INCOME TAX

Rev. Rul. 2000–39, page 184.LIFO; price indexes; department stores. The June2000 Bureau of Labor Statistics price indexes are acceptedfor use by department stores employing the retail inventoryand last-in, first-out inventory methods for valuing inventoriesfor tax years ended on, or with reference to, June 30, 2000.

REG–209038–89, page 191.Proposed regulations under section 679 of the Code relateto transfers of property by U.S. persons to foreign trustshaving one or more United States beneficiaries. A publichearing is scheduled for November 8, 2000.

REG–108522–00, page 187.Proposed regulations under section 684 of the Code relateto tax on transfers of appreciated property to foreign trustsand foreign estates. A public hearing is scheduled for November 8, 2000.

EXEMPT ORGANIZATIONS

Announcement 2000–70, page 204.A list is given of organizations now classified as privatefoundations.

GIFT TAX

Rev. Proc. 2000–34, page 186.This procedure provides guidance for submitting the infor-mation required under section 301.6501(c)–1(f)(2) of theProcedure and Administration Regulations to adequately dis-close a gift if the information was not initially submitted witha gift tax return filed for the calendar year in which the giftwas made.

Internal Revenue

bbuulllleettiinnBulletin No. 2000–34

August 21, 2000

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

Department of the TreasuryInternal Revenue Service

Finding Lists begin on page ii.Announcement of Disbarments and Suspensions begins on page 206.

August 21, 2000 2000–34 I.R.B.

The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents are consolidated semiannually intoCumulative Bulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisionsof the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions, and Subpart B, Legislation and RelatedCommittee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts and Sub-parts. Also included in this part are Bank Secrecy Act Admin-istrative Rulings. Bank Secrecy Act Administrative Rulingsare issued by the Department of the Treasury’s Office of theAssistant Secretary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative indexfor the matters published during the preceding months.These monthly indexes are cumulated on a semiannual basis,and are published in the first Bulletin of the succeeding semi-annual period, respectively.

The IRS Mission

Provide America’s taxpayers top quality service by help-ing them understand and meet their tax responsibilities

and by applying the tax law with integrity and fairness toall.

Introduction

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

August 21, 2000 184 2000–34 I.R.B.

Section 472.—Last-in, First-outInventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; departmentstores. The June 2000 Bureau of LaborStatistics price indexes are accepted foruse by department stores employing theretail inventory and last-in, first-out in-ventory methods for valuing inventoriesfor tax years ended on, or with referenceto, June 30, 2000.

Rev. Rul. 2000–39

The following Department Store Inven-tory Price Indexes for June 2000 were is-sued by the Bureau of Labor Statistics.The indexes are accepted by the InternalRevenue Service, under § 1.472–1(k) ofthe Income Tax Regulations and Rev.Proc. 86–46, 1986–2 C.B. 739, for appro-priate application to inventories of depart-ment stores employing the retail inven-tory and last-in, first-out inventory

methods for tax years ended on, or withreference to, June 30, 2000.

The Department Store Inventory PriceIndexes are prepared on a national basisand include (a) 23 major groups of depart-ments, (b) three special combinations ofthe major groups - soft goods, durablegoods, and miscellaneous goods, and (c) astore total, which covers all departments,including some not listed separately, ex-cept for the following: candy, food,liquor, tobacco, and contract departments.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent ChangeGroups June June from June 1999

1999 2000 to June 20001

1. Piece Goods - - - - - - - - - - - - - - - - - - - - - 555.1 496.1 -10.62. Domestics and Draperies - - - - - - - - - - - - 630.1 615.8 -2.33. Women’s and Children’s Shoes - - - - - - - - 645.1 626.5 -2.94. Men’s Shoes - - - - - - - - - - - - - - - - - - - - - 876.9 926.1 5.65. Infants’ Wear - - - - - - - - - - - - - - - - - - - - 610.1 642.2 5.36. Women’s Underwear - - - - - - - - - - - - - - - 561.4 568.3 1.27. Women’s Hosiery - - - - - - - - - - - - - - - - - 322.8 334.2 3.58. Women’s and Girls’Accessories - - - - - - - 549.3 538.3 -2.09. Women’s Outerwear and Girls’ Wear - - - - 392.0 385.0 -1.8

10. Men’s Clothing - - - - - - - - - - - - - - - - - - - 624.1 613.5 -1.711. Men’s Furnishings - - - - - - - - - - - - - - - - - 630.4 621.5 -1.412. Boys’ Clothing and Furnishings - - - - - - - - 488.9 491.7 0.613. Jewelry - - - - - - - - - - - - - - - - - - - - - - - - 961.2 924.3 -3.814. Notions - - - - - - - - - - - - - - - - - - - - - - - - 747.4 768.3 2.815. Toilet Articles and Drugs - - - - - - - - - - - - 968.8 971.1 0.216. Furniture and Bedding - - - - - - - - - - - - - - 682.9 670.6 -1.817. Floor Coverings - - - - - - - - - - - - - - - - - - 602.7 607.9 0.918. Housewares - - - - - - - - - - - - - - - - - - - - - 801.4 780.7 -2.619. Major Appliances - - - - - - - - - - - - - - - - - 235.7 233.6 -0.920. Radio and Television - - - - - - - - - - - - - - - 66.3 59.8 -9.821. Recreation and Education2 - - - - - - - - - - - 98.7 93.0 -5.8 22. Home Improvements2 - - - - - - - - - - - - - - 127.6 128.2 0.523. Auto Accessories2 - - - - - - - - - - - - - - - - - 106.7 106.3 -0.4

Groups 1 - 15: Soft Goods - - - - - - - - - - - - - 599.9 592.9 -1.2

Groups 16 - 20: Durable Goods - - - - - - - - - - 452.2 438.1 -3.1Groups 21 - 23: Misc. Goods2 - - - - - - - - - - - 104.1 100.2 -3.7Store Total3 - - - - - - - - - - - - - - - - - - - - - - - - 545.0 534.9 -1.9

1 Absence of a minus sign before the percentage change in this column signifies a price increase.2 Indexes on a January 1986=100 base.3 The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

2000–34 I.R.B. 185 August 21, 2000

DRAFTING INFORMATION

The principal author of this revenueruling is Alan J. Tomsic of the Office ofAssociate Chief Counsel (Income Tax andAccounting). For further information re-garding this revenue ruling, contact Mr.Tomsic on (202) 622-4970 (not a toll-freecall).

Section 2001.—Imposition andRate of Tax

26 CFR 20.2001–1: Valuation of adjusted taxablegifts and section 2701(d) taxable events.

If a taxpayer does not submit the information re-quired under section 301.6501(c)–1(f) of the Proce-dure and Administrative Regulations to adequatelydisclose a gift on the initial gift tax return filed forthe calendar year in which the gift was made, whatprocedure must the taxpayer follow to submit the re-quired information in order to commence the run-

ning of the period of limitations on assessment ofthe gift tax for the purpose of determining theamount of adjusted taxable gifts? See Rev. Proc.2000–34, page 186.

Section 2504.—Taxable Gifts forPreceding Calendar Periods

26 CFR 25.2504–2: Determination of gifts forpreceding calendar periods.

If a taxpayer does not submit the information re-quired under section 301.6501(c)–1(f) of the Proce-dure and Administrative Regulations to adequatelydisclose a gift on the initial gift tax return filed forthe calendar year in which the gift was made, whatprocedure must the taxpayer follow to submit the re-quired information in order to commence the run-ning of the period of limitations on assessment ofthe gift tax for the purpose of determining the cor-rect amount of taxable gifts for the preceding calen-dar periods? See Rev. Proc. 2000–34, page 186.

Section 6501.—Limitations onAssessment and Collection

26 CFR 301.6501(c)–1: Exceptions to generalperiod of limitations on assessment and collection.

If a taxpayer does not submit the information re-quired under section 301.6501(c)–1(f) of the Proce-dure and Administrative Regulations to adequatelydisclose a gift on the initial gift tax return filed forthe calendar year in which the gift was made, whatprocedure must the taxpayer follow to submit the re-quired information in order to commence the run-ning of the period of limitations on assessment ofthe gift tax? See Rev. Proc. 2000–34, page 186.

26 CFR 601.105: Examination of returns andclaims for refund, credit or abatement;determination of correct tax liability. (Also Part I, §§ 2001, 2504, 6501; 20.2001–1,25.2504–2, 301.6501(c)–1.)

Rev. Proc. 2000–34

SECTION 1. PURPOSE

This revenue procedure provides guid-ance for submitting the information re-quired under § 6501(c)(9) of the InternalRevenue Code and § 301.6501(c)–1(f) ofthe Procedure and Administration Regula-tions to adequately disclose a gift if theinformation was not initially submittedwith a gift tax return filed for the calendaryear in which the gift was made. The pe-riod of limitations on assessment under § 6501(a) will commence to run with re-spect to such a gift when the taxpayer ad-equately discloses the gift on an amendedgift tax return filed pursuant to this rev-enue procedure. The period of assess-ment will generally expire 3 years afterthe date such amended return is filed.

SECTION 2. BACKGROUND

Under § 6501(c)(9), as amended by theTaxpayer Relief Act of 1997, 1997–4(Vol. 1) C.B. 1, 69, and the Internal Rev-enue Restructuring and Reform Act of1998, P.L. 105-206, 112 Stat. 685, if thevalue of a gift is required to be shown ona gift tax return but is not disclosed on thereturn, or on a statement attached to thereturn, in a manner adequate to apprisethe Internal Revenue Service of the natureof the transfer, the period of limitations onassessment of gift tax with respect to thegift will not begin to run. If the transfer isadequately disclosed on the gift tax returnand the period of limitations on assess-ment of gift tax has expired, then, under § 2504(c), the value of the gift cannot beadjusted for purposes of determining“prior taxable gifts” and the current gifttax liability and, under § 2001(f), thevalue of the gift cannot be adjusted for

purposes of determining “adjusted taxablegifts” and the estate tax liability.

Section 301.6501(c)–1(f)(2) providesthat a transfer is adequately disclosed on areturn only if it is reported in a manneradequate to apprise the Service of the na-ture of the gift and the basis for the valuereported. Section 301.6501(c)–1(f)(2)(i)through (v) sets forth the information thatmust be disclosed on the gift tax return, oron a statement attached to the return, toadequately apprise the Service of the na-ture of the gift and its value.

The period of limitations on assessmentof gift tax with respect to a gift will com-mence to run only if the donor sub-mits the information required under § 301.6501(c)–1(f)(2) to adequately dis-close that gift. The general rule under § 6501(a), that gift tax must be assessedwithin 3 years of the later to occur of thedate the gift tax return is filed or due (ex-cept as otherwise provided under §§ 6501(c) and(e)), applies from the datethe donor submits all the required infor-mation for that gift, if that informationwas not originally submitted with the gifttax return.

SECTION 3. SCOPE

This revenue procedure applies wherethe donor filed a federal gift tax return(Form 709, United States Gift (and Gen-eration-Skipping Transfer) Tax Return)for the appropriate calendar year butfailed to adequately disclose a gift be-cause the gift was not reported on the re-turn or because the information requiredunder § 301.6501(c)–1(f)(2) for the giftwas not submitted with the return. Thisrevenue procedure does not apply in anysituation where § 6501(c)(1), (c)(2), or(c)(3) applies.

SECTION 4. PROCEDURE

To commence the running of the periodof limitations on assessment with respectto a gift that was not adequately disclosed

on a federal gift tax return, the donor mustfile an amended gift tax return for the cal-endar year in which the gift was made.The amended return must identify thetransfer and provide all of the informationrequired under § 301.6501(c)–1(f)(2) thatwas not previously submitted with theoriginal gift tax return. The amended re-turn must be filed with the same InternalRevenue Service Center where the donorpreviously filed the gift tax return for thecalendar year. The top of the first page ofthe amended return must have the words“Amended Form 709 for gift(s) made in[insert the calendar year that the giftwas made] - In accordance with Rev.Proc. 2000–34, 2000–34 I.R.B. 186.”

SECTION 5. EFFECTIVE DATE

This revenue procedure is effectivewith respect to amended returns filed tocomply with § 301.6501(c)–1(f)(2) afterAugust 21, 2000. Submissions filed on orbefore this date to comply with the ade-quate disclosure requirements under thestatute and regulations will be acceptedby the Service as effective to commencethe running of the period of limitations asof the date filed, provided the submissioncontains sufficient information to consti-tute adequate disclosure under § 301.6501(c)–1(f)(2). The taxpayer isnot required to conform submissions filedon or before this date to the requirementsof this revenue procedure.

SECTION 6. DRAFTINGINFORMATION

The principal author of this revenueprocedure is William L. Blodgett of theOffice of the Associate Chief Counsel(Passthroughs and Special Industries).For further information regarding thisrevenue procedure contact Mr. Blodgetton (202) 622-3090 (not a toll free call).

August 21, 2000 186 2000–34 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

2000–34 I.R.B. 187 August 21, 2000

Part IV. Items of General Interest

Notice of Proposed Rulemakingand Notice of Public Hearing

Recognition of Gain on CertainTransfers to Certain ForeignTrusts and Estates

REG–108522–00

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemak-ing and notice of public hearing.

SUMMARY: This document containsproposed regulations under section 684 ofthe Internal Revenue Code relating torecognition of gain on certain transfers tocertain foreign trusts and estates. Theproposed regulations affect United Statespersons who transfer property to foreigntrusts and estates. This document alsoprovides notice of a public hearing onthese proposed regulations.

DATES: Written or electronic commentsmust be received by November 6, 2000.Requests to speak (with outlines of oralcomments to be discussed) at the publichearing scheduled for November 8, 2000,must be submitted by October 18, 2000.

ADDRESSES: Send submissions to:CC:MSP:RU (REG–108522–00), room5226, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand de-livered Monday through Friday betweenthe hours of 8 a.m. and 5 p.m. to:CC:MSP:RU (REG–108522–00), Cou-rier’s Desk, Internal Revenue Service, 1111Constitution Avenue, NW., Washington,DC. Alternatively, taxpayers may submitcomments electronically via the Internet byselecting the “Tax Regs” option on the IRSHome Page, or by submitting comments di-rectly to the IRS Internet site at:http://www.irs.gov/tax_regs/regslist.html.The public hearing will be held in Room3313, Internal Revenue Building, 1111Constitution Ave., NW., Washington, DC.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, KarenA. Rennie Quarrie at (202) 622-3880;concerning the submissions and hearing,Sonya M. Cruse at (202) 622-7180 (nottoll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 684 of the Internal RevenueCode (Code) was added by Section1131(b) of the Taxpayer Relief Act of1997 (the Act), Public Law 105-34 (111Stat. 788) (August 5, 1997). The additionaffects the transfer of property by UnitedStates persons to certain foreign trusts andforeign estates.

1. Prior Law

Prior to the enactment of section 684,section 1491, with certain exceptions, im-posed a 35-percent excise tax on transfersof property by a United States person to aforeign trust or estate. Section 1491 ap-plied to all transfers of appreciated prop-erty whether or not at fair market valueand whether or not the transfer was madewith donative intent. The excise tax wasintended to curtail transfers of appreciatedproperty to foreign trusts, because a for-eign trust could dispose of the propertyand invest the proceeds of the sale outsidethe United States without incurring anyU.S. tax. If the excise tax applied, the for-eign trust could not increase the basis ofthe property contributed to the trust.Under section 1492(3), the U.S. transferorcould make an election under section 1057to treat a transfer of appreciated propertyto a foreign trust as a sale or exchange ofsuch property and pay an income tax in-stead of an excise tax on the gain.

2. Overview of Changes

Section 1131 of the Act repealed sec-tions 1491 through 1494 and section 1057of the Code and enacted section 684. Inso doing, Congress eliminated the excisetax on transfers of appreciated property toforeign trusts and foreign estates in favorof an income tax on transfers of appreci-ated property to foreign trusts and foreignestates. Unlike previous law, however,Congress provided explicit regulatory au-thority to make exceptions to the manda-tory tax on such transfers. These regula-tions explain the application of section684 and provide certain exceptions fromits application.

Pursuant to section 684(a) of the Code,any transfer of property by a U.S. person

to a foreign trust or estate is treated as ataxable disposition of the property, exceptto the extent provided in regulations.Such a transfer is treated as a sale or ex-change of the property for its fair marketvalue. The U.S. transferor must immedi-ately recognize gain equal to the excess ofthe property’s fair market value over itsadjusted basis in the hands of the U.S.transferor.

Pursuant to section 684(b), a U.S. per-son will not be required to recognize gainon the transfer of property to a foreigntrust if the U.S. transferor (or other per-son) is considered to be the owner of thetrust under section 671.

Pursuant to section 684(c), if a domes-tic trust becomes a foreign trust, all trustassets are considered to be transferred to aforeign trust. Thus, appreciated propertyowned by the trust will be deemed sold onthe date that the trust status changes fromdomestic to foreign, and gain must be rec-ognized on that date.

Explanation of Provisions

§1.684–1 Recognition of gain on transfersto certain foreign trusts and estates

Subject to certain exceptions discussedbelow, the proposed regulations provide ageneral rule of immediate recognition ofgain when a U.S. person transfers appre-ciated property to a foreign trust or estate.This immediate gain recognition applieseven if the U.S. transferor might other-wise have been eligible to defer gainrecognition under another provision of theCode. Losses are not permitted to be rec-ognized under the provision. Moreover,if multiple assets are transferred, the U.S.transferor may not offset losses in someproperty against gains in other propertyunder the provision.

