internal_revenue_service number release date index number --------------------- -------------------------------------------- -------------------------------- department of the treasury washington dc person to contact --------------------------- id no ------------- telephone number --------------------- refer reply to cc psi b02 - plr-120734-04 date date ------------------------------------------------- --------------------------- trust ------------------------------------------- trust ------------------------------------------- lp ------------------------------------------- g b co-trustees ------------------------ ---------------------- -------------------- -------------------------------------- state state country d1 d2 d3 d4 d5 dollar_figurex ---------------- ------------- ------------- --------------------------------------- ----------------------- --------------------------- ---------------------- ----------------- ----------------- ----------------- plr-120734-04 dear -------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of trust requesting a ruling under sec_1361 of the internal_revenue_code the information submitted states that trust was created on d1 by g g died on d2 upon his death trust was divided into three trusts as provided by article of trust paragraph of trust provides that upon the death of g and his spouse the trustee of trust shall divide trust as set forth in article of trust trust is one of the trusts created by article trust holds investments for the benefit of b the son of g trust and trust are governed by the law of state b is a nonresident_alien and a citizen of country co-trustees are the co-trustees of trust under paragraph of trust the trustee is required to accumulate the trust’s income until d4 after which the trustee is required to distribute income to the beneficiary not less frequently than quarter-annually under paragraph a of trust the trustee is required to distribute the principal of trust to b on and not before d5 under paragraph of trust the trustee is given limited discretion subject_to the provisions of paragraph dollar_figure of trust to distribute trust principal for the support maintenance health and education of b under paragraph dollar_figure of trust the trustee shall not make any discretionary distributions for the benefit of any beneficiary so long as there are assets reasonably available in country for similar purposes on d2 the assets available for distribution to b to pay for b’s taxes education and living_expenses in country were valued at approximately dollar_figurex co-trustees represent that under paragraph dollar_figure of trust the trustees of trust do not have any discretion to make distributions to b until the earlier of d4 or until substantially_all the assets in country available for distribution to b are distributed no distributions have been made to b from trust and no distributions are contemplated among the investments held by trust is a limited_partnership_interest in lp a state limited_partnership that has made an election to be treated as an association_taxable_as_a_corporation for federal tax purposes lp proposes to elect to be taxed as an s_corporation effective d3 in order to qualify to make the election trust will have to qualify as an eligible trust under sec_1361 in order to be an eligible trust the trustee proposes to make an election to be an electing_small_business_trust esbt under sec_1361 co-trustees request a ruling that the trustees of trust do not have discretion within the meaning of sec_1361 to make a distribution of principal or income to b until d4 or until substantially_all the assets in country available for distribution to b are distributed and therefore b is not a potential_current_beneficiary pcb of trust plr-120734-04 sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1361 defines an s_corporation as a small_business_corporation for which an election under sec_1362 is in effect for the taxable_year sec_1361 provides that a small_business_corporation means a domestic_corporation that is not an ineligible_corporation and that does not a have more than shareholders and b have as a shareholder a person other than an estate a_trust described in sec_1361 or an organization described in sec_1361 who is not an individual sec_1361 provides that for purposes of sec_1361 an esbt may be a shareholder of an s_corporation sec_1361 provides that in the case of an esbt each pcb of such trust shall be treated as a shareholder for purposes of sec_1361 except that if for any period there is no pcb of such trust such trust shall be treated as the shareholder during such period sec_1361 defines an esbt sec_1361 provides that for purposes of sec_1361 the term potential_current_beneficiary means with respect to any period any person who at any time during such period is entitled to or at the discretion of any person may receive a distribution from the principal or income of the trust sec_1_1361-1 of the income_tax regulations provides that a nonresident_alien is an eligible_beneficiary of an esbt however if the nonresident_alien is a pcb of the esbt the s_corporation will have an ineligible shareholder and its s_corporation_election will terminate sec_1_1361-1 provides that for purposes of determining whether a corporation is a small_business_corporation within the meaning of sec_1361 each pcb of an esbt generally is treated as a shareholder of the corporation subject_to the provisions of sec_1_1361-1 a pcb generally is with respect to any period any person who at any time during such period is entitled to or in the discretion of any person may receive a distribution from the principal or income of the trust a person is treated as a shareholder of the s_corporation at any moment in time when that person is entitled to or in the discretion of any person may receive a distribution of principal or income of the trust sec_1_1361-1 provides that a person who is entitled to receive a distribution only after a specified time or upon the occurrence of a specified event plr-120734-04 such as the death of the holder of a power_of_appointment is not a pcb until such time or the occurrence of such event based solely on the facts and representations submitted we conclude that b is not a pcb of trust until d4 or until substantially_all the assets in country available for distribution to b are distributed b will be a pcb on d4 and prior to d4 b will be a pcb when substantially_all the assets in country available for distribution to b are distributed except as specifically ruled upon above no opinion is expressed concerning the federal_income_tax consequences of the above-described facts under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to trust and trust 2’s second authorized representative sincerely j thomas hines chief branch office of associate chief_counsel passthroughs special industries enclosures copy of this letter copy for ' purposes