Revocable living trusts as partnership partners

I was unable to find any regulation or statute that directly addressed this issue. But if you look at the grantor trust statutes (sections 671 et seq.) they include the following phrase,

"The grantor shall be treated as the owner of any portion of a trust..."

If the grantor is treated as the owner, my approach would be to treat him/her as the owner not only for his own return, but for the purposes of K-1's as well.

Thank you. The reference to the grantor trust code sections and the associated regs were on point.

Ira Smilovitz

My view (no citations) is that you should answer these questions in a manner that is consistent with the partnership's records. Whether an entity is "disregarded" is generally a determination that would be made on the entity owner's 1040, and strictly speaking that determination probably isn't any business of the partnership.

So, if the partnership records indicate that the owner is a trust, I would answer question B/2 "yes." If the only tax ID number provided by the owner is an SSN, then that is what I would use on the K-1. And I would reflect the owner's entity type on the K-1 as "trust."

Why is it the partnership's business to investigate or disagree with the owner's chosen characterization??? :-)

MTW

The entity owners are the partners, including the revocable trust. The trustee of the trust supplies the partnership with the trust's tax ID number, which is usually the SS number of the grantor.

On Form 1065, it specifically asks if any of the partners are disregarded entities. Doesn't that include a grantor trust? If so, it is the business of the partnership.

Sounds like what the IRS is looking for.

They don't have to disagree with it - they only have to ask how the partner wants to characterize it.

My view (no citations) is that you should answer these questions in a manner that is consistent with the partnership's records. Whether an entity is "disregarded" is generally a determination that would be made on the entity owner's 1040, and strictly speaking that determination probably isn't any business of the partnership.

So, if the partnership records indicate that the owner is a trust, I would answer question B/2 "yes." If the only tax ID number provided by the owner is an SSN, then that is what I would use on the K-1. And I would reflect the owner's entity type on the K-1 as "trust."

Why is it the partnership's business to investigate or disagree with the owner's chosen characterization??? :-) ============ Perhaps the partnership has shares in an S-corp. A non-grantor type trust may disqualify the 1361(b) election. Cf. 1361(c)(2) for trusts that don't.

A non-resident alien shareholder also disqualifies the election. Therefore, a partnership with an NRA partner is a problem....

If those situations were actually present, then yes, I presume the partnership would have to gather sufficient information to address them. But this has nothing to do with the original question in this thread which was whether the partnership should treat the trust as an "individual" rather than a "trust" on the K-1 and in related questions.

MTW