S-corp as a Trust Beneficiary and tax implication

[Yuriy Skripnichenko]

I have two questions that I cannot find definitive answer to. If you have similar structure or a professional and know how it works, please explain.

I have a property in Trust. The trust’s beneficiary is an S-corp owned by me and I’m (personally) trustee for the trust.

1) From my understanding and as I’ve been told by a few “gurus” trusts are disregard entities and all income/expenses flow through to the beneficiary. Recently I found this explanation on the IRS website:

“if the trust is classified as a grantor trust, it is not required to file a Form 1041, provided

that the individual grantor reports all items of income and allowable expenses on his own Form 1040, U.S. Individual Income Tax Return. Thus, the grantor/individual would pay the total tax liability upon the filing of his return for that taxable year.”” All "revocable trusts" are by definition grantor trusts.”

Source https://www.irs.gov/businesses/small-businesses-self-employed/abusive-trust-tax-evasion-schemes-questions-and-answers

So my trust is revocable which means it is a grantor trust. And from my understanding of the IRS explanation the grantor pays all taxes for the trust. Who is the trust’s grantor if there are two sides in the trust agreement I have: beneficiary and trustee. Is the grantor the same person who is listed as grantor (the property seller) in the deed? If the seller is grantor, how can he be liable for the trust taxes? Am I missing something?

In my Trust agreement I have language: INCOME TAX RETURNS. The Trustee shall not be responsible for the preparation and/or filing of any tax returns, which may be due for the reporting of income and expenses of the Trust, although he will sign such returns upon request. The Beneficiary shall report receipt of profits, earnings, avails and proceeds.

My accountant doesn’t know the answer and I used to file tax returns for the property on my s-corp tax returns. I went to another accountant and he suggested that I need to file them on my personal form 1040 because I’m the grantor for the trust. 

So the question is who should be responsible for tax?

2)PA Trust Statute 20 Pa.C.S.A. §7732 (the same as section 402 of Uniform Trust Code) http://www.legis.state.pa.us/cfdocs/legis/LI/consCheck.cfm?txtType=HTM&ttl=20&div=0&chpt=77

States that one of the requirements of trust creation is: “the same person is not the sole trustee and sole beneficiary of the trust”. I’m a sole owner of the S-corp that is beneficiary and I’m personally the trustee for the trust. Would it be considered as the same person or since the s-corp is a separate entity it should be fine?

Thank you for reading so far!

Any input would be greatly appreciated. I scheduled an attorney consultation later this week and hope to have some more information from fellows Bigger Pockets members before I talk to the attorney.