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administered for the benefit of creditors by a trustee. The
trustee was responsible for all tax matters relating to the
estates subject to the supervision of an oversight committee.
The creditors agreed in the plan that the tax attributes would go
to the debtor (petitioner) upon confirmation of the plan.
The plan also provided that the interest in CBCLP was to be
placed in the NTC bankruptcy estate, and the CBM and CBI
interests were to remain in the Benton estate. The motivation
for not transferring these assets to the liquidating trust was to
maintain the S corporation status of CBM and CBI. This limited
exception to the general transfer of assets to the liquidating
trust was approved by the Benton estate’s creditors and promoted
by Benton’s fellow S corporation shareholders. Those
shareholders were concerned about whether the placement of an
interest in an S corporation into a bankruptcy liquidating trust
would result in the termination of S corporation status. Their
concern was focused upon whether a liquidating trust and/or
liquidating trustee would be a qualified shareholder of an S
corporation.2
2 We note that sec. 1361(b)(1)(B) and (c)(3) permits the
estate of an individual in bankruptcy to become a shareholder of
an S corporation without triggering termination of S corporation
status. Cf. Mourad v. Commissioner, 121 T.C. 1 (2003). We
surmise that the shareholders were concerned about S corporation
status in the event that the stock were transferred from the
bankruptcy estate to the liquidating trust.
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