Forgotten Trust: A Check-the-Box Achilles’ Heel

37 Pages Posted: 11 Dec 2009 Last revised: 3 Jun 2010

Date Written: May 27, 2010


The 1997 check-the-box regulations largely ignored the distinction between trusts and business entities. The regulations promoted certainty and simplicity for unincorporated business entities by replacing uncertain and complex corporate resemblance tests in the 1960 Kintner regulations with simple default and election rules. Business trusts were included under the check-the-box regime reflecting an important change from the Kintner regulations where most business trusts were taxed as corporations. Under the check-the-box regulations, unless a business trust elects to be taxed as a corporation, it is taxed as a disregarded entity, if it has only one beneficiary, or a partnership, if it has more than one beneficiary. Since ordinary trusts are not business entities, they were excluded from the check-the-box regime. Unfortunately, whether a trust is an ordinary or business trust in the first instance is a needlessly complex fact-based determination with mostly insignificant tax consequences resulting from subtle differences between Subchapter J, governing ordinary trust taxation, and Subchapter K, governing partnership taxation. In order to eliminate this lingering uncertainty that plagues lawyers and trustees, this Article proposes a new but simple and expedient paradigm for eliminating this check-the-box Achilles’ heel. All common law trusts would be classified as ordinary trusts under a default rule permitting an election to be treated as a business trust. All statutory trusts would be classified as business trusts under a per se rule. This simple framework reflects the reality that most but not all common law trusts are formed to function as ordinary trusts while most, if not all, statutory trusts are formed to function as business trusts. The few externalities that exist are far outweighed by simplicity and certainty gains without resulting in a serious erosion of the tax base by allowing some ordinary trusts to elect a Subchapter K versus Subchapter J tax regime. Moreover, this approach eliminates further lingering complexity associated with the classification of special purpose investment, liquidating and environmental trusts as ordinary trusts. Rather the safeguard of Subchapter J and Subchapter K becomes the Section 7704 publicly traded partnership rules requiring such trusts to be taxed as corporations. For those trusts that do not elect to be taxed as partnerships, Section 7704 should be amended to include trusts.

Suggested Citation

Bishop, Carter G., Forgotten Trust: A Check-the-Box Achilles’ Heel (May 27, 2010). Suffolk University Law Review, Vol. 43, p. 529, 2010, Suffolk University Law School Research Paper No. 09-50, Available at SSRN:

Carter G. Bishop (Contact Author)

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States
617-573-8534 (Phone)

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