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<p class="MsoNormal">Hi all.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">We have a grantor trust that we would like to toggle to a non-grantor trust. In addition, we would like to elect to close the books of an S corporation mid-year under 1377(a)(2) for the grantor trust, based on a complete termination of
shareholder interest. There will be a significant capital gain event later in the year which we wish to isolate in a non-grantor trust, not taxable to the grantor.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The regulations say that simply converting from one type of eligible S corp shareholder to another type of eligible S corp shareholder is not a termination of the trust shareholder’s interest. So simply turning off grantor trust status
will not allow us to close the books mid-year.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The only feasible way to achieve a complete termination of the trust’s interest seems to be to transfer the stock to a non-grantor trust. The regulation says a complete termination can be achieved through:<o:p></o:p></p>
<p class="MsoNormal" style="margin-left:.5in">the occurrence of any event through which a shareholder's entire stock ownership in the S corporation ceases, including a sale, exchange, or
<b><u>other disposition of all of the stock held by the shareholder</u></b>; a gift under section 102(a) of all the shareholder's stock; a spousal transfer under section 1041(a) of all the shareholder's stock; a redemption, as defined in section 317(b), of
all the shareholder's stock, regardless of the tax treatment of the redemption under section 302; and the death of the shareholder.”<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The trust specifically permits a transfer from the trust to any other trust, so long as the transferee trust is for the benefit of one or more of a specified class of people. The Trustee could create such a trust and transfer, by way of
distribution, to such new trust, designed to be a non-grantor trust. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Any experience in using such a technique to enable closing the books of the S corporation upon transfer to the new trust? A similar approach would be to use a state decanting statute to decant to a non-grantor trust. Any experience using
decanting to achieve a complete termination of a shareholder trust’s interest and close the books early?<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Thank you for any thoughts.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Eileen<o:p></o:p></p>
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<p class="ImprintUniqueID"><font style="font-family:Arial;font-size:11pt;color:Black;font-weight:bold;">Eileen</font><font style="font-family:Arial;font-size:11pt;color:Black;font-weight:bold;">
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