trust-one relating to the shares of the S Corporation, called the S portion, and the other for all other assets of the trust .^⁵⁹ Administrative expenses of the Testamentary Trust must be allocated between the S portion and all other assets held by the Testamentary Trust on a reasonable basis in determining the net income derived from Subchapter S income .^⁶⁰ Although the Testamentary Trust is entitled to a deduction for income distributed to the current income beneficiary from the S portion, the amount of the deduction (and therefore the amount included in the income of the current income beneficiary) is limited to the distributable net income from the non S portion assets .^⁶¹ The effect of this is that the Testamentary Trust, and not the current income beneficiary, most likely will pay the tax on the S Corporation income. This is important because in many situations an individual is in a lower marginal tax bracket than a trust. If there is a loss that is passed through to the ESBT from the S Corporation, that loss cannot be used to offset other non Subchapter S income received by the Testamentary Trust .^⁶²

There is a trap with respect to charitable contributions. If the S Corporation makes a charitable contribution that is passed through to the shareholders, the Testamentary Trust can take the charitable contribution only if the terms of the Will that create the Testamentary Trust permit its Trustee to make charitable contributions .^⁶³ If the Testamentary Trust does not specifically provide that the Trustee may make charitable contributions, then the charitable deduction that flows through from the S Corporation will be treated as paid from the S portion of the Testamentary Trust potentially resulting in the loss of the charitable deduction.

4. Death of Income Beneficiary of ESBT.

If the income beneficiary of an ESBT dies and the testamentary Trust terminates, the shares of the S Corporation must be transferred immediately to a qualified S Corporation shareholder (there is no two year grace period as there is with a QSST) .^⁶⁴ If the stock is transferred to another trust that qualifies as either a QSST or ESBT, a proper election must be made by the current income beneficiary of the new trust (if the new trust is a QSST) or the trustee of the new trust (if the new trust is an ESBT) the failure of which will cause the corporation to lose its status as an S Corporation.

IV. CONCLUSION

While the use of a trust can be a useful estate planning tool that allows an interest in an S Corporation to appreciate in value while reducing estate taxes, care must be taken to be sure that the trust used is drafted properly so that the trust qualifies as a Grantor Trust, a QSST or an ESBT. If the shares in the S Corporation are transferred to a trust that does not meet the requirements of the Code, the corporation could lose its Subchapter S status resulting in negative tax consequences. Even if the trust does qualify to be an owner of shares in an S Corporation without causing the corporation to lose its Subchapter S status, care must be exercised to be sure that when the beneficiary of the trust dies, the shares are able to be transferred to a shareholder that meets the qualifications so that the corporation will not lose its status as an S Corporation upon the transfer.

The choice of trust will depend on the ultimate goals of the planner. However, it is wise for shareholders of an S Corporation to enter into an agreement that prohibits any shareholder from taking any action, including action through the use of a trust as part of an estate plan, that might disqualify the corporation from maintaining its Subchapter S status.

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Footnotes

1 Unless otherwise stated, all references to the "Internal Revenue Code" or "Code" shall mean the Internal Revenue Code of 1986, as amended, all section references shall be to the sections of the Internal Revenue Code except section references preceded by "Reg." shall refer to the sections of the Regulations of the Internal Revenue Service. Reference to "Rev. Proc." shall mean Revenue Procedure as promulgated by the Internal Revenue Service.

2. §1361(b)(1) uses the term "domestic" when referring to a corporation and §7701(a)(4) defines "domestic" corporation as a corporation organized in the United States or under the laws of the United States or of any State. In addition, reference to a "domestic corporation" could include an unincorporated association that is taxed as a corporation (See Reg. §1.1361-1(c)).

3. §§1361-1379.

4. §1363(a).

5.§1361(a)(2).

6. §§301-385.

7. See §§1366-1368.

.8. For requirements (a) through (d), see §1361(b).

9.§1378 and §444 for the general rule and limited exceptions.

10 §1362(a)(2).

11. Form 2553

12. Form CT-6.

13. §1362(b)(1).

14. A man who makes a Will is referred to as a Testator and a woman who makes a Will is referred to as a "Testatrix". The term "Decedent" refers to the deceased Testator or Testatrix.

15. See generally §671-679.

16. See §1361(c)(2)(A)(i).

17. See §1361(c)(2)(B)(i).

18. To minimize the potential for inclusion of any of the assets in the estate of the Grantor, it is necessary to choose a term taking into account the age and health of the Grantor.

. 19. Present value must be based on actuarial tables.

20. The rate of interest to calculate the present value of the annuity will need to exceed the rate established for this purpose under §7520.

21 . §2702.

22. §2306.

23. In Rev. Rul. 2008-22 the grantor established an irrevocable trust naming a person other than the grantor as trustee. However, the grantor, as a non-fiduciary, retained the right, without the consent of any other person, to acquire trust property by substituting other property of equivalent value, subject only to the trustee having a fiduciary obligation to be sure the properties exchanged were in fact of equivalent value. Under these circumstances, the trust was not included in the grantor's estate for estate tax purposes.