A U.S. person who transfers property toa foreign trust must comply with the re-porting requirements set forth in section6048 of the Code. See Notice 97–34(1997–1 C.B. 422), which provides guid-ance regarding the foreign trust reportingrequirements under section 6048.

§1.684–2 Transfers

The proposed regulations define theterm transfer broadly to mean any direct,

August 21, 2000 188 2000–34 I.R.B.

indirect or constructive transfer. The de-termination of whether an indirect or con-structive transfer has occurred is madeunder the rules set forth in proposed regu-lation §1.679–3(c) and §1.679–3(d), re-spectively, published in REG–209038–89on page 191.

The proposed regulations provide that,if a U.S. person is considered the ownerof any portion of a trust, a transfer ofproperty from that portion of the trust willbe considered a transfer by the U.S. per-son that owns that portion of the trust.Thus, for example, a U.S. person cannotavoid the application of section 684 byfirst transferring property to a trust whichhe is treated as owning under the grantortrust rules, then having that trust transferthe property to a foreign trust that he isnot treated as owning.

§1.684–3 Exceptions to the general ruleof gain recognition

Under the proposed regulations, cer-tain types of transfers are excepted fromthe general rule of gain recognition setforth in §1.684–1. A U.S. person whotransfers property to a foreign trust willnot be required to recognize gain on thetransfer to the extent such trust is consid-ered owned by any person. For example,if a U.S. person transfers property to aforeign trust that is treated as having aU.S. beneficiary under section 679 andthe U.S. person is treated as the owner ofthe trust under that section, the generalrule of gain recognition will not apply atthat time. If, however, the trust subse-quently ceases to be treated as owned bythe U.S. person, §1.684–2(e) providesthat the U.S. person will be treated ashaving transferred the assets of the trustto a foreign trust immediately before theU.S. person ceases to be considered theowner of the original trust. As a result,the U.S. person will be subject to thegeneral rule of gain recognition at thattime (unless another exception, such asthe exception for certain transfers ondeath, applies).

A transfer by a U.S. person to a trustwhich has received a ruling or determi-nation letter from the IRS recognizingthe trust’s exempt status under section501(c)(3) will be exempt from the gen-eral rule of gain recognition if the trust’sruling or determination letter has beenneither revoked nor modified.

The proposed regulations also providean exception for transfers by a U.S. per-son to a foreign trust at death if the prop-erty transferred is included in the U.S.person’s gross estate for U.S. estate taxpurposes and the basis of the property inthe hands of the foreign trust is deter-mined under section 1014(a) of theCode. For example, if a U.S. person pre-viously transferred property to a foreigntrust and was treated as the owner of thetrust under section 679, for purposes ofsection 684 the cessation of ownershipstatus upon the U.S. person’s death istreated as a deemed transfer to the for-eign trust by the decedent immediatelybefore her death. If the person retainedsufficient powers over the trust to causethe trust property to be included in hergross estate for estate tax purposes andthe basis of the property in the hands ofthe foreign trust is determined under sec-tion 1014(a) of the Code, the general ruleof gain recognition does not apply.However, to the extent the trust propertyis not included in her estate and the for-eign trust does not receive a step-up inbasis in the property under section1014(a), the exception does not apply.

The proposed regulations also providean exception to the general rule of gainrecognition under §1.684–1 if property istransferred for fair market value to anunrelated foreign trust. The determina-tion of whether a foreign trust is a relatedforeign trust is made under the principlesset forth in §1.679–1(c)(5). Thus, for ex-ample, if a U.S. person sells property forfair market value to an unrelated foreigntrust, the general rule of section 684 willnot apply. However, if the sale is to a re-lated foreign trust, immediate gainrecognition is required (unless anotherexception applies), even if another provi-sion of the Code would permit deferralof recognition.

Finally, the proposed regulations pro-vide that the general rule does not applyto a distribution to a trust with respect toan interest held by the trust in a non-trustentity (e.g., a corporation or partnership),or an interest in certain commercial trusts.For example, if a foreign trust owns stockof a U.S. corporation and the U.S. corpo-ration makes a distribution to the trust thatis properly characterized as a dividendwith respect to the trust’s stock owner-ship, section 684 does not apply.

§1.684–4 Outbound migration ofdomestic trust

The proposed regulations provide thatif a U.S. person transfers property to a do-mestic trust and, for any reason, the do-mestic trust becomes a foreign trust, thedomestic trust will be deemed to havetransferred all of its assets to a foreigntrust. The domestic trust must immedi-ately recognize gain unless an exceptionin §1.684–3 applies at that time (e.g., theU.S. person is living at the time of thetrust’s change in status and is treated asthe owner of the trust under section 679).The domestic trust must also fulfill the re-porting requirements set forth in section6048 of the Code and Notice 97–34.

The proposed regulations incorporatethe relief for inadvertent migrations setforth in §301.7701–7(d)(2). For example,if a trust’s status changes from domesticto foreign because of an inadvertentchange in the trustee, the trust will avoidthe application of the general gain recog-nition rule if, within 12 months, it makesnecessary changes to the trustee in orderto remain a domestic trust.

§1.684–5 Effective dates

This section of the proposed regula-tions provides effective dates with respectto §§1.684–1 through 1.684–4. The rulesapply with respect to transfers of propertyto foreign trusts or foreign estates madeafter August 7, 2000. The primary reasonfor this effective date is to immediatelyaddress taxpayer concerns with respect tothe provision of regulatory exceptions tothe general rule of gain recognition undersection 684(a). It should be noted, how-ever, that the Internal Revenue Service isnot restricted from applying general in-come tax principles to transactions priorto the effective dates of the proposed reg-ulations to determine, for example, that aU.S. person has made a transfer to a for-eign trust.

Special Analysis

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Ex-ecutive Order 12866. Therefore, regula-tory assessment is not required. It hasalso been determined that section 553(b)of the Administrative Procedure Act (5U.S.C. chapter 5) does not apply to

2000–34 I.R.B. 189 August 21, 2000

these regulations, and because the regu-lation does not impose a collection of in-formation on small entities, the Regula-tory Flexibility Act (5 U.S.C. chapter 6)does not apply. Pursuant to section7805(f) of the Internal Revenue Code,this notice of proposed rulemaking willbe submitted to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on its impact onsmall businesses.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considera-tion will be given to any written com-ments (a signed original and eight (8)copies) that are submitted timely to theIRS. The IRS and Treasury specificallyrequest comments on the clarity of theproposed regulations and how they can bemade easier to understand. All commentswill be available for public inspection andcopying.

A public hearing has been scheduledfor November 8, 2000, at 10 a.m. in room3313, Internal Revenue Building, 1111Constitution Avenue, NW., Washington,DC. Because of access restrictions, visi-tors will not be admitted beyond the Inter-nal Revenue Building lobby more than 15minutes before the start of the hearing.

The rules of 26 CFR 601.601(a)(3)apply to the hearing.

Persons that wish to present oral com-ments at the hearing must submit writtencomments by November 6, 2000, andsubmit an outline of the topics to be dis-cussed and the time to be devoted to eachtopic (signed original and eight (8)copies) by October 18, 2000.

A period of ten (10) minutes will be al-located to each person for making com-ments.

An agenda showing the scheduling tothe speakers will be prepared after thedeadline for receiving outlines haspassed. Copies of the agenda will beavailable free of charge at the hearing.

Drafting Information

The principal author of these regula-tions is Karen A. Rennie Quarrie of theOffice of Associate Chief Counsel (Inter-national). However, other personnel fromthe IRS and Treasury Department partici-pated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is pro-posed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read in part as follows:

Authority: 26 U.S.C. 7805 % % %Section 1.684–1 also issued under 26

U.S.C. 643(a)(7) and 684(a).Section 1.684–2 also issued under 26

U.S.C. 643(a)(7) and 684(a).Section 1.684–3 also issued under 26

U.S.C. 643(a)(7) and 684(a).Section 1.684–4 also issued under 26

U.S.C. 643(a)(7) and 684(a).Section 1.684–5 also issued under 26

U.S.C. 643(a)(7) and 684(a). * * * Par. 2. Sections 1.684–1, 1.684–2,

1.684–3, 1.684–4 and 1.684–5 are addedunder the undesignated centerheading“Miscellaneous” to read as follows:

§1.684–1 Recognition of gain on transfersto certain foreign trusts and estates.

(a) Immediate recognition of gain—(1)In general. Any U.S. person who trans-fers property to a foreign trust or foreignestate shall be required to recognize gainat the time of the transfer equal to the ex-cess of the fair market value of the prop-erty transferred over the adjusted basis(for purposes of determining gain) of suchproperty in the hands of the U.S. trans-feror unless an exception applies underthe provisions of §1.684–3. The amountof gain recognized is determined on anasset-by-asset basis.

(2) No recognition of loss. Under thissection a U.S. person may not recognizeloss on the transfer of an asset to a foreigntrust or foreign estate. A U.S. person maynot offset gain realized on the transfer ofan appreciated asset to a foreign trust orforeign estate by a loss realized on thetransfer of a depreciated asset to the for-eign trust or foreign estate.

(b) Definitions. The following defini-tions apply for purposes of this section:

(1) U.S. person. The term U.S. personmeans a United States person as definedin section 7701(a)(30), and includes anonresident alien individual who electsunder section 6013(g) to be treated as aresident of the United States.

(2) U.S. transferor. The term U.S.transferor means any U.S. person whomakes a transfer (as defined in §1.684–2)of property to a foreign trust or foreign es-tate.

(3) Foreign trust. Section 7701(a)(31)(B) defines foreign trust.

(4) Foreign estate. Section 7701(a)(31)(A) defines foreign estate.

(c) Reporting requirements. A U.S.person who transfers property to a foreigntrust or foreign estate must comply withthe reporting requirements under section6048.

(d) Examples. The following exam-ples illustrate the rules of this section. Inall examples, A is a U.S. person and FT isa foreign trust. The examples are as fol-lows:

Example 1. Transfer to foreign trust. A transfersproperty that has a fair market value of 1000X to FT.A’s adjusted basis in the property is 400X. FT hasno U.S. beneficiary within the meaning of §1.679–2,and no person is treated as owning any portion ofFT. Under paragraph (a)(1) of this section, A recog-nizes gain at the time of the transfer equal to 600X.

Example 2. Transfer of multiple properties. Atransfers property Q, with a fair market value of1000X, and property R, with a fair market value of2000X, to FT. At the time of the transfer, A’s ad-justed basis in property Q is 700X, and A’s adjustedbasis in property R is 2200X. FT has no U.S. bene-ficiary within the meaning of §1.679–2, and no per-son is treated as owning any portion of FT. Underparagraph (a)(1) of this section, A recognizes the300X of gain attributable to property Q. Underparagraph (a)(2) of this section, A does not recog-nize the 200X of loss attributable to property R, andmay not offset that loss against the gain attributableto property Q.

Example 3. Transfer for less than fair marketvalue. A transfers property that has a fair marketvalue of 1000X to FT in exchange for 400X of cash.A’s adjusted basis in the property is 200X. FT hasno U.S. beneficiary within the meaning of §1.679–2,and no person is treated as owning any portion ofFT. Under paragraph (a)(1) of this section, A recog-nizes gain at the time of the transfer equal to 800X.

Example 4. Exchange of property for private an-nuity. A transfers property that has a fair marketvalue of 1000X to FT in exchange for FT’s obliga-tion to pay A 50X per year for the rest of A’s life.The obligation has an issue price of 1000X. A’s ad-justed basis in the property is 100X. FT has no U.S.beneficiary within the meaning of §1.679–2, and noperson is treated as owning any portion of FT. A isrequired to recognize gain equal to 900X immedi-ately upon transfer of the property to the trust. Thisresult applies even though A might otherwise havebeen allowed to defer recognition of gain under an-other provision of the Internal Revenue Code.

Example 5. Transfer of property to related for-eign trust in exchange for qualified obligation. Atransfers property that has a fair market value of1000X to FT in exchange for FT’s obligation tomake payments to A during the next four years. FT

August 21, 2000 190 2000–34 I.R.B.

is related to A as defined in §1.679–1(c)(5). Theobligation, which has an issue price of 1000X, istreated as a qualified obligation within the meaningof §1.679–4(d), and no person is treated as owningany portion of FT. A’s adjusted basis in the propertyis 100X. A is required to recognize gain equal to900X immediately upon transfer of the property tothe trust. This result applies even though A mightotherwise have been allowed to defer recognition ofgain under another provision of the Internal Rev-enue Code. Section 1.684–3(d) provides rules relat-ing to transfers for fair market value to unrelatedforeign trusts.

§1.684–2 Transfers.

(a) In general. A transfer means a di-rect, indirect, or constructive transfer.

(b) Indirect transfers—(1) In general.Section 1.679–3(c) shall apply to deter-mine if a transfer to a foreign trust or for-eign estate, by any person, is treated as anindirect transfer by a U.S. person to theforeign trust or foreign estate.

(2) Examples. The following exam-ples illustrate the rules of this paragraph(b). In all examples, A is a U.S. citizen,FT is a foreign trust, and I is A’s uncle,who is a nonresident alien. The examplesare as follows:

Example 1. Principal purpose of tax avoidance.A creates and funds FT for the benefit of A’s cousin,who is a nonresident alien. FT has no U.S. benefi-ciary within the meaning of §1.679– 2, and no per-son is treated as owning any portion of FT. In 2004,A decides to transfer additional property with a fairmarket value of 1000X and an adjusted basis of600X to FT. Pursuant to a plan with a principal pur-pose of avoiding the application of section 684, Atransfers the property to I. I subsequently transfersthe property to FT. Under paragraph (b) of this sec-tion and §1.679–3(c), A is treated as having trans-ferred the property to FT.

Example 2. U.S. person unable to demonstratethat intermediary acted independently. A createsand funds FT for the benefit of A’s cousin, who is anonresident alien. FT has no U.S. beneficiary withinthe meaning of §1.679–2, and no person is treated asowning any portion of FT. On July 1, 2004, A trans-fers property with a fair market value of 1000X andan adjusted basis of 300X to I, a foreign person. OnJanuary 1, 2007, at a time when the fair marketvalue of the property is 1100X, I transfers the prop-erty to FT. A is unable to demonstrate to the satis-faction of the Commissioner, under §1.679–3(c)(2)(ii), that I acted independently of A in makingthe transfer to FT. Under this paragraph (b) and§1.679–3(c), A is treated as having transferred theproperty to FT. Under this paragraph (b) and§1.679–3(c)(3), I is treated as an agent of A, and thetransfer is deemed to have been made on January 1,2007. Under §1.684–1(a), A recognizes gain equalto 800X on that date.

(c) Constructive transfers. Section1.679–3(d) shall apply to determine if atransfer to a foreign trust or foreign estateis treated as a constructive transfer by a

U.S. person to the foreign trust or foreignestate.

(d) Transfers by certain trusts—(1) Ingeneral. If any portion of a trust is treatedas owned by a U.S. person, a transfer ofproperty from that portion of the trust to aforeign trust is treated as a transfer fromthe owner of that portion to the foreigntrust.

(2) Examples. The following exam-ples illustrate the rules of this paragraph(d). In all examples, A is a U.S. person,DT is a domestic trust, and FT is a foreigntrust. The examples are as follows:

Example 1. Transfer by a domestic trust. OnJanuary 1, 2001, A transfers property which has afair market value of 1000X and an adjusted basis of200X to DT. A retains the power to revoke DT. OnJanuary 1, 2003, DT transfers property which has afair market value of 500X and an adjusted basis of100X to FT. At the time of the transfer, FT has noU.S. beneficiary as defined in §1.679–2 and no per-son is treated as owning any portion of FT. A istreated as having transferred the property to FT andis required to recognize gain of 400X, under§1.684–1, at the time of the transfer by DT to FT.

Example 2. Transfer by a foreign trust. On Janu-ary 1, 2001, A transfers property which has a fairmarket value of 1000X and an adjusted basis of200X to FT1. At the time of the transfer, FT1 has aU.S. beneficiary as defined in §1.679–2 and A istreated as the owner of FT1 under section 679. OnJanuary 1, 2003, FT1 transfers property which has afair market value of 500X and an adjusted basis of100X to FT2. At the time of the transfer, FT2 has noU.S. beneficiary as defined in §1.679–2 and no per-son is treated as owning any portion of FT2. A istreated as having transferred the property to FT2 andis required to recognize gain of 400X, under§1.684–1, at the time of the transfer by FT1 to FT2.

(e) Transfers when foreign trust nolonger treated as owned by a U.S.person—(1) In general. If any portion ofa foreign trust is treated as owned by aU.S. person under subpart E of part I ofsubchapter J, chapter 1 of the InternalRevenue Code, and such portion ceases tobe treated as owned by that person undersuch subpart, the U.S. person shall betreated as having transferred, immediatelybefore the trust is no longer treated asowned by that U.S. person, the assets ofsuch portion to a foreign trust.

(2) Examples. The following exam-ples illustrate the rules of this paragraph(e). In all examples, A is a U.S. citizenand FT is a foreign trust. The examplesare as follows:

Example 1. Loss of U.S. beneficiary. (i) On Janu-ary 1, 2001, A transfers property, which has a fairmarket value of 1000X and an adjusted basis of400X, to FT. At the time of the transfer, FT has aU.S. beneficiary within the meaning of §1.679–2,and A is treated as owning FT under section 679.

Under §1.684–3(a), §1.684–1 does not cause A torecognize gain at the time of the transfer.

