A bit OT -QSST Election
Sorry if this is a bit off topic.
Client died owning S-Corp stock (his own publishing company). During Client’s lifetime, he transferred all the S-Corp stock to his revocable trust, which now is splitting into typical QTIP/Credit trust.
Client never made a timely QSST election. (He transferred all the stock on his own, without our knowledge).
His wife is the only beneficiary at this point and she is entitled to all the income from each trust and typical principal discretionary payments for needs exist.
Daughter, who is active in the business, has stock purchase agreement with Dad (Client/decedent) and will probably be purchasing the stock shares upon completion of appraisal work (2 months or so).
This is a taxable estate and will require the filing of a 706.
QUESTIONS:
1) Do we have an opportunity to file a QSST election now?
2) Does it even make sense to do so (file a QSST election) as daughter may purchase shares anyway?
3) What are the consequences (if any) to the client for transferring the stock to his trust without having filed a timely QSST election?
4) Can IRS take the position that client’s failure to file QSST election caused the S-Corp to have an ineligible shareholder for all these years, thus rendering the S-Corp status terminated?
If so, could Client’s trusts be on the hook for serious income taxes owed?
Thanks! I’ve never had to deal with a QSST issue before.
Regards,
Rob Gilbreath
Attorney and Counselor at Law
Permalink Submitted by Bruce Steiner on Tue, 2008-11-11 16:36
You’ve raised enough questions that I suggest consulting with tax/estates counsel who should be able to assist you on this matter.
While putting S stock into a revocable trust can sometimes cause some problems, during the client’s lifetime, if it was a revocable trust, he was treated as the owner, so no QSST election was needed. So with the help of co-counsel you should be able to deal with everything now that he has died.