TD 9868 – Final Regs – Electing Small Business Trusts (ESBTs) with Nonresident Aliens as Potential Current Beneficiaries

Treasury has issued final regulations regarding the Tax Cuts and Jobs Act (“TCJA”) provision allowing nonresident aliens to be beneficiaries of an electing small business trust (“ESBT”), with no changes from the proposed regs issued on April 19, 2019.

The final regs ensure that a nonresident alien potential beneficiary of an ESBT does not escape U.S. income taxation.

As background, before TCJA, nonresident aliens were barred being ESBT beneficiaries.

Generally, all S corp shareholders must be individuals, estates, certain specified trusts, or certain tax-exempt organizations.

An ESBT may be a shareholder of an S corporation. However, nonresident aliens cannot be an S corp shareholder without disqualifying the S corporation election.

Before TCJA, a nonresident alien could also not be a potential ESBT beneficiary without disqualifying the S corporation election.

TCJA lifted the ban on nonresident alien ESBT beneficiaries.

See full final regulations by clicking TD 9868.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..

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