(ii) On July 1, 2003, FT ceases to have a U.S.beneficiary within the meaning of §1.679–2, and asof that date neither A nor any other person is treatedas owning any portion of FT. On that date, the fairmarket value of the property is 1200X, and its ad-justed basis equals 350X. Under paragraph (e)(1) ofthis section, A is treated as having transferred theproperty to FT on July 1, 2003, and must recognize850X of gain at that time under §1.684–1.

Example 2. Death of grantor. (i) The initial factsare the same as in paragraph (i) of Example 1.

(ii) On July 1, 2003, A dies, and as of that date noother person is treated as the owner of FT. On thatdate, the fair market value of the property is 1200X,and its adjusted basis equals 350X. Under para-graph (e)(1) of this section, A is treated as havingtransferred the property to FT immediately beforehis death, and generally is required to recognize850X of gain at that time under §1.684–1. However,an exception may apply under §1.684–3(c).

Example 3. Release of a power. (i) On January1, 2001, A transfers property that has a fair marketvalue of 500X and an adjusted basis of 200X to FT.At the time of the transfer, FT does not have a U.S.beneficiary within the meaning of §1.679–2. How-ever, A retains the power to revoke the trust. A istreated as the owner of the trust under section 676and, therefore, under §1.684–3(a), A is not requiredto recognize gain under §1.684–1 at the time of thetransfer.

(ii) On January 1, 2007, A releases the power torevoke the trust and, as of that date, neither A norany other person is treated as owning any portion ofFT. On that date, the fair market value of the prop-erty is 900X, and its adjusted basis is 200X. Underparagraph (e)(1) of this section, A is treated as hav-ing transferred the property to FT on January 1,2007, and must recognize 700X of gain at that time.

(f) Transfers to entities owned by a for-eign trust. Section 1.679–3(f) providesrules that apply with respect to transfersof property by a U.S. person to an entityin which a foreign trust holds an owner-ship interest.

§1.684–3 Exceptions to general rule ofgain recognition.

(a) Transfers to grantor trusts. Thegeneral rule of gain recognition under§1.684–1 shall not apply to any transferof property by a U.S. person to a foreigntrust to the extent that any person istreated as the owner of the trust under sec-tion 671. Section 1.684–2(e) providesrules regarding a subsequent change inthe status of the trust.

(b) Transfers to charitable trusts. Thegeneral rule of gain recognition under§1.684–1 shall not apply to any transferof property to a foreign trust that has re-ceived a ruling or determination letter,which has been neither revoked nor modi-fied, from the Internal Revenue Service

2000–34 I.R.B. 191 August 21, 2000

recognizing the trust’s exempt statusunder section 501(c)(3).

(c) Certain transfers at death. Thegeneral rule of gain recognition under§1.684–1 shall not apply to any transferof property by reason of death of the U.S.transferor if such property is included inthe gross estate of the U.S. transferor forFederal estate tax purposes and the basisof the property in the hands of the foreigntrust is determined under section 1014(a).

(d) Transfers for fair market value tounrelated trusts. The general rule of gainrecognition under §1.684–1 shall notapply to any transfer of property for fairmarket value to a foreign trust that is not arelated foreign trust as defined in§1.679–1(c)(5). Section §1.671–2(e)(2)(ii) defines fair market value.

(e) Certain distributions to trusts. Forpurposes of this section, a transfer doesnot include a distribution to a trust withrespect to an interest held by such trust inan entity other than a trust or an interest incertain investment trusts described in§301.7701–4(c) of this chapter, liquidat-ing trusts described in §301.7701–4(d) ofthis chapter, or environmental remedia-tion trusts described in §301.7701–4(e) ofthis chapter.

(f) Examples. The following examplesillustrate the rules of this section. In allexamples, A is a U.S. citizen and FT is aforeign trust. The examples are as fol-lows:

Example 1. Transfer to owner trust. In 2001, Atransfers property which has a fair market value of1000X and an adjusted basis equal to 400X to FT.At the time of the transfer, FT has a U.S. beneficiarywithin the meaning of §1.679–2, and A is treated asowning FT under section 679. Under paragraph (a)of this section, §1.684–1 does not cause A to recog-nize gain at the time of the transfer. See §1.684–2(e)for rules that may require A to recognize gain if thetrust is no longer owned by A.

Example 2. Property included in U.S. trans-feror’s estate at death. (i) The initial facts are thesame as Example 1.

(ii) A dies on July 1, 2004. The fair market valueat A’s death of all property transferred to FT by A is1500X. The basis in the property is 400X. A re-tained the power to revoke FT, thus, the value of allproperty owned by FT at A’s death is includible inA’s gross estate for U.S. estate tax purposes. Pur-suant to paragraph (c) of this section, A is not re-quired to recognize gain under §1.684–1 to the ex-tent the property is included in A’s gross estate andthe basis of the property in the hands of the foreigntrust is determined under section 1014(a).

Example 3. Property not included in U.S. trans-feror’s estate at death. (i) The initial facts are thesame as Example 1.

(ii) A dies on July 1, 2004. The fair market valueat A’s death of all property transferred to FT by A is1500X. The basis in the property is 400X. A re-tained no power over FT and the value of the prop-erty transferred to FT is not required to be includedin A’s gross estate. Under §1.684–2(e)(1), A istreated as having transferred the property to FT im-mediately before his death, and must recognize1100X of gain at that time under §1.684–1.

Example 4. Transfer of property for fair marketvalue to an unrelated foreign trust. A sells a housewith a fair market value of 1000X to FT in exchangefor a 30-year note issued by FT. A is not related to FTas defined in §1.679–1(c)(5). The note has an issueprice of 1000X. FT is not treated as owned by anyperson. Pursuant to paragraph (d) of this section, A isnot required to recognize gain under §1.684–1.

§1.684–4 Outbound migrations ofdomestic trusts.

(a) In general. If a U.S. person trans-fers property to a domestic trust, and suchtrust becomes a foreign trust, the trustshall be treated for purposes of this sec-tion as having transferred all of its assetsto a foreign trust and the trust is requiredto recognize gain on the transfer under§1.684–1(a). The trust must also complywith the rules of section 6048.

(b) Date of transfer. The transfer de-scribed in this section shall be deemed tooccur immediately before, but on thesame date that, the trust meets the defini-tion of a foreign trust set forth in section7701(a)(31)(B).

(c) Inadvertent migrations. In theevent of an inadvertent migration, as de-fined in §301.7701(d)(2) of this chapter, atrust may avoid the application of thissection by complying with the proceduresset forth in §301.7701–7(d)(2) of thischapter.

(d) Examples. The following examplesillustrate the rules of this section. In allexamples, A is a U.S. citizen, B is a U.S.citizen, C is a nonresident alien, T is atrust. The examples are as follows:

Example 1. Migration of domestic trust with U.S.beneficiaries. A transfers property which has a fairmarket value of 1000X and an adjusted basis equalto 400X to T, a domestic trust, for the benefit of A’schildren who are also United States citizens. B is thetrustee of T. On January 1, 2001, while A is stillalive, B resigns as trustee and C becomes successortrustee under the terms of the trust. Pursuant to§301.7701–7(d) of this chapter, T becomes a foreigntrust. T has U.S. beneficiaries within the meaning of§1.679–2 and A is, therefore, treated as owning FTunder section 679. Pursuant to §1.684–3(a), neitherA nor T is required to recognize gain at the time ofthe migration. Section 1.684–2(e) provides rulesthat may require A to recognize gain upon a subse-quent change in the status of the trust.

Example 2. Migration of domestic trust with noU.S. beneficiaries. A transfers property which has afair market value of 1000X and an adjusted basisequal to 400X to T, a domestic trust for the benefitof A’s mother who is not a citizen or resident of theUnited States. B is the trustee of T. On January 1,2001, while A is still alive, B resigns as trustee and Cbecomes successor trustee under the terms of thetrust. Pursuant to §301.7701–7(d) of this chapter, Tbecomes a foreign trust, FT. FT has no U.S. benefi-ciaries within the meaning of §1.679–2 and no per-son is treated as owning any portion of FT. T is re-quired to recognize gain of 600X on January 1,2001. Paragraph (c) of this section provides ruleswith respect to an inadvertent migration of a domes-tic trust.

§1.684–5 Effective date.

(a) Sections 1.684–1 through 1.684–4apply to transfers of property to foreigntrusts and foreign estates after August 7,2000.

David A. Mader,Acting Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on Au-gust 2, 2000, 1:04 p.m., and published in the issue ofthe Federal Register for August 7, 2000, 65 F.R.48198)

Notice of Proposed Rulemakingand Notice of Public Hearing

Foreign Trusts That Have U.S.Beneficiaries

REG–209038–89

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemak-ing and notice of public hearing.

SUMMARY: This document containsproposed regulations under section 679 ofthe Internal Revenue Code relating totransfers of property by U.S. persons toforeign trusts having one or more UnitedStates beneficiaries. The proposed regu-lations affect United States persons whotransfer property to foreign trusts. Thisdocument also provides notice of a publichearing on these proposed regulations.

DATES: Written or electronic commentsmust be received by November 6, 2000.Requests to speak (with outlines of oralcomments) to be discussed at the publichearing scheduled for November 8, 2000,

at 10 a.m. must be submitted by October18, 2000.

ADDRESSES: Send submissions to:CC:MSP:RU (REG–209038–89), room5226, Internal Revenue Service, POB7604, Ben Franklin Station, Washington,DC 20044. Submissions may be hand de-livered between the hours of 8 a.m. and 5p.m. to: CC:MSP:RU (REG–209038–89),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue, NW., Washing-ton, DC. Alternatively, taxpayers may sub-mit comments electronically via the Inter-net by selecting the “Tax Regs” option onthe IRS Home Page, or by submitting com-ments directly to the IRS Internet site athttp://www.irs.ustreas.gov/tax_regs/regslist.html. The public hearing will be heldin room 3313, Internal Revenue Building,1111 Constitution Avenue, NW., Washing-ton, DC.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations,Willard W. Yates at (202) 622-3880; con-cerning submissions and the hearing,Sonya M. Cruse, (202) 622-7180 (nottoll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 679 was added to the InternalRevenue Code (Code) by the Tax ReformAct of 1976 (1976 Act), Public Law 94-445, Sec. 1013(a), (90 Stat. 1614). Sec-tion 679 was amended significantly by theSmall Business Job Protection Act of1996 (1996 Act), Public Law 104-188,Secs. 1903(a)(1), 1903(a)(2), 1903(b),1903(c) and 1903(f) (110 Stat. 1755).

1. Law Prior to 1976

Sections 671 through 678 (the grantortrust rules) treat grantors and other per-sons who hold certain powers or interestsover a domestic or foreign trust as ownersof the portion of the trust with respect towhich they hold the powers or interests.If the grantor or other person is a U.S. cit-izen or resident, the grantor trust rules re-sult in the taxation of the worldwide in-come of the trust (or portion thereof) tothe grantor or other person.

Prior to the enactment of section 679, if atrust was not subject to the grantor trustrules (nongrantor trust), the income of thedomestic or foreign trust generally was

taxed to the trust to the extent the incomewas not currently distributed or required tobe distributed to the beneficiaries of thetrust. The income of a foreign nongrantortrust was taxed in basically the same man-ner as the income of a nonresident alien in-dividual. Foreign trusts were subject toU.S. tax only on their U.S.-source income(other than capital gains) and on any in-come effectively connected with a U.S.trade or business (or treated as effectivelyconnected with a U.S. trade or business).Like nonresident alien individuals, foreignnongrantor trusts were generally not sub-ject to U.S. tax on foreign-source income.

Prior to the enactment of section 679,U.S. persons often established foreign non-grantor trusts that invested in assets thatgenerated foreign-source income only.These foreign trusts avoided all U.S. tax ontheir income. In addition, these trusts gen-erally invested in countries that did not taxinterest or dividends paid to foreign in-vestors, and the trusts generally wereformed and administered in countries thatdid not tax trusts. Accordingly, in manycases these trusts paid no income tax any-where in the world. Although U.S. benefi-ciaries were subject to U.S. tax when a for-eign nongrantor trust distributed income tothem, the use of foreign nongrantor trustspermitted tax-free accumulations of in-come, giving foreign trusts a significant ad-vantage over domestic trusts.

2. Overview of 1976 Changes

Congress believed that allowing tax-freeaccumulation of income was inappropriateand provided an unwarranted advantage toforeign trusts over domestic trusts. Con-gress enacted section 679 as part of the1976 Act to provide generally that where aU.S. person directly or indirectly transfersproperty to a foreign trust, the income ofthe foreign trust is taxable to the transferorif the trust has a U.S. beneficiary. Accord-ingly, the trust is treated as a grantor trustwhether or not the transferor retains anypower or interest with respect to the trust.Congress enacted exceptions for certaintransfers for fair market value, for transfersby reason of death, and for transfers to cer-tain employee benefit trusts.

3. Overview of 1996 Changes

Section 1903 of the 1996 Act madeseveral changes to section 679. Thesechanges focused primarily on areas where

taxpayers could improperly avoid the ap-plication of section 679. For example,Congress was concerned that certain tax-payers attempted to come within the fairmarket value exception of section679(a)(2), thereby avoiding the applica-tion of section 679(a)(1), by issuing trustobligations that might not be repaid. H.R.Rep. No. 542, 104th Cong., 2d Sess., pt. 2at 25 (1996). Accordingly, the 1996 Actadded new section 679(a)(3), which gen-erally provides that obligations issued bythe trust, by any grantor or beneficiary ofthe trust, or by any person related to anygrantor or beneficiary are not taken intoaccount in applying the fair market valueexception except as provided in regula-tions.

The 1996 Act also added new sections679(a)(4) and (5) to prevent taxpayersfrom improperly avoiding the applicationof section 679. Section 679(a)(4) ensuresthat certain foreign persons who transferproperty to a foreign trust in anticipationof becoming U.S. persons (pre-immigra-tion trusts) cannot avoid the rules of sec-tion 679 by transferring property, directlyor indirectly, to a foreign trust and thenbecoming a resident of the United Stateswithin 5 years after the transfer. Section679(a)(5) prevents U.S. individuals fromcircumventing section 679 by transferringproperty to a domestic trust and thencausing the domestic trust to become aforeign trust.

In addition to the anti-avoidance mea-sures, Congress added a new exception tothe general rule of section 679(a)(1) fortransfers of property to certain charitabletrusts. Congress also enacted new section679(c)(3), which provides that beneficia-ries who first become U.S. persons morethan 5 years after the date of a transfer aredisregarded for purposes of applying sec-tion 679 with respect to that transfer.

The 1996 Act also amended section6048 to expand the reporting require-ments that apply to (i) a U.S. person whotransfers property to a foreign trust, and(ii) a foreign trust that is treated as ownedby a U.S. person under the grantor trustrules. The penalties under section 6677for a failure to comply with these report-ing requirements were also significantlyincreased. See Notice 97–34 (1997–1C.B. 422) and Forms 3520 and 3520A.

In addition, a transfer of appreciatedproperty by a U.S. person to a foreign

August 21, 2000 192 2000–34 I.R.B.

2000–34 I.R.B. 193 August 21, 2000

trust may trigger the immediate recogni-tion of any gain in the property under sec-tion 684. A transfer to a foreign trust thatis treated as owned by a U.S. personunder section 679 generally is exemptfrom this requirement at the time of thetransfer. However, if the trust subse-quently ceases to be treated as owned bythe U.S. person, the change in the statusof the trust may trigger gain at the time ofthe change.

Section 679 applies only for income taxpurposes. The estate and gift tax provi-sions of the Code determine whether atransfer to a foreign trust is subject to thefederal gift tax, or whether the corpus of aforeign trust is included in the gross estateof the U.S. transferor.

Explanation of Provisions

§1.679–1: U.S. Transferor Treated asOwner of Foreign Trust.

Section 1.679–1(a) of the proposedregulations provides that a U.S. transferorwho transfers property to a foreign trust istreated as the owner of the portion of thetrust attributable to the property trans-ferred during each taxable year that thetrust is treated as having a U.S. benefi-ciary. This rule applies without regard towhether the U.S. transferor retains anypower described in sections 673 through677. If the U.S. transferor is treated as theowner of a portion of a trust, under sec-tion 671 all income, deductions, and cred-its attributable to that portion must betaken into account by the U.S. transferorin determining the U.S. transferor’s tax li-ability.

The determination of whether a foreigntrust is treated as having a U.S. benefi-ciary is made under the rules set forth in§1.679–2. Section 1.679–3 defines theterm transfer. Section 1.679–4 providesexceptions to the general rule of§1.679–1. Section 1.679–5 provides spe-cial rules for pre-immigration trusts, and§1.679–6 describes the treatment of a do-mestic trust that becomes a foreign trust.Section 1.679–7 provides effective dates.

Congress intended section 679 to over-ride section 678. H.R. Rep. No. 658, 94thCong., 1st Sess., at 209 (1975). Accord-ingly, §1.679–1(b) provides that a U.S.transferor will be treated as the owner ofthe portion of a trust attributable to theproperty transferred to the trust by the

U.S. transferor whether or not anotherperson would be treated as the owner ofthe same portion of the trust under section678.

Section 1.679–1(c)(1) defines the termU.S. transferor to mean any U.S. personwho directly, indirectly, or constructivelytransfers property to a foreign trust.

Section 1.679–1(c)(2) defines the termU.S. person by reference to section7701(a)(30). Accordingly, section 679can apply not only to individuals, but alsoto entities. Section 1.679–1(c)(2) alsoprovides that a U.S. person includes an in-dividual who elects under section 6013(g)to be treated as a U.S. resident and an in-dividual who is a dual resident taxpayerwithin the meaning of §301.7701(b)–7(a).

