This is true regardless of whether the business purpose powers are necessary for a particular trust and regardless of whether the trustee actually exercises those powers. However, if the existence of the trust is unreasonably prolonged or if the liquidation purpose becomes sufficiently obscured or abandoned by business activities, the trust will "become" a business trust. No doubt this is attributable to the fact that after that date, a failed liquidating trust will merely be treated as an unincorporated business entity and thus as a partnership (two or more beneficiaries) or disregarded entity (grantor trust status if single beneficiary).

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Since the regulations require that all trust contributors be its beneficiaries, the associates standard will most always be present if the business purpose standard is also present.

Thus, the critical analysis is whether the trust instrument properly confines the trustee's powers to merely collecting, preserving, protecting and disbursing environmental remediation funds rather than using those funds as an investment vehicle or to conduct an environmental remediation business. Investment trusts with fixed asset bases and a single class of ownership are considered ordinary trusts provided that the trust instrument does not reflect a power to vary the interests of the certificated beneficiaries.

Trust rules will mirror this result only where trust income is actually distributed to beneficiaries. All four cases involved trust classification and all determined that the relevant trust possessed a demonstrable business purpose because the applicable trust instrument granted the trustee broad powers to conduct a business with trust property. In order to lack associates, a trust: The discussion that follows applies the business purpose and associates tests to trusts created for three very specific purposes.

Thus, partnership taxation would eliminate separate taxation of accumulated income to the trust and place more pressure on trustees to actually make discretionary distributions in an amount at least necessary to cover beneficiary tax liability. In each case, it was irrelevant that such powers were not actually exercised and it was irrelevant that the settlor did not create the trust with a business purpose or similar intent in mind. The frequent use of these special purpose trusts prompted both the Kintner or the check-the-box regulations to include separate provisions discussing three separate trusts: liquidating trusts, investment trusts and environmental remediation trusts.

This generally means trust income is taxed to the beneficiaries when trust income is actually distributed.

When trust income is accumulated for later distribution, it is "temporarily" taxed to the trust itself and then later to beneficiaries who receive distributions and a form of tax credit for the tax paid earlier by the trust.The regulations set forth four examples, two of which satisfy this incidental test and two which fail the test.Unlike the other special purpose trusts, compliance with this regulation to prevent business trust status is more critical because units in an investment trust are more likely to be certificated and "publicly traded." Thus, even partnership classification under the check-the- box regulations will not save the trust from being classified as a corporation under the publicly traded partnership rules in IRC ยง 7704.Bishop is a professor at Suffolk University Law School in Boston.He is currently a visiting professor at American University Washington College of Law in Washington. Indeed, that momentous decision incorporates ancient case law. Thus, the check-the- box regulations added important flexibility to these trusts and to some degree desensitized the stakes of being classified as a business trust. Accordingly, the trust instrument must carefully and narrowly grant the trustee only the powers reasonably necessary to accomplish such a purpose. 1961), determined that "there was undoubtedly considerable business activity on the part of the trustees in this case, but it does not appear to have involved more than what was required to conserve the value of the property and obtain a satisfactory price for it." The case may be examined for particulars but the approach and result is encouraging.