What is a QSST trust?

What is a QSST trust?

A Qualified Subchapter S Trust, commonly referred to as a QSST Election, or a Q-Sub election, is a Qualified Subchapter S Subsidiary Election made on behalf of a trust that retains ownership as the shareholder of an S corporation, a corporation in the United States which votes to be taxed.

What is an ESBT trust?

An electing small business trust (ESBT) within the meaning of section 1361(e) is treated as two separate trusts for purposes of chapter 1 of the Internal Revenue Code. The portion of an ESBT that consists of stock in one or more S corporations is treated as one trust.

Can you convert an ESBT to a QSST?

A trust is eligible to convert from an ESBT to a QSST if it meets the following requirements: (1) The trust meets all of the requirements to be a QSST under § 1361(d).

What is the purpose of an ESBT?

Sec. 1.641(c)-1, an ESBT is treated as two separate trusts for purposes of determining its tax liability. Those two separate trusts are referred to as the S portion and the non-S portion. The ESBT’s S portion consists of S corporation stock and is not treated as owned by the grantor or any other person.

How do you qualify for QSST trust?

1361(d)(3), for a trust to qualify as a QSST, its terms must require that during the life of the current income beneficiary, the trust will have only one income beneficiary; and all of the trust’s accounting income must either be required by the terms of the trust instrument to be distributed, or actually be …

Can a QSST be an irrevocable trust?

The two-year limitation for S corporations to have as a shareholder either a testamentary trust or living trust that becomes irrevocable can be avoided by electing to convert the trust to a Qualified Subchapter S Trust, commonly referred to as a QSST.

Can any trust be an ESBT?

A grantor trust is eligible to make an ESBT election. If an ESBT is determined to be a grantor trust (in whole or in part), the income of the S Corporation is taxed at the individual grantor level instead of at the trust level. This could be problematic if an ESBT is a grantor trust with respect to a nonresident alien.

How is an ESBT trust taxed?

Therefore, an ESBT pays tax directly at the trust level on its S corporation income, and that income isn’t passed through to the beneficiaries except for the amount taxed to the owner of the grantor trust portion. The deemed owner of the grantor trust portion is treated as a PCB of the ESBT.

Does a QSST file a 1041?

For a QSST, a Form 1041 must be filed each year. Also, regardless of the reporting method used (i.e., a Form 1041 or one of the alternative methods), the grantor tax information letter must be sent to each deemed owner.

How are QSST trusts taxed?

Although the S corporation income of a QSST is taxed to the individual income beneficiary, capital gain on the sale of the S corporation stock is taxed at the trust level. If the QSST’s AGI exceeds the threshold amount, the QSST would owe the net investment income tax on the capital gain.

Does a QSST pay tax?

Does a QSST trust file a tax return?

Net investment income tax of a QSST 1411(a)(2)). The tax also applies to QSSTs to the extent the net investment income is retained in the trust. Although the S corporation income of a QSST is taxed to the individual income beneficiary, capital gain on the sale of the S corporation stock is taxed at the trust level.

Is a QSST a grantor type trust?

The Internal Revenue Code specifies broad categories of trusts that qualify as S shareholders. One of these, the qualified Subchapter S trust (QSST), is modeled after the grantor trust. It is eligible to hold stock in an S corporation, and, under the S corporation rules, it is treated as a Subpart E trust (Sec.

How does a trust elect to be an ESBT?

To qualify as an ESBT, a trust must meet only three requirements: All of the trust’s beneficiaries must be individuals or estates eligible to be S shareholders. Note that, for 1997, certain charitable organizations may hold only contingent remainder interests and cannot be beneficiaries.

How do you qualify for ESBT?

To qualify as an ESBT, a trust must meet only three requirements:

1. All of the trust’s beneficiaries must be individuals or estates eligible to be S shareholders.
2. No interest in the trust may be acquired by purchase; these interests must be acquired by gift, bequest, etc.
3. The Trust must elect to be an ESBT.

How do I report QSST on 1041?

enter the QSST portion of income and deductions….Go to the Beneficiaries > Beneficiary Information worksheet.

1. Click Detail.
2. In Line 32 – Beneficiary Type, use the lookup value (double-click or press F4) to select P.
3. In Line 33 – Partial grantor distribution percentage, enter the applicable percent.

What is ESBT tax?

The IRS has issued proposed regs that would ensure that the income of an S corporation will continue to be subject to U.S. income tax even when a nonresident alien (NRA) is a deemed owner of a grantor trust that elects to be an electing small business trust (ESBT).

Is an ESBT a grantor trust?

Is a QSST a grantor trust?

QUALIFIED SUBCHAPTER S TRUSTS The main benefit of a QSST is that it is treated as a grantor trust and therefore considered an eligible S corporation shareholder.

How are QSST taxed?