Sections 1.679–1(c)(3), (4), (5), and (6)define the terms foreign trust, property,related person, and obligation, respec-tively.

The proposed regulations do not pro-vide specific guidance on the treatment ofjoint owners that transfer property to aforeign trust. Treasury and the IRS invitecomments with specific examples of areasthat may need comments with specific ex-amples of areas that may need clarifica-tion, such as, for example, the treatmentof community property or the joint own-ership of property by non-citizen spouses.

The rules of this section apply with re-spect to transfers to foreign trusts afterAugust 7, 2000.

§1.679–2: Trusts Treated as Having aU.S. Beneficiary

The proposed regulations employ abroad approach in determining whether aforeign trust is treated as having a U.S.beneficiary. This broad approach is con-sistent with the legislative history of the1976 Act. H.R. Rep. No. 658, 94thCong., 1st Sess., at 210 (1975).

Under §1.679–2(a)(1), a foreign trustthat has received property from a U.S.transferor is treated as having a U.S. ben-eficiary unless during the taxable year ofthe U.S. transferor: (i) no part of the in-come or corpus of the trust may be paid oraccumulated to or for the benefit of, eitherdirectly or indirectly, a U.S. person; and(ii) if the trust is terminated at any timeduring the taxable year, no part of the in-come or corpus of the trust could be paidto or for the benefit of, either directly orindirectly, a U.S. person. For purposes of

section 679, foreign trusts generally aretreated as having a U.S. beneficiary un-less both of these requirements are satis-fied.

Section 1.679–2(a)(2)(i) provides that,for purposes of applying these tests, in-come or corpus is considered to be paid oraccumulated to or for the benefit of a U.S.person during a taxable year of the U.S.transferor if during that year, directly orindirectly, income may be distributed to,or accumulated for the benefit of a U.S.person, or corpus may be distributed to, orheld for the future benefit of, a U.S. per-son. This determination is made withoutregard to whether income or corpus is ac-tually distributed to a U.S. person duringthat year, and without regard to whether aU.S. person’s interest in the trust incomeor corpus is contingent on a future event.

The proposed regulations recognizethat it may be possible for a U.S. personto obtain a future benefit from the trustunder certain unexpected circumstancesand that the possibility of such circum-stances should not necessarily cause theforeign trust to be treated as having a U.S.beneficiary. Accordingly, §1.679–2(a)(2)(ii) provides a narrow exception tothe general determination of whether aU.S. person can obtain a benefit under theforeign trust. Persons who are not namedas possible beneficiaries and are notmembers of a class of beneficiaries as de-fined in the trust instrument (or other rele-vant agreements, understandings, recordsand documents, as described below) arenot taken into consideration for purposesof applying the general rule of§1.679–2(a)(1) if the U.S. transferordemonstrates to the satisfaction of theCommissioner that their contingent inter-est in the trust is so remote as to be negli-gible. This exception does not apply withrespect to persons to whom distributionscould be made pursuant to a grant of dis-cretion to the trustee or another person.For example, if the trust instrument pro-vides that the trustee can distribute corpusto any of a large class of persons thatcould include U.S. persons, this exceptionwould not apply.

The proposed regulations require anannual determination of whether a foreigntrust is treated as having a U.S. benefi-ciary. Under §1.679–2(a)(3), the possibil-ity that a beneficiary who is not a U.S.person could become a U.S. person will

August 21, 2000 194 2000–34 I.R.B.

not cause that beneficiary to be treated asa U.S. person for purposes of determiningwhether there is a U.S. beneficiary untilthe year in which the beneficiary actuallybecomes a U.S. person. However, if thatnon-U.S. beneficiary becomes a U.S. per-son for the first time more than 5 yearsafter the date of the transfer, that benefi-ciary is not treated as a U.S. person forpurposes of the U.S.-beneficiary determi-nation even after the beneficiary actuallybecomes a U.S. person.

Section 1.679–2(a)(4) makes it clearthat a trust may be treated as having aU.S. beneficiary not only by reference tothe trust instrument, but also by referenceto all other written and oral agreementsand understandings relating to the trust.Also, a trust may be treated as having aU.S. beneficiary based on possibleamendments to the trust instrument, pos-sible application of local law that wouldrequire a U.S. beneficiary (unless the lawis not reasonably expected to be appliedunder the facts and circumstances), or ac-tual or reasonably expected disregard ofthe terms of the trust instrument by theparties to the trust.

A foreign trust is treated as having aU.S. beneficiary if it can benefit a U.S.person indirectly. Section 1.679–2(b)provides that an amount is treated as paidor accumulated to or for the benefit of aU.S. person if it can be paid to or accumu-lated for the benefit of a controlled for-eign corporation (as defined in section957(a)); a foreign partnership, if a U.S.person is a partner of such partnership; ora foreign trust or estate, if such trust or es-tate has a U.S. beneficiary. In addition, aforeign trust is treated as having a U.S.beneficiary if a U.S. person can benefitindirectly from the foreign trust by receiv-ing distributions from the trust through anintermediary, such as an agent or nomi-nee, through the use of a debit or creditcard, or any other means where a U.S.person may obtain an actual or construc-tive benefit from the trust.

The proposed regulations anticipate sit-uations where a foreign trust’s status ashaving a U.S. beneficiary changes. Sec-tion 1.679–2(c)(1) provides that if a for-eign trust does not have a U.S. beneficiaryinitially, but subsequently acquires a U.S.beneficiary, the U.S. transferor is treatedas having additional income in the firsttaxable year of the U.S. transferor in

which the trust is treated as having a U.S.beneficiary. The amount of the additionalincome is equal to the trust’s undistrib-uted net income, as defined in section665(a), at the end of the U.S. transferor’simmediately preceding taxable year and issubject to the rules of section 668, provid-ing for an interest charge on accumulationdistributions from foreign trusts.

Section 1.679–2(c)(2) provides that if atrust to which a U.S. transferor transferredproperty is initially treated as having aU.S. beneficiary, but subsequently ceasesto be treated as having a U.S. beneficiary,the U.S. transferor is no longer treated asthe owner beginning in the following tax-able year (unless the U.S. transferor isotherwise treated as the owner under thegrantor trust rules). The U.S. transferor istreated as making a transfer to the foreigntrust that may be subject to the gainrecognition rules of section 684.

The rules of this section apply with re-spect to transfers to foreign trusts afterAugust 7, 2000.

§1.679–3 Transfers

Section 1.679–3(a) of the proposedregulations broadly defines the termtransfer as any direct, indirect, or con-structive transfer by a U.S. person to aforeign trust. The rules are generally con-sistent with the rules for determiningwhether a person is considered to be agrantor of a trust under §1.671–2(e).

Section 1.679–3(b) provides that atransfer of property to a foreign trust fromeither a domestic or foreign trust that isowned by a U.S. person under sections673 through 679 is treated as a transferfrom the owner of the transferor trust.For example, if a U.S. person is treated asthe owner of a domestic trust under sec-tion 676, and that domestic trust transfersproperty to a foreign trust, the U.S. personis treated as having transferred the prop-erty to the foreign trust.

Section 1.679–3(c) provides rules fordetermining when there is an indirecttransfer. Under §1.679–3(c)(1), a transferto a foreign trust by any person to whom aU.S. person transfers property (referred toas an intermediary) is treated as an indi-rect transfer by a U.S. person if the trans-fer is made pursuant to a plan one of theprincipal purposes of which is the avoid-ance of U.S. tax. Section 1.679–3(c)(2)deems a transfer to have been made pur-

suant to such a plan if the U.S. transferoris related to a U.S. beneficiary of the for-eign trust, or has another relationship withthe foreign trust that establishes a reason-able basis for concluding that the U.S.transferor would make a transfer to theforeign trust, and the U.S. person cannotdemonstrate to the satisfaction of theCommissioner that:(i) the intermediaryhas a relationship with a U.S. beneficiaryof the foreign trust that establishes a rea-sonable basis for concluding that the in-termediary would make a transfer to theforeign trust, (ii) the intermediary actedindependently of the U.S. transferor, (iii)the intermediary is not an agent of theU.S. transferor under generally applicableUnited States agency principles, and (iv)that the intermediary timely compliedwith the reporting requirements of section6048 (including Notice 97–34), if applic-able. This test is consistent with the leg-islative history of the 1976 Act. H.R.Rep. No. 658, 94th Cong., 1st Sess., at209 (1975). This test is also similar to thetest in §1.643(h)–1(a), although the pre-sumption in the proposed regulations ap-plies without regard to the period of timebetween the transfer from the U.S. personto the intermediary and from the interme-diary to the foreign trust.

Section 1.679–3(c)(3) explains that if atransfer is treated as an indirect transfer,the intermediary generally is treated as anagent of the U.S. transferor, and the prop-erty is treated as transferred to the foreigntrust by the U.S. transferor in the year theproperty is transferred, or made available,by the intermediary to the foreign trust.The fair market value of the property trans-ferred generally is determined as of thedate of the transfer by the intermediary tothe foreign trust. Although the intermedi-ary is not treated as having transferred thatproperty to the foreign trust for purposes ofsection 679, the intermediary must complywith the reporting requirements of section6048, if applicable.

Section 1.679–3(d) provides that a con-structive transfer includes any assumptionor satisfaction of a foreign trust’s obliga-tion. For example, a U.S. transferor’s pay-ment of a foreign trust’s obligation to athird party is treated as a constructivetransfer.

Congress anticipated that guarantees ofa trust obligation would be treated as trans-fers. H.R. Rep. No. 658, 94th Cong., 1st

2000–34 I.R.B. 195 August 21, 2000

Sess., at 209 (1975). Section 1.679–3(e)provides rules regarding the treatment ofguarantees as transfers. If a foreign trustborrows money or other property from ei-ther a U.S. or non-U.S. person who is not arelated person with respect to the trust (re-ferred to as the lender), and a U.S. personwho is a related person with respect to thetrust (referred to as the U.S. guarantor)guarantees the foreign trust’s obligation,the U.S. guarantor is treated as havingmade a transfer to the foreign trust. Theamount deemed transferred is the guaran-teed portion of the adjusted issue price ofthe obligation plus any accrued but unpaidstated interest. Payments of principal bythe trust with respect to the obligation aretaken into account on and after the date ofthe payment in determining the portion ofthe trust attributable to the propertydeemed transferred.

Section 1.679–3(f) provides specificrules regarding transfers by a U.S. personto an entity owned by a foreign trust if theU.S. person is related to the foreign trust.The transfer is treated as a transfer fromthe U.S. person to the foreign trust, fol-lowed by a transfer from the foreign trustto the entity owned by the foreign trust,unless the U.S. person demonstrates to thesatisfaction of the Commissioner that thetransfer to the entity is properly attribut-able to the U.S. person’s ownership inter-est in the entity.

Sections 1.679–3 applies to transfersafter August 7, 2000.

§1.679–4 Exceptions to General Rule

Pursuant to sections 679(a)(1) and(a)(2), §1.679–4(a) provides the follow-ing four exceptions to the general rule of§1.679–1: (i) transfers to a foreign trustby reason of the death of the transferor;(ii) transfers to a foreign trust described insections 402(b), 404(a)(4), or 404A; (iii)transfers to a foreign trust that has re-ceived a ruling or determination letter,which has been neither revoked nor modi-fied, from the Internal Revenue Servicerecognizing the trust’s tax exempt statusunder section 501(c)(3); and (iv) transfersto the extent they are for fair marketvalue.

Section 1.679–4(b) provides rules fordetermining whether a transfer to a for-eign trust is for fair market value. Therules generally follow the rules for deter-mining fair market value under

§1.671–2(e). For purposes of this deter-mination, an interest in the trust is notconsidered to be property received fromthe trust. A distribution to a foreign trustwith respect to an interest held by suchtrust in an entity other than a trust or in atrust described in §301.7701–4(c), (d), or(e) is considered to be a transfer for fairmarket value. For example, a dividendpaid by a U.S. corporation to a foreigntrust with respect to the foreign trust’sstock ownership in the corporation is nota transfer that is subject to the general ruleof section §1.679–1.

Section 679(a)(3) provides that in de-termining whether a transfer is for fairmarket value, obligations received fromthe trust or certain related persons are nottaken into account, except to the extentprovided in regulations. As noted above,this provision reflects Congress’ concernthat certain taxpayers may have attemptedto take advantage of the fair market valueexception to section 679 by transferringproperty to a foreign trust in exchange forobligations issued by the trust (or relatedpersons) that might not be repaid. Con-gress intended Treasury and the IRS toexercise their regulatory authority to con-sider whether there is a reasonable expec-tation that an obligation of the trust wouldbe repaid. H.R. Conf. Rep. No. 737,104th Cong., 2d Sess. 335 (1996).

The proposed regulations, in exercisingthis authority, follow the approach in No-tice 97–34 (1997–1 C.B. 422). The pro-posed regulations describe the circum-stances under which an obligation of aforeign trust (or a person related to thattrust) will be treated as a qualified obliga-tion that is taken into account for pur-poses of determining whether a U.S.transferor received fair market value froma trust in exchange for a transfer by theU.S. transferor. If the U.S. transferor, inexchange for the property transferred, re-ceives an obligation of the trust (or a re-lated person) that is not a qualified obliga-tion, the obligation is considered to haveno value for purposes of determiningwhether the transferor received fair mar-ket value.

The term obligation is defined in§1.679–1(c)(6). Section 1.679–4(d) pro-vides that to be treated as a qualifiedobligation, an obligation must be reducedto writing by an express written agree-ment. The obligation must have a term

not in excess of five years. For purposesof determining an obligation’s term, theobligation’s maturity date is the last possi-ble date it can be outstanding under theterms of the obligation. Accordingly, de-mand loans and private annuity transac-tions do not constitute qualified obliga-tions. In addition, all payments on aqualified obligation must be denominatedin U.S. dollars. The yield to maturity can-not be less than 100 percent of the applic-able Federal rate and cannot be greaterthan 130 percent of the applicable Federalrate. The U.S. transferor must extend theperiod for assessment of any income ortransfer tax attributable to the transfer andany consequential income tax changes foreach year that the obligation is outstand-ing, to a date not earlier than three yearsafter the maturity date of the obligation.The extension is not necessary if the ma-turity date of the obligation does not ex-tend beyond the end of the U.S. trans-feror’s taxable year and is paid withinsuch period. Finally, the U.S. transferormust report the status of the loan, includ-ing principal and interest payments, onForm 3520 for every year that the loan isoutstanding.

Section 1.679–4(d) also incorporatesother rules regarding qualified obligationsfrom Notice 97–34. For example, undercertain circumstances, the issuance of ad-ditional obligations by the foreign trust ora person related to the foreign trust maycause an obligation that had been a quali-fied obligation to lose such status. Rene-gotiation of the terms of the loan is treatedas a new loan. If an obligation loses itsstatus as a qualified obligation, the U.S.transferor is treated as making a transferto the trust that may be subject to§1.679–1. Principal repayments with re-spect to obligations that are not qualifiedobligations are taken into account on andafter the date of the payment in determin-ing the portion of the trust attributable tothe property originally transferred.

The rules of this section generallyapply with respect to transfers to foreigntrusts after August 7, 2000. Special effec-tive dates, based on the guidance set forthin Notice 97–34, are provided for therules that apply to obligations.

§1.679–5 Pre–immigration Trusts

The 1996 Act added section 679(a)(4)to address the potential abuse of nonresi-

dent aliens establishing foreign trustsshortly before becoming U.S. persons.Section 1.679–5 provides that if a nonres-ident alien individual becomes a U.S. per-son and the individual has a residencystarting date (as determined under section7701(b)(2)(A)) within 5 years after di-rectly or indirectly transferring propertyto a foreign trust, the individual is deemedto transfer the property to the trust on theresidency starting date. The amountdeemed transferred is the portion of thetrust attributable to the property trans-ferred by the individual in the originaltransfer. Section 1.679–5(b) provides thatif the nonresident alien individual istreated under the grantor trust rules as theowner of any portion of the trust and theindividual ceases to be so treated, the 5-year period begins on the date the individ-ual ceases to be so treated.

The property deemed transferred to theforeign trust on the residency starting dateincludes undistributed net income, as de-fined in section 665(a), attributable to theproperty transferred. Undistributed netincome for periods before the individual’sresidency starting date is taken into ac-count only for purposes of determiningthe portion of the trust that is attributableto property transferred.

If an individual is treated as making adeemed transfer pursuant to this provi-sion, the reporting requirements of sec-tion 6048 apply to the deemed transfer asof the residency starting date.

The rules of this section apply to per-sons whose residency starting date is afterAugust 7, 2000.

§1.679–6 Outbound Migrations ofDomestic Trusts

The proposed regulations implementsection 679(a)(5), which addresses thesituation where a trust that is a domestictrust becomes a foreign trust. If an indi-vidual who is a U.S. person transfersproperty to a trust that is not a foreigntrust, and the trust becomes a foreigntrust while the U.S. person is alive, theU.S. individual is treated as a U.S. trans-feror and is deemed to transfer the prop-erty to a foreign trust on the date the do-mestic trust becomes a foreign trust.The property deemed transferred to thetrust when it becomes a foreign trust in-cludes undistributed net income, as de-fined in section 665(a), attributable to

the property previously transferred.Undistributed net income for periodsprior to the trust migration is taken intoaccount only for purposes of determin-ing the portion of the trust that is attrib-utable to the property transferred by theU.S. person.

