You request a letter ruling allowing the *************** ("the S Corporation") to include its non-resident Electing Small Business Trust ("ESBT") shareholders in the composite tax return that it files as agent for its qualified electing non-resident S shareholders.  In tax year 1997, 16 of the S Corporation's 69 shareholders were ESBTs. The only asset held by the ESBTs is stock in the S Corporation.
Under Massachusetts Regulation 830 CMR 62.5A.1(12)(g), an S corporation may file a composite return as an agent for its qualified electing non-resident shareholders. A shareholder is a qualified electing shareholder only if the shareholder meets several criteria, including a requirement that the shareholder be either a non-resident individual or the estate or trust of a deceased non-resident shareholder. See 830 CMR 62.5A.1(12) (f)(1) and (g).
Although an ESBT is neither an individual nor the estate or trust of a deceased individual, an ESBT shareholder has many of the tax attributes of a individual that owns shares in an S corporation. Like an individual, an ESBT has a separate tax identification number, includes in income its pro rata share of the S corporation income, and pays tax at the trust level on its pro rata share of S corporation income for both Massachusetts and federal purposes. G.L. c. 62, § 10; IRC § 641(d).  Thus, it is appropriate to treat an ESBT shareholder in the same manner as an individual shareholder for purposes of being included in a composite return.
We rule that the S Corporation's shareholders that are ESBTs may be included in a composite return, provided that the ESBT shareholder otherwise falls within the definition of a qualified electing shareholder under 830 CMR 62.5A.1(12)(f)(1) and (g).
Very truly yours,
/s/Bernard F. Crowley, Jr.
Bernard F. Crowley, Jr.
Acting Commissioner of Revenue
 Under 830 CMR 62.5.1(11), a non-resident trust is defined as "[a] trust, other than a corporate trust, deriving Massachusetts source income and which is [either] (a) a trust under the will of a decedent who was a non-resident at the time of death; (b) a trust all of whose trustees are non-residents; or (c) a trust all of whose grantors are non-residents; [and] is subject to Massachusetts income taxation on its Massachusetts source income determined as if the trust were a non-resident individual.
 When income is distributed by an ESBT to the beneficiary of that ESBT, there is no additional tax since the income was previously taxed at the trust level.
People also viewed...
You recently viewed...
Personalization is OFF. Your personal browsing history at Mass.gov is not visible because your personalization is turned off. To view your history, turn your personalization on.
Learn more on our .
*Recommendations are based on site visitor traffic patterns and are not endorsements of that content.