Heckerling Report #3, Tuesday Part 1, includes:
- General Session 1, “Somewhere Beyond the Sea of IRS Forms: Planning with Charitable Remainder Trusts,” speaker Kelly Hellmuth
- General Session 2, “Scratching the 7-Year Itch: Quantum QSBS Exclusions,” speaker Paul S. Lee
- General Session 5, “Making 1 + 1 > 2 – Keys to Effective and Ethics-Savvy Cross-Disciplinary Collaboration,” Lauren Wolven (Attorney), Paige Goepfert (Accountant), Benetta Y. Park (Fiduciary)
The report on CRTs is quite thorough and is a must-read for anyone who uses them.
Paul Lee wrote the 1202 section of ACTEC comments on the 2025 tax law changes. The report contains many helpful ideas and is a must-read for those who want to know about QSBS strategy. One minor comment: when an existing business is converted to a QSBS C corporation, the fair market value of the assets contributed becomes the “basis” for QSBS purposes. That increases the total amount that can be excluded, but the built-in gain on the contributed assets, which translates into built-in gain in the QSBS, is not protected by the QSBS exclusion.
In the last session, the Takeaways are particularly helpful. I’ll add one of my own: Tax preparation files generally are broken into two files: a permanent file, which is placed with each year’s tax returns and carries forward from year to year, and an annual file, which is specific to that return and is destroyed at the end of the period recommended by the preparer’s record retention file. Among items that should be in permanent files are:
- Proof of a trust’s zero inclusion ratio for GST purposes, including any gift tax returns that allocate GST exemption and the grantor’s estate tax return. Even if the trust was not related to the estate tax return, the estate tax return is relevant regarding any possible future corrective GST measures and also informs the statute of limitations for determining the inclusion ratio. The estate tax return (as well any relevant Form 8971) may also be relevant for basis step-up issues.
- Whether the trust opted to consistently allocate capital gains to distributable net income on a permanent basis, which applies to a distribution of principal or a unitrust.
- ESBT and QSST elections, which should be in the relevant trust’s and S corporation’s permanent files. When an S corporation is sold to a strategic buyer, the buyer’s tax counsel always wants to see proof – and you don’t want to delay your client’s sale to a strategic buyer – especially for the 6 months an inadvertent termination private letter ruling may take if not everything is in order!
I received a question about Heckerling 2026 report 2 -- Monday recent developments.pdf. The comment about using an ESBT to combat § 68’s possible attack on the distribution deduction presumably contemplates a trust contributing all its assets to an S corporation that the trust owns and making an ESBT election, so that distributions do not carry out income to beneficiaries. Of course, the trust could also use a QSST. I will discuss this issue, including how it interacts with eventual trust termination, in a free TCLE webinar Tuesday, January 27 at noon Central time: Using Trusts to Avoid OBBBA Limits; Bequest of Business to Charity.
Steve