If a U.S. person is treated as making adeemed transfer pursuant to this provi-sion, the reporting requirements of sec-tion 6048 apply to the deemed transfer asof the date of the deemed transfer.

The rules of this section apply to truststhat become foreign trusts after August 7,2000.

§1.679–7 Effective Dates.

This section of the proposed regula-tions provides effective dates with respectto §§1.679–1 through 1.679–6. These ef-fective dates are discussed above in thecontext of each respective section.Notwithstanding the effective dates in theproposed regulations, the Internal Rev-enue Service may apply the effectivedates that are applicable to section 679 ofthe Internal Revenue Code. In addition,the Internal Revenue Service is not re-stricted from applying general income taxprinciples to transactions prior to the ef-fective dates of the proposed regulationsto determine, for example, that a U.S. per-son has made a transfer to a foreign trust.

Certain Clarifications Regarding Section958

The proposed regulations clarify that,under §1.958–1(b), a person who istreated as the owner of any portion of atrust under section 679 and the othergrantor trust rules is treated as the ownerof the stock owned by the trust with re-spect to that portion. This change ismerely intended as a clarification of exist-ing law.

Existing §1.958–2(c)(1)(ii)(b) providesthat a person who is treated as the ownerof any portion of a trust under sections671 through 678 is treated as the owner ofthe stock owned by or for that portion ofthe trust for purposes of the constructiveownership rules of section 958(b). Be-cause section 679 was not enacted until1976, it is not referred to in the existingregulations, which were issued in 1966.The proposed regulations clarify that thistreatment also applies to persons treatedas the owner of any portion of a trust

under section 679. This change is merelyintended as a clarification of existing law.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It alsohas been determined that section 553(b)of the Administrative Procedure Act (5U.S.C. chapter 5) does not apply to theseregulations, and because the regulationsdo not impose a collection of informationon small entities, the Regulatory Flexibil-ity Act (5 U.S.C. chapter 6) does notapply. Pursuant to section 7805(f) of theInternal Revenue Code, this notice of pro-posed rulemaking will be submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments (asigned original and eight (8) copies) thatare submitted timely to the IRS. The IRSand Treasury specifically request com-ments on the clarity of the proposed regula-tions and how they can be made easier tounderstand. All comments will be availablefor public inspection and copying.

A public hearing has been scheduledfor November 8, 2000, at 10 a.m. in room3313, Internal Revenue Building, 1111Constitution Avenue, NW., WashingtonDC. Because of access restrictions, visi-tors will not be admitted beyond the Inter-nal Revenue Building lobby more than 15minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3)apply to the hearing.

Persons that wish to present oral com-ments at the hearing must submit writtencomments by November 6, 2000, andsubmit an outline of the topics to be dis-cussed and the time to be devoted to eachtopic (signed original and eight (8)copies) by October 18, 2000.

A period of 10 minutes will be allottedto each person for making comments.

An agenda showing the scheduling ofthe speakers will be prepared after thedeadline for receiving outlines haspassed. Copies of the agenda will beavailable free of charge at the hearing.

August 21, 2000 196 2000–34 I.R.B.

Drafting Information

The principal author of these proposedregulations is Willard W. Yates of the Of-fice of Associate Chief Counsel (Interna-tional). However, other personnel fromthe IRS and Treasury Department partici-pated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is pro-posed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.679–1 also issued under 26U.S.C. 643(a)(7) and 679(d).Section 1.679–2 also issued under 26U.S.C. 643(a)(7) and 679(d).Section 1.679–3 also issued under 26U.S.C. 643(a)(7) and 679(d).Section 1.679–4 also issued under 26U.S.C. 643(a)(7), 679(a)(3) and 679(d).Section 1.679–5 also issued under 26U.S.C. 643(a)(7) and 679(d).Section 1.679–6 also issued under 26U.S.C. 643(a)(7) and 679(d). * * *

Par. 2. Sections 1.679–1, 1.679–2,1.679–3, 1.679–4, 1.679–5, 1.679–6, and1.679–7 are added under the undesignatedcenter heading “Grantors and otherstreated as substantial owners” to read asfollows:

§1.679–1 U.S. transferor treated asowner of foreign trust.

(a) In general. A U.S. transferor whotransfers property to a foreign trust istreated as the owner of the portion of thetrust attributable to the property trans-ferred if there is a U.S. beneficiary of anyportion of the trust, unless an exception in§1.679–4 applies to the transfer.

(b) Interaction with sections 673through 678. The rules of this sectionapply without regard to whether the U.S.transferor retains any power or interestdescribed in sections 673 through 677. Ifa U.S. transferor would be treated as theowner of a portion of a foreign trust pur-suant to the rules of this section and an-other person would be treated as the

owner of the same portion of the trust pur-suant to section 678, then the U.S. trans-feror is treated as the owner and the otherperson is not treated as the owner.

(c) Definitions. The following defini-tions apply for purposes of this sectionand §§1.679–2 through 1.679–7:

(1) U.S. transferor. The term U.S.transferor means any U.S. person whomakes a transfer (as defined in §1.679–3)of property to a foreign trust.

(2) U.S. person. The term U.S. personmeans a United States person as definedin section 7701(a)(30), a nonresidentalien individual who elects under section6013(g) to be treated as resident of theUnited States, and an individual who is adual resident taxpayer within the meaningof §301.7701(b)–7(a) of this chapter.

(3) Foreign trust. Section7701(a)(31)(B) defines the term foreigntrust.

(4) Property. The term property meansany property including cash.

(5) Related person. A person is a re-lated person if, without regard to thetransfer at issue, the person is—

(i) A grantor of any portion of the trust(within the meaning of §1.671–2(e)(1));

(ii) An owner of any portion of the trustunder sections 671 through 679;

(iii) A beneficiary of the trust; or(iv) A person who is related (within the

meaning of section 643(i)(2)(B)) to anygrantor, owner or beneficiary of the trust.

(6) Obligation. The term obligationmeans any bond, note, debenture, certifi-cate, bill receivable, account receivable,note receivable, open account, or other evi-dence of indebtedness, and, to the extent notpreviously described, any annuity contract.

(d) Examples. The following exam-ples illustrate the rules of paragraph (a) ofthis section. In these examples, A is a res-ident alien, B is A’s son, who is a residentalien, C is A’s father, who is a residentalien, D is A’s uncle, who is a nonresidentalien, and FT is a foreign trust. The ex-amples are as follows:

Example 1. Interaction with section 678. A cre-ates and funds FT. FT may provide for the educa-tion of B by paying for books, tuition, room andboard. In addition, C has the power to vest the trustcorpus or income in himself within the meaning ofsection 678(a)(1). Under paragraph (b) of this sec-tion, A is treated as the owner of the portion of FTattributable to the property transferred to FT by Aand C is not treated as the owner thereof.

Example 2. U.S. person treated as owner of aportion of FT. D creates and funds FT for the bene-

fit of B. D retains a power described in section 676and §1.672(f)–3(a)(1). A transfers property to FT.Under sections 676 and 672(f), D is treated as theowner of the portion of FT attributable to the prop-erty transferred by D. Under paragraph (a) of thissection, A is treated as the owner of the portion ofFT attributable to the property transferred by A.

§1.679–2 Trusts treated as having a U.S.beneficiary.

(a) Existence of U.S. beneficiary—(1)In general. The determination of whethera foreign trust has a U.S. beneficiary ismade on an annual basis. A foreign trustis treated as having a U.S. beneficiary un-less during the taxable year of the U.S.transferor—

(i) No part of the income or corpus ofthe trust may be paid or accumulated to orfor the benefit of, directly or indirectly, aU.S. person; and

(ii) If the trust is terminated at any timeduring the taxable year, no part of the in-come or corpus of the trust could be paidto or for the benefit of, directly or indi-rectly, a U.S. person.

(2) Benefit to a U.S. person—(i) Ingeneral. For purposes of paragraph (a)(1)of this section, income or corpus may bepaid or accumulated to or for the benefitof a U.S. person during a taxable year ofthe U.S. transferor if during that year, di-rectly or indirectly, income may be dis-tributed to, or accumulated for the benefitof, a U.S. person, or corpus may be dis-tributed to, or held for the future benefitof, a U.S. person. This determination ismade without regard to whether incomeor corpus is actually distributed to a U.S.person during that year, and without re-gard to whether a U.S. person’s interest inthe trust income or corpus is contingenton a future event.

(ii) Certain unexpected beneficiaries.Notwithstanding paragraph (a)(2)(i) ofthis section, for purposes of paragraph(a)(1) of this section, a person who is notnamed as a beneficiary and is not a mem-ber of a class of beneficiaries as definedunder the trust instrument is not taken intoconsideration if the U.S. transferordemonstrates to the satisfaction of theCommissioner that the person’s contin-gent interest in the trust is so remote as tobe negligible. The preceding sentencedoes not apply with respect to persons towhom distributions could be made pur-suant to a grant of discretion to the trusteeor any other person. A class of beneficia-

2000–34 I.R.B. 197 August 21, 2000

ries generally does not include heirs whowill benefit from the trust under the lawsof intestate succession in the event thatthe named beneficiaries (or members ofthe named class) have all deceased(whether or not stated as a named class inthe trust instrument).

(iii) Examples. The following exam-ples illustrate the rules of paragraphs(a)(1) and (a)(2) of this section. In theseexamples, A is a resident alien, B is A’sson, who is a resident alien, C is A’sdaughter, who is a nonresident alien, andFT is a foreign trust. The examples are asfollows:

Example 1. Distribution of income to U.S. per-son. A transfers property to FT. The trust instru-ment provides that all trust income is to be distrib-uted currently to B. Under paragraph (a)(1) of thissection, FT is treated as having a U.S. beneficiary.

Example 2. Income accumulation for the benefitof a U.S. person. In 2001, A transfers property to FT.The trust instrument provides that from 2001 through2010, the trustee of FT may distribute trust income toC or may accumulate the trust income. The trust in-strument further provides that in 2011, the trust willterminate and the trustee may distribute the trust as-sets to either or both of B and C, in the trustee’s dis-cretion. If the trust terminates unexpectedly prior to2011, all trust assets must be distributed to C. Be-cause it is possible that income may be accumulatedin each year, and that the accumulated income ulti-mately may be distributed to B, a U.S. person, underparagraph (a)(1) of this section FT is treated as havinga U.S. beneficiary during each of A’s tax years from2001 through 2011. This result applies even thoughno U.S. person may receive distributions from thetrust during the tax years 2001 through 2010.

Example 3. Corpus held for the benefit of a U.S.person. The facts are the same as in Example 2, ex-cept that from 2001 through 2011, all trust incomemust be distributed to C. In 2011, the trust will ter-minate and the trustee may distribute the trust cor-pus to either or both of B and C, in the trustee’s dis-cretion. If the trust terminates unexpectedly prior to2011, all trust corpus must be distributed to C. Be-cause during each of A’s tax years from 2001through 2011 trust corpus is held for possible futuredistribution to B, a U.S. person, under paragraph(a)(1) of this section FT is treated as having a U.S.beneficiary during each of those years. This resultapplies even though no U.S. person may receive dis-tributions from the trust during the tax years 2001through 2010.

Example 4. Distribution upon U.S. transferor’sdeath. A transfers property to FT. The trust instru-ment provides that all trust income must be distrib-uted currently to C and, upon A’s death, the trust willterminate and the trustee may distribute the trustcorpus to either or both of B and C. Because B mayreceive a distribution of corpus upon the terminationof FT, and FT could terminate in any year, FT istreated as having a U.S. beneficiary in the year ofthe transfer and in subsequent years.

Example 5. Distribution after U.S. transferor’sdeath. The facts are the same as in Example 4, ex-cept the trust instrument provides that the trust will

not terminate until the year following A’s death.Upon termination, the trustee may distribute thetrust assets to either or both of B and C, in thetrustee’s discretion. All trust assets are invested inthe stock of X, a foreign corporation, and X makesno distributions to FT. Although no U.S. personmay receive a distribution until the year after A’sdeath, and FT has no realized income during anyyear of its existence, during each year in which A isliving corpus may be held for future distribution toB, a U.S. person. Thus, under paragraph (a)(1) ofthis section FT is treated as having a U.S. benefi-ciary during each of A’s tax years from 2001 throughthe year of A’s death.

Example 6. Constructive benefit to U.S. person.A transfers property to FT. The trust instrument pro-vides that no income or corpus may be paid directlyto a U.S. person. However, the trust instrument pro-vides that trust corpus may be used to satisfy B’slegal obligations to a third party by making a pay-ment directly to the third party. Under paragraphs(a)(1) and (2) of this section, FT is treated as havinga U.S. beneficiary.

Example 7. U.S. person with negligible contin-gent interest. A transfers property to FT. The trustinstrument provides that all income is to be distrib-uted currently to C, and upon C’s death, all corpus isto be distributed to whomever of C’s three childrenis then living. All of C’s children are nonresidentaliens. Under the laws of intestate succession thatwould apply to FT, if all of C’s children are de-ceased at the time of C’s death, the corpus would bedistributed to A’s heirs. A’s living relatives at thetime of the transfer consist solely of two brothersand two nieces, all of whom are nonresident aliens,and two first cousins, one of whom, E, is a U.S. citi-zen. Although it is possible under certain circum-stances that E could receive a corpus distributionunder the applicable laws of intestate succession, foreach year the trust is in existence A is able to demon-strate to the satisfaction of the Commissioner underparagraph (a)(2)(ii) of this section that E’s contin-gent interest in FT is so remote as to be negligible.Provided that paragraph (a)(4) of this section doesnot require a different result, FT is not treated ashaving a U.S. beneficiary.

Example 8. U.S. person with non-negligible con-tingent interest. A transfers property to FT. Thetrust instrument provides that all income is to be dis-tributed currently to D, A’s uncle, who is a nonresi-dent alien, and upon A’s death, the corpus is to bedistributed to D if he is then living. Under the lawsof intestate succession that would apply to FT, B andC would share equally in the trust corpus if D is notliving at the time of A’s death. A is unable todemonstrate to the satisfaction of the Commissionerthat B’s contingent interest in the trust is so remoteas to be negligible. Under paragraph (a)(2)(ii) ofthis section, FT is treated as having a U.S. benefi-ciary as of the year of the transfer.

Example 9. U.S. person as member of class ofbeneficiaries. A transfers property to FT. The trustinstrument provides that all income is to be distrib-uted currently to D, A’s uncle, who is a nonresidentalien, and upon A’s death, the corpus is to be distrib-uted to D if he is then living. If D is not then living,the corpus is to be distributed to D’s descendants.D’s grandson, E, is a resident alien. Under para-graph (a)(2)(ii) of this section, FT is treated as hav-ing a U.S. beneficiary as of the year of the transfer.

Example 10. Trustee’s discretion in choosingbeneficiaries. A transfers property to FT. The trustinstrument provides that the trustee may distributeincome and corpus to, or accumulate income for thebenefit of, any person who is pursuing the academicstudy of ancient Greek, in the trustee’s discretion.Because it is possible that a U.S. person will receivedistributions of income or corpus, or will have in-come accumulated for his benefit, FT is treated ashaving a U.S. beneficiary. This result applies evenif, during a tax year, no distributions or accumula-tions are actually made to or for the benefit of a U.S.person. A may not invoke paragraph (a)(2)(ii) ofthis section because a U.S. person could benefit pur-suant to a grant of discretion in the trust instrument.

Example 11. Appointment of remainder benefi-ciary. A transfers property to FT. The trust instru-ment provides that the trustee may distribute currentincome to C, or may accumulate income, and, upontermination of the trust, trust assets are to be distrib-uted to C. However, the trust instrument further pro-vides that D, A’s uncle, may appoint a different re-mainder beneficiary. Because it is possible that aU.S. person could be named as the remainder bene-ficiary, and because corpus could be held in eachyear for the future benefit of that U.S. person, FT istreated as having a U.S. beneficiary for each year.

Example 12. Trust not treated as having a U.S.beneficiary. A transfers property to FT. The trustinstrument provides that the trustee may distributeincome and corpus to, or accumulate income for thebenefit of C. Upon termination of the trust, all in-come and corpus must be distributed to C. Assumethat paragraph (a)(4) of this section is not applicableunder the facts and circumstances and that A estab-lishes to the satisfaction of the Commissioner underparagraph (a)(2)(ii) of this section that no U.S. per-sons are reasonably expected to benefit from thetrust. Because no part of the income or corpus of thetrust may be paid or accumulated to or for the bene-fit of, either directly or indirectly, a U.S. person, andif the trust is terminated no part of the income orcorpus of the trust could be paid to or for the benefitof, either directly or indirectly, a U.S. person, FT isnot treated as having a U.S. beneficiary.

Example 13. U.S. beneficiary becomes non-U.S.person. In 2001, A transfers property to FT. Thetrust instrument provides that, as long as B remains aU.S. resident, no distributions of income or corpusmay be made from the trust to B. The trust instru-ment further provides that if B becomes a nonresi-dent alien, distributions of income (including previ-ously accumulated income) and corpus may bemade to him. If B remains a U.S. resident at the timeof FT’s termination, all accumulated income andcorpus is to be distributed to C. In 2007, B becomesa nonresident alien and remains so thereafter. Be-cause income may be accumulated during the years2001 through 2007 for the benefit of a person who isa U.S. person during those years, FT is treated ashaving a U.S. beneficiary under paragraph (a)(1) ofthis section during each of those years. This resultapplies even though B cannot receive distributionsfrom FT during the years he is a resident alien andeven though B might remain a resident alien who isnot entitled to any distribution from FT. Providedthat paragraph (a)(4) of this section does not requirea different result and that A establishes to the satis-faction of the Commissioner under paragraph(a)(2)(ii) of this section that no other U.S. persons

August 21, 2000 198 2000–34 I.R.B.

are reasonably expected to benefit from the trust, FTis not treated as having a U.S. beneficiary underparagraph (a)(1) of this section during tax years after2007.

