Today TaxMama® hears from Todd in the TaxQuips Forum who is looking to the future. “I am transferring ownership of a sub-chapter S corporation from myself to a family trust. I have a question on IRS form 2553, in part K, where I need to list both former and current owner of the corporation. Since I am a 100% owner transferring it to the trust, do I place a 0% ownership for myself and 100% for the trust? The trust has its own EIN, and I have filled out the information for the QSST option for the trust, as well in part 3.”
Hi Todd,
Taking this step is a good idea. But you need to read the instructions for column L. (see page 4)
Logic would indicate that you list the current owner with the 100% interest and the date acquired at the top. And on the next line, list the former owner with 0% interest and the date acquired. Include a cover letter explaining the transfer.
Make absolutely SURE that there is no tax effect for the transfer, which is, effectively, a sale of stock from an individual to a trust. No doubt, there is specific paperwork to effect this transfer in a tax-free manner. Having never done this, I don’t know what the specific procedure is.
Talk to an estate and trust attorney to make sure you do this correctly – otherwise, this may turn into a taxable event. Seriously. Take care to cross the t’s and dot the i’s here.
Perhaps someone who has done this can step in and offer some additional guidance?
And remember, you can find answers to all kinds of questions about setting up trusts and other tax issues, free. Where? Where else? At www.TaxMama.com.
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