What This Notice Means
The IRS accepted your election to be an Electing Small Business Trust, or ESBT. An ESBT is a type of trust that can hold stock in an S corporation. This notice confirms the election.
What to Do
- Timely file Form 1041, U.S. Income Tax Return for Estates and Trusts.
- Include the Schedule K-1 showing the trust's ownership in the S corporation.
- File a paper return with all required schedules.
- Keep this notice for your records.
Note the paper filing instruction. Give it to whoever prepares the trust's return so it isn't missed.
Ending the Election
Only the Commissioner of Internal Revenue can stop an ESBT election. The procedure is described in Internal Revenue Bulletin 2012-1. Don't assume you can undo it on your own.
Why Keep This Notice
An S corporation can only have certain kinds of shareholders. A trust holding S stock has to qualify. If anyone ever questions the trust's status, in an audit, a sale, or an estate administration, this notice proves the IRS accepted the ESBT election. Keep it with the trust documents and send a copy to the S corporation.
Helpful References
- Form 1120-S, U.S. Income Tax Return for an S Corporation.
- Publication 542, Corporations.
- IRS guidance on S corporation stock and debt basis.
- IRS guidance on S corporation shareholders, employees, and officers.
Trustees have a duty to keep the trust's filings current. File the Form 1041 every year it's required, on time.
If you received a CP290 notice and need help with the trust's returns, call us at (813) 229-7100.