S-Corp Shares in Testamentary Trust

[JohnH]

Taxpayer died on July 8, 2011 and all of taxpayer's assets went into a testamentary trust. Among the assets was some stock in an "S" Corporation. Heirs failed to get the stock out of the "S" Corporation, so now the election is terminated. Not really a big deal since the corp is small, marginally profitable, and has not assets or BIG to speak of. So here is the question:

Does the S-corp election terminate on Jan 1, 2013 or July 9, 2013, or Dec 31, 2013? I think the date is July 9, 2013, which will necessitate the filing of two tax returns for the year. But I'd like to hear if anyone has a different opinion.

[Max W]

I think that you will have to check on the s-corp rules for the state as to when termination takes place.

It may be on July 9 , 2011 due to death.

If it is necessary to reinstate, the circumstances may allow this.

[JohnH]

Thanks, but this has nothing to do with suspension of the charter and reinstatement, or anything to do with the state. I'm asking about IRS rules.

A testamentary trust can only remain a shareholder in an S-corp for 2 years. I'm just trying to figure out when the 2-years actually ends, since the trust did not dispose of the shares to eligible shareholders within the allotted time. I'd like to use a clean calendar year end just to save some extra work, but I think they are stuck with two part-year returns.