24. Rev. Rul. 85-13, 1985-1 CB 184.

25. There are differing opinions by commentators as to the tax consequences upon the grantor's death. While there may be an income tax consequence should a GRAT be terminated during the life of the grantor (See e.g. Reg. §1.001-2(c), Ex. 5), it appears that the rulings and cases involve only situations where there is termination of the GRAT during the lifetime of the grantor.

26. For purposes of this discussion, it is assumed that the deceased person made a valid, enforceable Will.

27. Reg. §1.641(b)-3(a).

28. See Question 8 under "Other Information" on page 2 of IRS Form 1041.

29. Reg. §1.641(b)-3(a).

.30. See Old Virginia Brick Co. v. Commissioner, 367 F.2d. 276 (4th Circuit, 1966).

31. See §1361(c)(2)(A)(ii).

32. See §1361(d)(3)(A).

.33. See §1361(d)(3)(B). Although not recommended, if the trust instrument provides for accumulation of income, the trust may still satisfy this requirement if in fact all of the income is actually distributed (See Rev. Rul. 92-20, 1992-1 C.B. 301-permitting the trust to qualify as an owner where the trust instrument provided that income can be accumulated during periods in which the trust did not own any shares of an S Corporation). Also, income cannot be distributed to a trust for the benefit of the income beneficiary except the Internal Revenue Service in PLR 9443036 permitted distributions to a special needs trust for an incapacitated person. It is important that the trust instrument not contain any language that would permit discretionary payments of principal to anyone other than the current income beneficiary (See Reg. §1.1361-1(j)(1)(ii)(B)).

34. See §1361(d)(3).

.35. See §1361(d)(3).

.36. See §1361(d)(4)(A). This is based on an assumption that the two year time period within which a non-qualifying trust may own the shares without terminating the corporation's status as an S Corporation under §1361(c)(2) has not expired.

37. See §1361(d)(4)(B) and Reg. § 1.1361-1(h)(iv)(A).

38. See §1361(d)(2).

39. Rev. Proc. 2003-43 as supplemented by Rev. Proc. 2007-62.

40. See Rev. Rul.93-79, 1993-2 C.B. 269.

41. §1361(d)(1)(B).

42. §1361(d)(4)(B).

43. See SectionElecting Small Business Trusts .

44. Reg. § 1.1361-1(j)(7)(ii). The estate of the deceased income beneficiary will be treated as the shareholder for the purpose of satisfying the requirements of §1361 as to permitted shareholders, but income and distributions from the S Corporation will be reported to and received by the Testamentary Trust.

45. Reg. § 1.1361-1(j)(9)(i).

46. Reg. 1.1361-1(j)(10).

47. Reg. § 1.1361-1(j)(9)(i) and (ii), example 2. Example 2 provides an illustration of how this works. [Shares of stock in Corporation X, an S corporation, are held by Trust A, a QSST for which a QSST election was made. B is the sole income beneficiary of Trust A.] On B’s death, under the terms of Trust A and local law, Trust A terminates and the principal is to be divided equally and held in newly created Trust B and Trust C. The sole income beneficiaries of Trust B and Trust C are J and K, respectively. Because Trust A terminated, J and K are not successive income beneficiaries of Trust A. J and K must make QSST elections for their respective trusts to qualify as QSSTs, if they qualify. The result is the same whether or not the trustee of Trusts B and C is the same as the trustee of trust A.

48. Reg. § 1.1361-1(j)(8).

49. §1361(e)(1)(A)(i) and, by reference, §170(c).

50 . §1361(e)(1)(A)(ii).

51.§ 1361(e)(1)(B)(i).

52. Reg. § 1.1361-1(m)(1)(iii).

53. Reg. § 1.1361-1(m)(1)(iii).

54. Reg. § 1.1361-1(m)(1)(ii)(B).

55. Reg. § 1.1361-1(m)(4)(vii).

56. Reg. §1.1361-1(m)(2)(i).

57. Reg. §1.1361-1(m)(3)(i).

58. §641(c)(1) and (2).

59. §641(c)(1)(A) and Reg. §1.641(c)-1(a).

60. Reg. §1.641(c)-1(h).

61. Reg. §1.641(c)-1(i).

62. Reg. §1.641(c)-1(i).

63. Reg. §1.641(c)-1(d)(2)(ii).

64. Reg. §1.1361-1(m)(5)(i) and (iii).

CAUTION: THIS ARTICLE IS INTENDED TO PRESENT GENERAL INFORMATION AND IS NOT INTENDED TO BE A SUBSTITUTE FOR CONSULTATION WITH LEGAL COUNSEL.

IRS CIRCULAR 230 Disclosure: To ensure compliance with requirements imposed by the IRS, please be aware that any U.S. federal tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used and cannot be used for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or (ii) promoting, marketing or recommending to any other person any transaction or matter addressed herein.

Last Update: September 17, 2013