Electing Small Business Trust

ut — Thu, 12 Jan 2006 12:04:45 GMT

We have a trust that owns an interest in a S Corp. The sole beneficiary is a private foundation. The trust is considering making a ESBT election( otherwise, I believe the S corp would lose its S status). They want to distribute income they receive from the S Corp to the beneficiary.

My understanding is that the income passed through from the S corp is taxed at the trust level at the highest rate (35%) and this tax is separate from any other activity within the trust (like it is a separate trust).

Question I have is if the distribution to the private foundation (assuming all other requirements are met under IRC 642) would be deductible as a charitable contribution against the ESBT income. If yes, I would assume that this would not be reported on Sch A of the 1041 but part of a separate schedule that includes the other activity passed through from the S Corp.

Any thoughts or guidance would be appreciated.

Thank you.

Mike Berry

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Electing Small Business Trust