The opinion
O’Donnell, J.,
dissenting.
{¶ 32} In 1998, David and Susan Knust created separate grantor trusts funded with shares of their packaging company, Precision Packaging & Services, Inc. At that time, they designated those trusts as “electing small business trusts” (“ESBTs”) pursuant to Section 641(c), Title 26, U.S.Code. On February 26, 2000, David and Susan sold their shares of Precision Packaging, which resulted in the termination of both ESBTs as of that date. Because this sale terminated the trusts prior to the applicability of the Treasury Regulation upon which the majority relies, the income earned by the trust is not taxable to David and Susan individually. Accordingly, I respectfully dissent from the decision of the majority to the contrary.
{¶ 33} Section 443(a), Title 26, U.S.Code, provides:
{¶ 34} “A return for a period of less than 12 months (referred to in this section as ‘short period’) shall be made under any of the following circumstances:
{¶ 35} “(2) When the taxpayer is in existence during only part of what would otherwise be his taxable year.” (Emphasis added.)
{¶ 36} The trusts in question terminated on February 26, 2000, and, therefore, their taxable year ended on that date. Treasury Regulation 1.641(c)-l(k), upon which the majority relies, is “applicable for taxable years of ESBTs that end on and after December 29, 2000.” (Emphasis added.) Section 1.641(c)-l(k), Title 26, *338 C.F.R. Because the ESBTs had terminated prior to December 29, 2000, the Treasury Regulation does not apply to them. The majority attempts to circumvent this regulation and the plain language of Section 443(a) by stating that David and Susan “offered no separate tax returns suggesting that they treated the taxable year for the ESBTs as having ended on any date earlier than December 31, 2000.” In my view, this point is not persuasive, because Section 443(a) provides that a “short period” tax return “shall be made” when a taxpayer ceases to exist during a tax year. The tax year in question, therefore, terminated when the taxpayer ceased to exist regardless of the date indicated on the tax return.
Taft, Stettinius & Hollister, L.L.P., and Stephen M. Nechemias, for appellants. Jim Petro, Attorney General, Robert C. Maier, Senior Deputy Attorney General, and Barton A. Hubbard, Assistant Attorney General, for appellee.
Corsaro & Associates Co., L.P.A., and Joseph G. Corsaro, in support of neither party, for amici curiae, Rome P. Busa Jr. and Anthony J. Busa.
{¶ 37} Tellingly, the Internal Revenue Service did not demand that the taxpayer alter the ESBT returns to reflect the trust income as personal income. Because this case involves the application of a federal tax statute, and because the Internal Revenue Service did not require David or Susan to amend their tax returns as the Commissioner has, I would hold that the ESBT income is not taxable to David or Susan individually.