(3) Changes in beneficiary’s status—(i) In general. For purposes of paragraph(a)(1) of this section, the possibility that aperson that is not a U.S. person could be-come a U.S. person will not cause thatperson to be treated as a U.S. person forpurposes of paragraph (a)(1) of this sec-tion until the tax year of the U.S. trans-feror in which that individual actually be-comes a U.S. person. However, if aperson who is not a U.S. person becomesa U.S. person for the first time more than5 years after the date of a transfer to theforeign trust by a U.S. transferor, that per-son is not treated as a U.S. person for pur-poses of applying paragraph (a)(1) of thissection with respect to that transfer.

(ii) Examples. The following exam-ples illustrate the rules of paragraph (a)(3)of this section. In these examples, A is aresident alien, B is A’s son, who is a resi-dent alien, C is A’s daughter, who is anonresident alien, and FT is a foreigntrust. The examples are as follows:

Example 1. Non-U.S. beneficiary becomes U.S.person. In 2001, A transfers property to FT. Thetrust instrument provides that all income is to be dis-tributed currently to C and that, upon the terminationof FT, all corpus is to be distributed to C. Assumethat paragraph (a)(4) of this section is not applicableunder the facts and circumstances and that A estab-lishes to the satisfaction of the Commissioner underparagraph (a)(2)(ii) of this section that no U.S. per-sons are reasonably expected to benefit from thetrust. Under paragraph (a)(3)(i) of this section, FT isnot treated as having a U.S. beneficiary during thetax years of A in which C remains a nonresidentalien. If C first becomes a resident alien in 2004, FTis treated as having a U.S. beneficiary commencingin that year under paragraph (a)(3) of this section.See paragraph (c) of this section regarding the treat-ment of A upon FT’s acquisition of a U.S. benefi-ciary.

Example 2. Non-U.S. beneficiary becomes U.S.person more than 5 years after transfer. The factsare the same as in Example 1, except C first becomesa resident alien in 2007. FT is treated as not having aU.S. beneficiary under paragraph (a)(3)(i) of thissection with respect to the property transfer. How-ever, if C had previously been a U.S. person duringany prior period, the 5-year exception in paragraph(a)(3)(i) of this section would not apply in 2007 be-cause it would not have been the first time C becamea U.S. person.

(4) General rules—(i) Records anddocuments. Even if, based on the terms ofthe trust instrument, a foreign trust is nottreated as having a U.S. beneficiarywithin the meaning of paragraph (a)(1) ofthis section, the trust may nevertheless be

treated as having a U.S. beneficiary pur-suant to paragraph (a)(1) of this sectionbased on the following—

(A) All written and oral agreements andunderstandings relating to the trust;

(B) Memoranda or letters of wishes;(C) All records that relate to the actual

distribution of income and corpus; and (D) All other documents that relate to

the trust, whether or not of any purportedlegal effect.

(ii) Additional factors. For purposes ofdetermining whether a foreign trust istreated as having a U.S. beneficiarywithin the meaning of paragraph (a)(1) ofthis section, the following additional fac-tors are taken into account–

(A) If the terms of the trust instrumentallow the trust to be amended to benefit aU.S. person, all potential benefits thatcould be provided to a U.S. person pur-suant to an amendment must be taken intoaccount;

(B) If the terms of the trust instrumentdo not allow the trust to be amended tobenefit a U.S. person, but the law applica-ble to a foreign trust may require pay-ments or accumulations of income or cor-pus to or for the benefit of a U.S. person(by judicial reformation or otherwise), allpotential benefits that could be providedto a U.S. person pursuant to the law mustbe taken into account, unless the U.S.transferor demonstrates to the satisfactionof the Commissioner that the law is notreasonably expected to be applied or in-voked under the facts and circumstances;and

(C) If the parties to the trust ignore theterms of the trust instrument, or if it isreasonably expected that they will do so,all benefits that have been, or are reason-ably expected to be, provided to a U.S.person must be taken into account.

(iii) Examples. The following exam-ples illustrate the rules of paragraph (a)(4)of this section. In these examples, A is aresident alien, B is A’s son, who is a resi-dent alien, C is A’s daughter, who is anonresident alien, and FT is a foreigntrust. The examples are as follows:

Example 1. Amendment pursuant to local law. Acreates and funds FT for the benefit of C. The termsof FT (which, according to the trust instrument, can-not be amended) provide that no part of the incomeor corpus of FT may be paid or accumulated duringthe taxable year to or for the benefit of any U.S. per-son, either during the existence of FT or at the timeof its termination. However, pursuant to the applica-ble foreign law, FT can be amended to provide for

additional beneficiaries, and there is an oral under-standing between A and the trustee that B can beadded as a beneficiary. Under paragraphs (a)(1) and(a)(4)(ii)(B) of this section, FT is treated as having aU.S. beneficiary.

Example 2. Actions in violation of the terms ofthe trust. A transfers property to FT. The trust in-strument provides that no U.S. person can receiveincome or corpus from FT during the term of thetrust or at the termination of FT. Notwithstandingthe terms of the trust instrument, a letter of wishesdirects the trustee of FT to provide for the educa-tional needs of B, who is about to begin college.The letter of wishes contains a disclaimer to the ef-fect that its contents are only suggestions and rec-ommendations and that the trustee is at all timesbound by the terms of the trust as set forth in thetrust instrument. Under paragraphs (a)(1) and(a)(4)(ii)(C) of this section, FT is treated as having aU.S. beneficiary.

(b) Indirect U.S. beneficiaries—(1)Certain foreign entities. For purposes ofparagraph (a)(1) of this section, anamount is treated as paid or accumulatedto or for the benefit of a U.S. person if theamount is paid to or accumulated for thebenefit of—

(i) A controlled foreign corporation, asdefined in section 957(a);

(ii) A foreign partnership, if a U.S. per-son is a partner of such partnership; or

(iii) A foreign trust or estate, if suchtrust or estate has a U.S. beneficiary(within the meaning of paragraph (a)(1)of this section).

(2) Other indirect beneficiaries. Forpurposes of paragraph (a)(1) of this sec-tion, an amount is treated as paid or accu-mulated to or for the benefit of a U.S. per-son if the amount is paid to oraccumulated for the benefit of a U.S. per-son through an intermediary, such as anagent or nominee, or by any other meanswhere a U.S. person may obtain an actualor constructive benefit.

(3) Examples. The following exam-ples illustrate the rules of this paragraph(b). Unless otherwise noted, A is a U.S.resident alien. B is A’s son and is a resi-dent alien. FT is a foreign trust. The ex-amples are as follows:

Example 1. Trust benefitting foreign corpora-tion. A transfers property to FT. The beneficiary ofFT is FC, a foreign corporation. FC has outstandingsolely 100 shares of common stock. B owns 49shares of the FC stock and FC2, also a foreign cor-poration, owns the remaining 51 shares. FC2 hasoutstanding solely 100 shares of common stock. Bowns 49 shares of FC2 and nonresident alien indi-viduals own the remaining 51 FC2 shares. FC is acontrolled foreign corporation (as defined in section957(a), after the application of section 958(a)(2)).Under paragraphs (a)(1) and (b)(1)(i) of this section,FT is treated as having a U.S. beneficiary.

2000–34 I.R.B. 199 August 21, 2000

August 21, 2000 200 2000–34 I.R.B.

Example 2. Trust benefitting another trust. Atransfers property to FT. The terms of FT permitcurrent distributions of income to B. A transfersproperty to another foreign trust, FT2. The terms ofFT2 provide that no U.S. person can benefit either asto income or corpus, but permit current distributionsof income to FT. Under paragraph (a)(1) of this sec-tion, FT is treated as having a U.S. beneficiary and,under paragraphs (a)(1) and (b)(1)(iii) of this sec-tion, FT2 is treated as having a U.S. beneficiary.

Example 3. Trust benefitting another trust aftertransferor’s death. A transfers property to FT. Theterms of FT require that all income from FT be accu-mulated during A’s lifetime. In the year followingA’s death, a share of FT is to be distributed to FT2,another foreign trust, for the benefit of B. Underparagraphs (a)(1) and (b)(1)(iii) of this section, FT istreated as having a U.S. beneficiary beginning withthe year of A’s transfer of property to FT.

Example 4. Indirect benefit through use of debitcard. A transfers property to FT. The trust instru-ment provides that no U.S. person can benefit eitheras to income or corpus. However, FT maintains anaccount with FB, a foreign bank, and FB issues adebit card to B against the account maintained by FTand B is allowed to make withdrawals. Under para-graphs (a)(1) and (b)(2) of this section, FT is treatedas having a U.S. beneficiary.

Example 5. Other indirect benefit. A transfersproperty to FT. FT is administered by FTC, a for-eign trust company. FTC forms IBC, an interna-tional business corporation formed under the laws ofa foreign jurisdiction. IBC is the beneficiary of FT.IBC maintains an account with FB, a foreign bank.FB issues a debit card to B against the account main-tained by IBC and B is allowed to make with-drawals. Under paragraphs (a)(1) and (b)(2) of thissection, FT is treated as having a U.S. beneficiary.

(c) Treatment of U.S. transferor uponforeign trust’s acquisition or loss of U.S.beneficiary—(1) Trusts acquiring a U.S.beneficiary. If a foreign trust to which aU.S. transferor has transferred property isnot treated as having a U.S. beneficiary(within the meaning of paragraph (a) ofthis section) for any taxable year of theU.S. transferor, but the trust is treated ashaving a U.S. beneficiary (within themeaning of paragraph (a) of this section)in any subsequent taxable year, the U.S.transferor is treated as having additionalincome in the first such taxable year ofthe U.S. transferor in which the trust istreated as having a U.S. beneficiary. Theamount of the additional income is equalto the trust’s undistributed net income, asdefined in section 665(a), at the end of theU.S. transferor’s immediately precedingtaxable year and is subject to the rules ofsection 668, providing for an interestcharge on accumulation distributionsfrom foreign trusts.

(2) Trusts ceasing to have a U.S. bene-ficiary. If, for any taxable year of a U.S.

transferor, a foreign trust that has receiveda transfer of property from the U.S. trans-feror ceases to be treated as having a U.S.beneficiary, the U.S. transferor ceases tobe treated as the owner of the portion ofthe trust attributable to the transfer begin-ning in the first taxable year following thelast taxable year of the U.S. transferorduring which the trust was treated as hav-ing a U.S. beneficiary (unless the U.S.transferor is treated as an owner thereofpursuant to sections 673 through 677).The U.S. transferor is treated as making atransfer of property to the foreign trust onthe first day of the first taxable year fol-lowing the last taxable year of the U.S.transferor during which the trust wastreated as having a U.S. beneficiary. Theamount of the property deemed to betransferred to the trust is the portion of thetrust attributable to the prior transfer towhich paragraph (a)(1) of this section ap-plied. For rules regarding the recognitionof gain on transfers to foreign trusts, seesection 684.

(3) Examples. The rules of this para-graph (c) are illustrated by the followingexamples. A is a U.S. resident alien, B isA’s son, and FT is a foreign trust. The ex-amples are as follows:

Example 1. Trust acquiring U.S. beneficiary. (i)In 2001, A transfers stock with a fair market value of$100,000 to FT. The stock has an adjusted basis of$50,000 at the time of the transfer. The trust instru-ment provides that income may be paid currently to, oraccumulated for the benefit of, B and that, upon thetermination of the trust, all income and corpus is to bedistributed to B. At the time of the transfer, B is a non-resident alien. A is not treated as the owner of any por-tion of FT under sections 671 through 677. FT accu-mulates a total of $30,000 of income during thetaxable years 2001 through 2003. In 2004, B moves tothe United States and becomes a resident alien. As-sume paragraph (a)(4) of this section is not applicableunder the facts and circumstances.

(ii) Under paragraph (c)(1) of this section, A istreated as receiving an accumulation distribution inthe amount of $30,000 in 2004 and immediatelytransferring that amount back to the trust. The accu-mulation distribution is subject to the rules of sec-tion 668, providing for an interest charge on accu-mulation distributions.

(iii) Under paragraphs (a)(1) and (3) of this sec-tion, beginning in 2005, A is treated as the owner ofthe portion of FT attributable to the stock transferredby A to FT in 2001 (which includes the portion at-tributable to the accumulated income deemed to beretransferred in 2004).

Example 2. Trust ceasing to have U.S. benefi-ciary. (i) The facts are the same as in Example 1.In 2008, B becomes a nonresident alien. On the dateB becomes a nonresident alien, the stock transferredby A to FT in 2001 has a fair market value of$125,000 and an adjusted basis of $50,000.

(ii) Under paragraph (c)(2) of this section, begin-ning in 2009, FT is not treated as having a U.S. ben-eficiary, and A is not treated as the owner of the por-tion of the trust attributable to the prior transfer ofstock. For rules regarding the recognition of gain onthe termination of ownership status, see section 684.

§1.679–3 Transfers.

(a) In general. A transfer means a di-rect, indirect, or constructive transfer.

(b) Transfers by certain trusts—(1) Ingeneral. If any portion of a trust is treatedas owned by a U.S. person, a transfer ofproperty from that portion of the trust to aforeign trust is treated as a transfer fromthe owner of that portion to the foreigntrust.

(2) Example. The following exampleillustrates this paragraph (b):

Example. In 2001, A, a U.S. citizen, creates andfunds DT, a domestic trust. A has the power to revestabsolutely in himself the title to the property in DTand is treated as the owner of DT pursuant to section676. In 2004, DT transfers property to FT, a foreigntrust. A is treated as having transferred the propertyto FT in 2004 for purposes of this section.

(c) Indirect transfers—(1) Principalpurpose of tax avoidance. A transfer to aforeign trust by any person (intermediary)to whom a U.S. person transfers propertyis treated as an indirect transfer by a U.S.person to the foreign trust if such transferis made pursuant to a plan one of the prin-cipal purposes of which is the avoidanceof United States tax.

(2) Principal purpose of tax avoidancedeemed to exist. For purposes of para-graph (c)(1) of this section, a transfer isdeemed to have been made pursuant to aplan one of the principal purposes ofwhich was the avoidance of United Statestax if—

(i) The U.S. person is related (withinthe meaning of paragraph (c)(4) of thissection) to a beneficiary of the foreigntrust, or has another relationship with abeneficiary of the foreign trust that estab-lishes a reasonable basis for concludingthat the U.S. transferor would make atransfer to the foreign trust; and

(ii) The U.S. person cannot demon-strate to the satisfaction of theCommissioner that—

(A) The intermediary has a relationshipwith a beneficiary of the foreign trust thatestablishes a reasonable basis for conclud-ing that the intermediary would make atransfer to the foreign trust;

(B) The intermediary acted indepen-dently of the U.S. person;

(C) The intermediary is not an agent ofthe U.S. person under generally applica-ble United States agency principles; and

(D) The intermediary timely compliedwith the reporting requirements of section6048, if applicable.

(3) Effect of disregarding intermedi-ary—(i) In general. Except as providedin paragraph (c)(3)(ii) of this section, if atransfer is treated as an indirect transferpursuant to paragraph (c)(1) of this sec-tion, then the intermediary is treated as anagent of the U.S. person, and the propertyis treated as transferred to the foreign trustby the U.S. person in the year the proper-ty is transferred, or made available, by theintermediary to the foreign trust. The fairmarket value of the property transferred isdetermined as of the date of the transferby the intermediary to the foreign trust.

(ii) Special rule. If the Commissionerdetermines, or if the taxpayer can demon-strate to the satisfaction of the Commis-sioner, that the intermediary is an agent ofthe foreign trust under generally applica-ble United States agency principles, theproperty will be treated as transferred tothe foreign trust in the year the U.S. per-son transfers the property to the interme-diary. The fair market value of the prop-erty transferred will be determined as ofthe date of the transfer by the U.S. personto the intermediary.

(iii) Effect on intermediary. If a trans-fer of property is treated as an indirecttransfer under paragraph (c)(1) of this sec-tion, the intermediary is not treated ashaving transferred the property to the for-eign trust.

(4) Related parties. For purposes ofthis paragraph (c), a U.S. transferor istreated as related to a U.S. beneficiary ofa foreign trust if the U.S. transferor andthe beneficiary are related for purposes ofsection 643(i)(2)(B), with the followingmodifications–

(i) For purposes of applying section267 (other than section 267(f)) and sec-tion 707(b)(1), “at least 10 percent” isused instead of “more than 50 percent”each place it appears; and

(ii) The principles of section 267(b)(10),using “at least 10 percent” instead of “morethan 50 percent,” apply to determinewhether two corporations are related.

(5) Examples. The rules of this para-graph (c) are illustrated by the followingexamples:

Example 1. Principal purpose of tax avoidance.A, a U.S. citizen, creates and funds FT, a foreigntrust, for the benefit of A’s children, who are U.S.citizens. In 2004, A decides to transfer an addition-al 1000X to the foreign trust. Pursuant to a plan witha principal purpose of avoiding the application ofsection 679, A transfers 1000X to I, a foreign person.I subsequently transfers 1000X to FT. Under para-graph (c)(1) of this section, A is treated as havingmade a transfer of 1000X to FT.

