CCA 200910040: A QSST's incorrect tax reporting did not terminate its elections

Plain-English summary

A qualified Subchapter S trust reported the S corporation items from its Schedule K-1 on the trust's returns and paid the resulting tax. Section 1361(d)(1)(B) instead required the beneficiary to report those items and pay the tax on individual returns. That incorrect return filing and tax payment was not a termination event described in sections 1361(d)(4) or 1362(d)(2). Chief Counsel therefore advised that the error alone did not terminate either the QSST election or the corporation's S election.

Ruling snapshot

• Question: Did incorrect reporting and payment by the QSST terminate the QSST or S corporation election?
• Outcome: Advice given: no, the filing and payment error alone was not a statutory termination event.
• Key authorities: IRC §§ 1361(d) and 1362(d)(2).

Full text (IRS public release)

ID: CCA_2009010912000657 Number: 200910040
Release Date: 3/6/2009
Office: ----------------
UILC: 1361.00-00, 1362.00-00

From: -----------------
Sent: Friday, January 09, 2009 12:00:08 PM
To: ----------------------
Cc:
Subject: Response to your QSST question

----------

This responds to your question regarding whether incorrect reporting and payment of taxes by a qualified Subchapter S trust (QSST) described in § 1361(d) terminated either the QSST election under § 1361(d)(4) or the S election under § 1362(d)(2). According to the facts provided, the QSST reported on its income tax returns the items on the Schedule K-1 it received from the S corporation in which it held stock and paid the resulting taxes, rather than the beneficiary reporting the items on his individual income tax returns and paying the taxes consistent with § 1361(d)(1)(B). The filing of an improper tax return and payment of taxes by a QSST rather than the beneficiary are not circumstances described in §§ 1361(d)(4) and 1362(d)(2). Thus, the improper filing and payment by itself did not cause termination of the QSST or S elections.

Please call me if you have any questions. Thank you.

--------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------
-------------------------