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Question 119: Individual A is the income beneficiary of a trust ("Trust") and his adult daughters ("B", "C" and "D") are the remainder beneficiaries. A, B, C and D each have established 100%-owned corporations, which are designated as trustees for the Trust. Each corporation then annually receives trustee fees and employs the owner as its only employee. A, B, C and D are required to perform trusteee functions such as attendence at trustee meetings, etc. The corporations do not have any other functions than as stated above. The trust makes investments and has employees. The trust is under common control with Corp A. Are the trust and the four corporations an affiliated service group? Are the corps service organizations? Capital is not a material income producing factor for them. How about the trust? It would seem ridiculous if it was considered a service organization. |
Answer: It is true the corporations are service organizations. Capital is not a material income producing factor. Although I don't know what business the trust runs, from its investments and activities it appears that capital is a material income producing factor for the trust. Let's assume so, and we'll assume the trust is not practicing in the fields of health, law, accounting, consulting, insurance, actuarial science, performing arts or engineering (which would automatically make it a service organization). |
Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.
The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.
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