Example 2. U.S. person unable to demonstratethat intermediary acted independently. A, a U.S. cit-izen, creates and funds FT, a foreign trust, for thebenefit of A’s children, who are U.S. citizens. OnJuly 1, 2004, A transfers XYZ stock to D, A’s uncle,who is a nonresident alien. D immediately sells theXYZ stock and uses the proceeds to purchase ABCstock. On January 1, 2007, D transfers the ABCstock to FT. A is unable to demonstrate to the satis-faction of the Commissioner, pursuant to paragraph(c)(2) of this section, that D acted independently ofA in making the transfer to FT. Under paragraph(c)(1) of this section, A is treated as having trans-ferred the ABC stock to FT. Under paragraph (c)(3)of this section, D is treated as an agent of A, and thetransfer is deemed to have been made on January 1,2007.

Example 3. Indirect loan to foreign trust. A, aU.S. citizen, previously created and funded FT, aforeign trust, for the benefit of A’s children, who areU.S. citizens. On July 1, 2004, A deposits 500X withFB, a foreign bank. On January 1, 2005, FB loans450X to FT. A is unable to demonstrate to the satis-faction of the Commissioner, pursuant to paragraph(c)(2) of this section, that FB has a relationship withFT that establishes a reasonable basis for concludingthat FB would make a loan to FT or that FB actedindependently of A in making the loan. Under para-graph (c)(1) of this section, A is deemed to havetransferred 450X directly to FT on January 1, 2005.Under paragraph (c)(3) of this section, FB is treatedas an agent of A. For possible exceptions withrespect to qualified obligations of the trust, see§1.679–4.

Example 4. Loan to foreign trust prior to depositof funds in foreign bank. The facts are the same asin Example 3, except that A makes the 500X depositwith FB on January 2, 2005, the day after FB makesthe loan to FT. The result is the same as in Example3.

(d) Constructive transfers—(1) In gen-eral. For purposes of paragraph (a) of thissection, a constructive transfer includesany assumption or satisfaction of a for-eign trust’s obligation to a third party.

(2) Examples. The rules of this para-graph (d) are illustrated by the followingexamples. In each example, A is a U.S.citizen and FT is a foreign trust. Theexamples are as follows:

Example 1. Payment of debt of foreign trust. FTowes 1000X to Y, an unrelated foreign corporation,for the performance of services by Y for FT. In sat-isfaction of FT’s liability to Y, A transfers to Y prop-erty with a fair market value of 1000X. Under para-graph (d)(1) of this section, A is treated as havingmade a constructive transfer of the property to FT.

Example 2. Assumption of liability of foreigntrust. FT owes 1000X to Y, an unrelated foreign cor-poration, for the performance of services by Y forFT. A assumes FT’s liability to pay Y. Under para-graph (d)(1) of this section, A is treated as havingmade a constructive transfer of property with a fairmarket value of 1000X to FT.

(e) Guarantee of trust obligations—(1)In general. If a foreign trust borrowsmoney or other property from any personwho is not a related person (within themeaning of §1.679–1(c)(5)) with respectto the trust (lender) and a U.S. person(U.S. guarantor) that is a related personwith respect to the trust guarantees (with-in the meaning of paragraph (e)(4) of thissection) the foreign trust’s obligation, theU.S. guarantor is treated for purposes ofthis section as a U.S. transferor that hasmade a transfer to the trust on the date ofthe guarantee in an amount determinedunder paragraph (e)(2) of this section. Tothe extent this paragraph causes the U.S.guarantor to be treated as having made atransfer to the trust, a lender that is a U.S.person shall not be treated as havingtransferred that amount to the foreigntrust.

(2) Amount transferred. The amountdeemed transferred by a U.S. guarantordescribed in paragraph (e)(1) of this sec-tion is the guaranteed portion of theadjusted issue price of the obligation(within the meaning of §1.1275–1(b))plus any accrued but unpaid qualified stat-ed interest (within the meaning of§1.1273–1(c)).

(3) Principal repayments. If a U.S. per-son is treated under this paragraph (d) ashaving made a transfer by reason of theguarantee of an obligation, payments ofprincipal to the lender by the foreign trustwith respect to the obligation are takeninto account on and after the date of thepayment in determining the portion of thetrust attributable to the property deemedtransferred by the U.S. guarantor.

(4) Guarantee. For purposes of thissection, the term guarantee–

(i) Includes any arrangement underwhich a person, directly or indirectly,assures, on a conditional or unconditionalbasis, the payment of another’s obliga-tion;

(ii) Encompasses any form of creditsupport, and includes a commitment tomake a capital contribution to the debtoror otherwise maintain its financial viabili-ty; and

2000–34 I.R.B. 201 August 21, 2000

(iii) Includes an arrangement reflectedin a comfort letter, regardless of whetherthe arrangement gives rise to a legallyenforceable obligation. If an arrangementis contingent upon the occurrence of anevent, in determining whether thearrangement is a guarantee, it is assumedthat the event has occurred.

(5) Examples. The rules of this para-graph (e) are illustrated by the followingexamples. In all of the examples, A is aU.S. resident and FT is a foreign trust.The examples are as follows:

Example 1. Foreign lender. X, a foreign corpo-ration, loans 1000X of cash to FT in exchange forFT’s obligation to repay the loan. A guarantees therepayment of 600X of FT’s obligation. Under para-graph (e)(2) of this section, A is treated as havingtransferred 600X to FT.

Example 2. Unrelated U.S. lender. The factsare the same as in Example 1, except X is a U.S.person that is not a related person within the mean-ing of §1.679–1(c)(5). The result is the same as inExample 1.

(f) Transfers to entities owned by a for-eign trust—(1) General rule. If a U.S.person is a related person (as defined in§1.679–1(c)(5)) with respect to a foreigntrust, any transfer of property by the U.S.person to an entity in which the foreigntrust holds an ownership interest is treatedas a transfer of such property by the U.S.person to the foreign trust followed by atransfer of the property from the foreigntrust to the entity owned by the foreigntrust, unless the U.S. person demonstratesto the satisfaction of the Commissionerthat the transfer to the entity is properlyattributable to the U.S. person’s owner-ship interest in the entity.

(2) Examples. The rules of this para-graph (f) are illustrated by the followingexamples. In all of the examples, A is aU.S. citizen, FT is a foreign trust, and FCis a foreign corporation. The examplesare as follows:

Example 1. A creates and funds FT. which istreated as having a U.S. beneficiary under §1.679–2.FT owns all of the outstanding stock of FC. A trans-fers property directly to FC. Because FT is the soleshareholder of FC, A is unable to demonstrate to thesatisfaction of the Commissioner that the transfer isproperly attributable to A’s ownership interest in FC.Accordingly, under this paragraph (f), A is treated ashaving transferred the property to FT, followed by atransfer of such property by FT to FC. Under§1.679–1(a), A is treated as the owner of the portionof FT attributable to the property treated as trans-ferred directly to FT. Under §1.367(a)– 1T(c)(4)(ii),the transfer of property by FT to FC is treated as atransfer of the property by A to FC.

Example 2. The facts are the same as in Example1, except that FT is not treated as having a U.S. ben-

eficiary under §1.679– 2. Under this paragraph (f),A is treated as having transferred the property to FT,followed by a transfer of such property by FT to FC.A is not treated as the owner of FT for purposes of§1.679–1(a). For rules regarding the recognition ofgain on the transfer, see section 684.

Example 3. A creates and funds FT. FC has out-standing solely 100 shares of common stock. FTowns 50 shares of FC stock, and A owns the remain-ing 50 shares. On July 1, 2001, FT and A each trans-fer 1000X to FC. A is able to demonstrate to the sat-isfaction of the Commissioner that A’s transfer to FCis properly attributable to A’s ownership interest inFC. Accordingly, under this paragraph (f), A’s trans-fer to FC is not treated as a transfer to FT.

§1.679–4 Exceptions to general rule.

(a) In general. Section 1.679–1 doesnot apply to—

(1) Any transfer of property to a foreigntrust by reason of the death of the transferor;

(2) Any transfer of property to a foreigntrust described in sections 402(b),404(a)(4), or 404A;

(3) Any transfer of property to a foreigntrust that has received a ruling or determi-nation letter, which has been neitherrevoked nor modified, from the InternalRevenue Service recognizing the trust’s taxexempt status under section 501(c)(3); and

(4) Any transfer of property to a foreigntrust to the extent the transfer is for fairmarket value.

(b) Transfers for fair market value—(1)In general. For purposes of this section, atransfer is for fair market value only to theextent of the value of property receivedfrom the trust, services rendered by thetrust, or the right to use property of thetrust. For example, rents, royalties, inter-est, and compensation paid to a trust aretransfers for fair market value only to theextent that the payments reflect an arm’slength price for the use of the property of,or for the services rendered by, the trust.For purposes of this determination, aninterest in the trust is not propertyreceived from the trust. For purposes ofthis section, a distribution to a trust withrespect to an interest held by such trust inan entity other than a trust or an interest incertain investment trusts described in§301.7701–4(c) of this chapter, liquidat-ing trusts described in §301.7701–4(d) ofthis chapter, or environmental remedia-tion trusts described in §301.7701–4(e) ofthis chapter is considered to be a transferfor fair market value.

(2) Special rule—(i) Transfers for par-tial consideration. For purposes of this

section, if a person transfers property to aforeign trust in exchange for propertyhaving a fair market value that is less thanthe fair market value of the property trans-ferred, the exception in paragraph (a)(4)of this section applies only to the extent ofthe fair market value of the propertyreceived.

(ii) Example. This paragraph (b) isillustrated by the following example:

Example. A, a U.S. citizen, transfers propertythat has a fair market value of 1000X to FT, a for-eign trust, in exchange for 600X of cash. Under thisparagraph (b), §1.679–1 applies with respect to thetransfer of 400X (1000X less 600X) to FT.

(c) Certain obligations not taken intoaccount. Solely for purposes of this sec-tion, in determining whether a transfer bya U.S. transferor that is a related person(as defined in §1.679–1(c)(5)) withrespect to the foreign trust is for fair mar-ket value, any obligation (as defined in§1.679–1(c)(6)) of the trust or a relatedperson (as defined in §1.679–1(c)(5)) thatis not a qualified obligation within themeaning of paragraph (d)(1) of this sec-tion shall not be taken into account.

(d) Qualified obligations—(1) In gen-eral. For purposes of this section, anobligation is treated as a qualified obliga-tion only if—

(i) The obligation is reduced to writingby an express written agreement;

(ii) The term of the obligation does notexceed five years (for purposes of deter-mining the term of an obligation, theobligation’s maturity date is the last possi-ble date that the obligation can be out-standing under the terms of the obliga-tion);

(iii) All payments on the obligation aredenominated in U.S. dollars;

(iv) The yield to maturity is not lessthan 100 percent of the applicable Federalrate and not greater that 130 percent of theapplicable Federal rate (the applicableFederal rate for an obligation is theapplicable Federal rate in effect undersection 1274(d) for the day on which theobligation is issued, as published in theInternal Revenue Bulletin (see§601.601(d)(2) of this chapter));

(v) The U.S. transferor extends theperiod for assessment of any income ortransfer tax attributable to the transfer andany consequential income tax changes foreach year that the obligation is outstand-ing, to a date not earlier than three yearsafter the maturity date of the obligation

August 21, 2000 202 2000–34 I.R.B.

(this extension is not necessary if thematurity date of the obligation does notextend beyond the end of the U.S. trans-feror’s taxable year and is paid withinsuch period); when properly executed andfiled, such an agreement is deemed to beconsented to for purposes of§301.6501(c)–1(d) of this chapter; and

(vi) The U.S. transferor reports the sta-tus of the loan, including principal andinterest payments, on Form 3520 forevery year that the loan is outstanding.

(2) Additional loans. If, while the orig-inal obligation is outstanding, the U.S.transferor or a person related to the trust(within the meaning of §1.679–1(c)(5))directly or indirectly obtains anotherobligation issued by the trust, or if theU.S. transferor directly or indirectlyobtains another obligation issued by a per-son related to the trust, the original oblig-ation is deemed to have the maturity dateof any such subsequent obligation indetermining whether the term of the orig-inal obligation exceeds the specified 5-year term. In addition, a series of obliga-tions issued and repaid by the trust (or aperson related to the trust) is treated as asingle obligation if the transactions givingrise to the obligations are structured witha principal purpose to avoid the applica-tion of this provision.

(3) Obligations that cease to be quali-fied. If an obligation treated as a quali-fied obligation subsequently fails to be aqualified obligation (e.g., renegotiationof the terms of the obligation causes theterm of the obligation to exceed fiveyears), the U.S. transferor is treated asmaking a transfer to the trust in anamount equal to the original obligation’sadjusted issue price (within the meaningof §1.1275–1(b)) plus any accrued butunpaid qualified stated interest (withinthe meaning of §1.1273–1(c)) as of thedate of the subsequent event that causesthe obligation to no longer be a qualifiedobligation. If the maturity date is extend-ed beyond five years by reason of theissuance of a subsequent obligation bythe trust (or person related to the trust),the amount of the transfer will not exceedthe issue price of the subsequent obliga-tion. The subsequent obligation is sepa-rately tested to determine if it is a quali-fied obligation.

(4) Transfers resulting from failedqualified obligations. In general, a trans-

fer resulting from a failed qualified oblig-ation is deemed to occur on the date of thesubsequent event that causes the obliga-tion to no longer be a qualified obligation.However, based on all of the facts and cir-cumstances, the Commissioner may deema transfer to have occurred on any date onor after the issue date of the originalobligation. For example, if at the time theoriginal obligation was issued, the trans-feror knew or had reason to know that theobligation would not be repaid, theCommissioner could deem the transfer tohave occurred on the issue date of theoriginal obligation.

(5) Renegotiated loans. Any loan thatis renegotiated, extended, or revised istreated as a new loan, and any distributionof funds after such renegotiation, exten-sion, or revision under a pre-existing loanagreement is treated as a transfer subjectto this section.

(6) Principal repayments. The paymentof principal with respect to any obligationthat is not treated as a qualified obligationunder this paragraph is taken into accounton and after the date of the payment indetermining the portion of the trust attrib-utable to the property transferred.

(7) Examples. The rules of this para-graph (d) are illustrated by the followingexamples. In all of the examples, A is aU.S. resident and FT is a foreign trust.The examples are as follows:

Example 1. Demand loan. A transfers 500X toFT in exchange for a demand note that permits A torequire repayment by FT at any time. A is a relatedperson (as defined in §1.679–1(c)(5)) with respect toFT. Because FT’s obligation to A could remain out-standing for more than five years, the obligation isnot a qualified obligation within the meaning ofparagraph (d) of this section and, pursuant to para-graph (c) of this section, it is not taken into accountfor purposes of determining whether A’s transfer iseligible for the fair market value exception of para-graph (a)(4) of this section. Accordingly, §1.679–1applies with respect to the full 500X transfer to FT.

Example 2. Private annuity. A transfers 4000Xto FT in exchange for an annuity from the foreigntrust that will pay A 100X per year for the rest of A’slife. A is a related person (as defined in§1.679–1(c)(5)) with respect to FT. Because FT’sobligation to A could remain outstanding for morethan five years, the obligation is not a qualifiedobligation within the meaning of paragraph (d)(1) ofthis section and, pursuant to paragraph (c) of thissection, it is not taken into account for purposes ofdetermining whether A’s transfer is eligible for thefair market value exception of paragraph (a)(4) ofthis section. Accordingly, §1.679–1 applies withrespect to the full 4000X transfer to FT.

Example 3. Loan to unrelated foreign trust. Btransfers 1000X to FT in exchange for an obligation

of the trust. The term of the obligation is fifteenyears. B is not a related person (as defined in§1.679–1(c)(5)) with respect to FT. Because B is nota related person, the adjusted issue price of the oblig-ation received by B is taken into account for purpos-es of determining whether B’s transfer is eligible forthe fair market value exception of paragraph (a)(4)of this section, even though the obligation is not aqualified obligation within the meaning of paragraph(d)(1) of this section.

Example 4. Transfer for an obligation with termin excess of 5 years. A transfers property that has afair market value of 5000X to FT in exchange for anobligation of the trust. The term of the obligation isten years. A is a related person (as defined in§1.679–1(c)(5)) with respect to FT. Because theterm of the obligation is greater than five years, theobligation is not a qualified obligation within themeaning of paragraph (d)(1) of this section and, pur-suant to paragraph (c) of this section, it is not takeninto account for purposes of determining whetherA’s transfer is eligible for the fair market valueexception of paragraph (a)(4) of this section.Accordingly, §1.679–1 applies with respect to thefull 5000X transfer to FT.

Example 5. Transfer for a qualified obligation.The facts are the same as in Example 4, except thatthe term of the obligation is 3 years. Assuming theother requirements of paragraph (d)(1) of this sec-tion are satisfied, the obligation is a qualified oblig-ation and its adjusted issue price is taken intoaccount for purposes of determining whether A’stransfer is eligible for the fair market value excep-tion of paragraph (a)(4) of this section.

Example 6. Effect of subsequent obligation onoriginal obligation. A transfers property that has afair market value of 1000X to FT in exchange for anobligation that satisfies the requirements of para-graph (d)(1) of this section. A is a related person (asdefined in §1.679–1(c)(5)) with respect to FT. Twoyears later, A transfers an additional 2000X to FTand receives another obligation from FT that has amaturity date four years from the date that the sec-ond obligation was issued. Under paragraph (d)(2)of this section, the original obligation is deemed tohave the maturity date of the second obligation.Under paragraph (a) of this section, A is treated ashaving made a transfer in an amount equal to theoriginal obligation’s adjusted issue price (within themeaning of §1.1275–1(b)) plus any accrued butunpaid qualified stated interest (within the meaningof §1.1273–1(c)) as of the date of issuance of thesecond obligation. The second obligation is testedseparately to determine whether it is a qualifiedobligation for purposes of applying paragraph (a) ofthis section to the second transfer.

§1.679–5 Pre-immigration trusts.

(a) In general. If a nonresident alienindividual becomes a U.S. person and theindividual has a residency starting date (asdetermined under section 7701(b)(2)(A))within 5 years after transferring propertyto a foreign trust (the original transfer),the individual is treated as having trans-ferred to the trust on the residency startingdate an amount equal to the portion of the

2000–34 I.R.B. 203 August 21, 2000

trust attributable to the property trans-ferred by the individual in the originaltransfer.

(b) Special rules—(1) Change ingrantor trust status. For purposes of para-graph (a) of this section, if a nonresidentalien individual who is treated as owningany portion of a trust under the provisionsof subpart E of part I of subchapter J,chapter 1 of the Internal Revenue Code,subsequently ceases to be so treated, theindividual is treated as having made theoriginal transfer to the foreign trust imme-diately before the trust ceases to be treat-ed as owned by the individual.

(2) Treatment of undistributed income.For purposes of paragraph (a) of this sec-tion, the property deemed transferred tothe foreign trust on the residency startingdate includes undistributed net income, asdefined in section 665(a), attributable tothe property deemed transferred.Undistributed net income for periodsbefore the individual’s residency startingdate is taken into account only for purpos-es of determining the amount of the prop-erty deemed transferred.

(c) Examples. The rules of this sectionare illustrated by the following examples:

Example 1. Nonresident alien becomes residentalien. On January 1, 2002, A, a nonresident alienindividual, transfers property to a foreign trust, FT.On January 1, 2006, A becomes a resident of theUnited States within the meaning of section7701(b)(1)(A) and has a residency starting date ofJanuary 1, 2006, within the meaning of section7701(b)(2)(A). Under paragraph (a) of this section,A is treated as a U.S. transferor and is deemed totransfer the property to FT on January 1, 2006.Under paragraph (b)(2) of this section, the propertydeemed transferred to FT on January 1, 2006,includes the undistributed net income of the trust, asdefined in section 665(a), attributable to the proper-ty originally transferred.

Example 2. Nonresident alien loses power torevest property. On January 1, 2002, A, a nonresi-dent alien individual, transfers property to a foreigntrust, FT. A has the power to revest absolutely inhimself the title to such property transferred and istreated as the owner of the trust pursuant to sections676 and 672(f). On January 1, 2008, the terms of FTare amended to remove A’s power to revest in him-self title to the property transferred, and A ceases tobe treated as the owner of FT. On January 1, 2010,A becomes a resident of the United States. Underparagraph (b)(1) of this section, for purposes of para-graph (a) of this section A is treated as having origi-nally transferred the property to FT on January 1,2008. Because this date is within five year’s of A’sresidency starting date, A is deemed to have made atransfer to the foreign trust on January 1, 2010, hisresidency starting date. Under paragraph (b)(2) ofthis section, the property deemed transferred to the

foreign trust on January 1, 2010, includes the undis-tributed net income of the trust, as defined in section665(a), attributable to the property deemed trans-ferred.

§1.679–6 Outbound migrations ofdomestic trusts.

(a) In general. Subject to the provi-sions of paragraph (b) of this section, if anindividual who is a U.S. person transfersproperty to a trust that is not a foreigntrust, and such trust becomes a foreigntrust while the U.S. person is alive, theU.S. individual is treated as a U.S. trans-feror and is deemed to transfer the proper-ty to a foreign trust on the date the domes-tic trust becomes a foreign trust.

(b) Amount deemed transferred. Forpurposes of paragraph (a) of this section,the property deemed transferred to thetrust when it becomes a foreign trustincludes undistributed net income, asdefined in section 665(a), attributable tothe property previously transferred.Undistributed net income for periods priorto the migration is taken into account onlyfor purposes of determining the portion ofthe trust that is attributable to the proper-ty transferred by the U.S. person.

(c) Example. The following exampleillustrates the rules of this section. Forpurposes of the example, A is a U.S. resi-dent alien, B is A’s son, who is a residentalien, and DT is a domestic trust. Theexample is as follows:

Example. Outbound migration of domestic trust.On January 1, 2002, A transfers property to DT, forthe benefit of B. On January 1, 2003, DT acquires aforeign trustee who has the power to determinewhether and when distributions will be made to B.Under section 7701(a)(3)(B) and §301.7701–7(d)(ii)(A), DT becomes a foreign trust on January 1,2003. Under paragraph (a) of this section, A is treat-ed as transferring property to a foreign trust onJanuary 1, 2003. Under paragraph (b) of this sec-tion, the property deemed transferred to the trustwhen it becomes a foreign trust includes undistrib-uted net income, as defined in section 665(a), attrib-utable to the property deemed transferred.

§1.679–7 Effective dates.

(a) In general. Except as provided inparagraph (b) of this section, the rules of§§1.679–1, 1.679–2, 1.679–3, and1.679–4 apply with respect to transfersafter August 7, 2000.

(b) Special rules. (1) The rules of§1.679–4(c) and (d) apply to an obligationissued after February 6, 1995, whether ornot in accordance with a pre-existing

arrangement or understanding. For pur-poses of the rules of §1.679–4(c) and (d),if an obligation issued on or beforeFebruary 6, 1995, is modified after thatdate, and the modification is a significantmodification within the meaning of§1.1001–3, the obligation is treated as if itwere issued on the date of the modifica-tion. However, the penalty provided insection 6677 applies only to a failure toreport transfers in exchange for obliga-tions issued after August 20, 1996.

(2) The rules of §1.679–5 apply to per-sons whose residency starting date is afterAugust 7, 2000.

(3) The rules of §1.679–6 apply totrusts that become foreign trusts afterAugust 7, 2000.

Par. 3. In §1.958–1, paragraph (b) isamended by adding a new sentence afterthe first sentence to read as follows:

§1.958–1 Direct and indirect ownershipof stock.

* * * * *(b) * * * For purposes of the preceding

sentence, any person that is treated as theowner of any portion of a trust pursuant tosections 671 through 679 shall be treatedas a beneficiary of the trust and shall beconsidered to own all of the stock owneddirectly or indirectly by or for such por-tion. * * ** * * * *

§1.958–2 [Amended]

Par. 4. In §1.958–2, paragraph(c)(1)(ii)(b) is amended by removing the lan-guage “678” and adding “679” in its place.

David A. Mader,Acting Deputy Commissioner

of Internal Revenue.

(Filed by the Office of Federal Register on August 2,2000, 1:04 p.m., and published in the issue of theFederal Register for August 7, 2000, 65 F.R. 48185)

Foundations Status of CertainOrganizations

Announcement 2000–70The following organizations have

failed to establish or have been unable tomaintain their status as public charities oras operating foundations. Accordingly,grantors and contributors may not, after

August 21, 2000 204 2000–34 I.R.B.

this date, rely on previous rulings or des-ignations in the Cumulative List of Orga-nizations (Publication 78), or on the pre-sumption arising from the filing of noticesunder section 508(b) of the Code. Thislisting does not indicate that the organiza-tions have lost their status as organiza-tions described in section 501(c)(3), eligi-ble to receive deductible contributions.

Former Public Charities. The followingorganizations (which have been treated asorganizations that are not private founda-tions described in section 509(a) of theCode) are now classified as private foun-dations:

Ace Boxing Club, Inc., Milwaukee, WIAdvocates for Public Transportation of

Monroe County, Stroudsburg, PAAfrican Health Foundation,

Los Angeles, CAAmerican Civil Rights Defense

Foundation, Orange, CAAmerican Culinary Federation Food

Source Network, Inc., N. Myrtle Beach, SC

American River Alano, Folsom, CAAngels Shelter Ranch, LTD.,

Lompoc, CAAnishinabe Miikana Project, Inc.,

Bemidji, MN1996 Anniversary Commission

Celebrating Youngstown & Mahoning,Youngstown, OH

Awutu Effutu and Friends Association ofSouthern California, Los Angeles, CA

Azalea City Childrens Ballet, Mobile, ALBlazing Angels, Inc., Langhorne, PABlue Water Area Land Conservancy,

Port Huron, MIBorn Again Music Ministry, Inc.,

Duluth, GACamino Real Seven Point Charities, Inc.,

Houston, TXCassville Junior Football League,

Cassville, MOCentral Western New York Youth

Basketball Clubs, Newark, NYChanging Perspectives, Incorporated,

Mount Kisco, NYChildrens Educational Foundation

Charitable Trust, Concord, CAChildrens Talent Unlimited, Inc.,

Brooklyn, NYCitizens for Safe Libraries, Bountiful, UTCommission for Desert Hot Springs

Youth, Desert Hot Springs, CACommunity Impact, Inc., Durham, NCCongregation B M Z, Inc., Brooklyn, NY

Cops and Cruisers, Oxnard, CACrossfade Productions, Inc.,

Belleville, NJThe Disabled Traveler, Lapeer, MIDont Just Sit There, Inc., Atlanta, GAEkklesia Ministries, Rialto, CAEmerson Playground Fund, Inc.,

Emerson, NJEncodings, Houston, TXFoundation for Friends, Inc.,

Houston, TXFriends of 60 Centre Street, Inc.,

New York, NYFriends of Centennial Park, Inc.,

Nashville, TNFriends of Fathers, Inc.,

W. Falmouth, MAFriends of United Institutions of Arad,

Inc., Brooklyn, NYGMB Youth Motorsport Services, Inc.,

Boston, MAGlendale Neighborhood Watch Advisory

Board, Inc., Glendale, AZGodinger Lefkowitz Memorial

Foundation, Ridgewood, NYGreater Opportunities for Advancing

Lifestyle, Inc., Torrance, CAHawaii International Music,

Honolulu, HIHoya Human Development Corporation,

Inc., Beaumont, TXHyde Park Tenant Association,

Kansas City, MOIsland Alliance, Inc., Boston, MAJ NE Home Care Services,

Missouri City, TXJefferson Institute, Philadelphia, PAKanawha Putnam Emergency Planning

Committee, Charleston, WVKeren Sara Chana, Inc., Brooklyn, NYKeren Aram Soba Foundation, Inc.,

Brooklyn, NYKnow Casinos, Richmond, VALewis-Bennett Neighborhood

Association, Flint, MILiving Water Ministries, Cloverport, KYLos Angeles Harbor Housing,

Los Angeles, CALoving Space, Inc., Riviera Beach, FLMaine Toy Train Museum, Portland, MEMcCamey Medical Services Foundation,

McCamey, TXMedical Research Fundraisers for

Leukemia, Inc., S. Windsor, CTMetro Area Junior Golfers, Inc.,

Detroit, MIMetsa MLK Ed Bluestein Tannehill

Spingdale Airport Neighborhood

Improvement Committee, Austin, TXMiddlesex Youth Soccer League, Inc.,

Woburn, MAMission Foundation, Agoura Hills, CAMoms and Dads, Inc., Kent, WANalamdana, Inc., Cambridge, MANamibia Early Childhood Education

Fund, Inc., New York, NYNational Save-A-Pet Foundation, Inc.,

W. Palm Beach, FLNorcross Charities, Inc., Phoenix, AZNorth Central Indiana Uganda Outreach,

Inc., Fishers, INNortheast Georgia Homeless Coalition,

Inc., Athens, GAOlympic RHF Housing, Inc.,

Long Beach, CAOn The Youths Side, St. Louis, MOPerforming Arts & Humanities of

Sandpoint, Inc., Sandpoint, IDPossibilities Unlimited, Inc.,

St. Augustine, FLQuest Foundation USA, Inc.,

Augusta, GASafe Outreach Foundation, Inc.,

Mt, Vernon, OHSafehouse Ministries, Inc., St. Louis, MOSalisbury Civil War Prison Foundation,

Inc., Salisbury, NCSan Antonio Potters Guild,

San Antonio, TXSereno W. and Doris L. Johnson

Memorial Scholarship Foundation,Boston, MA

Southern Tier Volunteer Organization,Inc., Binghamton, NY

Stars Baseball Club Corporation,Lexington, KY

Success View Network, Inc., Brooklyn, NY

Suicide Anonymous Treatment, Beverly Hills, CA

Sunflower Economic DevelopmentCorp., Sunflower, MS

Teens of Tomorrow Foundation, Lisly, ILTerrebonne 2000, Houma, LATexas Best, Midland, TXUnifying Movement, Inc.,

Port Orange, FLVehicle of Life Foundation, Berkeley, CAWest Bend Haunted Manor, Inc.,

West Bend, WIYad Veizer Leyehudei Russia, Inc.,

Brooklyn, NYZeta Omega Scholarship Fund,

Incorporated, Cleveland, OH

If an organization listed above submitsinformation that warrants the renewal of

2000–34 I.R.B. 205 August 21, 2000

its classification as a public charity or as aprivate operating foundation, the InternalRevenue Service will issue a ruling or de-termination letter with the revised classi-

fication as to foundation status. Grantorsand contributors may thereafter rely uponsuch ruling or determination letter as pro-vided in section 1.509(a)–7 of the Income

Tax Regulations. It is not the practice ofthe Service to announce such revised clas-sification of foundation status in the Inter-nal Revenue Bulletin.

August 21, 2000 206 2000–34 I.R.B.

Under 31 Code of Federal Regulations,Part 10, an attorney, certified public ac-countant, enrolled agent or enrolled actu-ary, in order to avoid the institution orconclusion of a proceeding for his disbar-ment or suspension from practice beforethe Internal Revenue Service, may offerhis consent to suspension from such prac-tice. The Director of Practice, in his dis-cretion, may suspend an attorney, certi-fied public accountant, enrolled agent orenrolled actuary in accordance with theconsent offered.

Attorneys, certified public accountants,enrolled agents and enrolled actuaries areprohibited in any Internal Revenue Ser-

vice matter from directly or indirectly em-ploying, accepting assistance from, beingemployed by or sharing fees with, anypractitioner disbarred or suspended frompractice before the Internal Revenue Ser-vice.

To enable attorneys, certified public ac-countants, enrolled agents and enrolledactuaries to identify practitioners underconsent suspension from practice beforethe Internal Revenue Service, the Directorof Practice will announce in the InternalRevenue Bulletin the names and ad-dresses of practitioners who have beensuspended from such practice, their desig-nation as attorney, certified public ac-

countant, enrolled agent or enrolled actu-ary, and date or period of suspension.This announcement will appear in theweekly Bulletin at the earliest practicabledate after such action and will continue toappear in the weekly Bulletins for fivesuccessive weeks or for as many weeks asis practicable for each attorney, certifiedpublic accountant, enrolled agent or en-rolled actuary so suspended and will beconsolidated and published in the Cumu-lative Bulletin.

The following individuals have beenplaced under consent suspension frompractice before the Internal Revenue Ser-vice:

Announcement of the Consent Voluntary Suspension of Attorneys,Certified Public Accountants, Enrolled Agents, and Enrolled ActuariesFrom Practice Before the Internal Revenue Service

Date ofName Address Designation Suspension

Stoppenhagen, Larry Ft. Wayne, IN CPA April 14, 2000to

April 13, 2001

Chon, James N. Hollywood, CA CPA May 22, 2000to

May 21, 2003

Bleyer, Stephen A. Bala Cynwyd, PA CPA June 26, 2000 to

December 25, 2000

Knutson, Owen Ouray, CO CPA July 3, 2000to

January 2, 2003

Silverman, Richard E. Fayetteville, NY CPA August 1, 2000to

March 31, 2004

Holt, Jeffrey Little Rock, AR Enrolled October 1, 2000Agent to

March 31, 2003

Barbagallo, Joseph Newton, PA CPA October 15, 2000

toOctober 14, 2004

Under Section 330, Title 31 of theUnited States Code, the Secretary of theTreasury, after due notice and opportunityfor hearing, is authorized to suspend ordisbar from practice before the InternalRevenue Service any person who has vio-lated the rules and regulations governingthe recognition of attorneys, certifiedpublic accountants, enrolled agents or en-rolled actuaries to practice before the In-ternal Revenue Service.

Attorneys, certified public accountants,enrolled agents, and enrolled actuaries areprohibited in any Internal Revenue Ser-vice matter from directly or indirectly em-

ploying, accepting assistance from, beingemployed by or sharing fees with, anypractitioner disbarred or under suspensionfrom practice before the Internal RevenueService.

To enable attorneys, certified public ac-countants, enrolled agents and enrolledactuaries to identify such disbarred or sus-pended practitioners, the Director of Prac-tice will announce in the Internal RevenueBulletin the names and addresses of prac-titioners who have been suspended fromsuch practice, their designation as attor-ney, certified public accountant, enrolledagent or enrolled actuary, and the date of

disbarment or period of suspension. Thisannouncement will appear in the weeklyBulletin for five successive weeks or aslong as it is practicable for each attorney,certified public accountant, enrolled agentor enrolled actuary so suspended or dis-barred and will be consolidated and pub-lished in the Cumulative Bulletin.

After due notice and opportunity forhearing before an administrative lawjudge, the following individuals has beendisbarred from further practice before theInternal Revenue Service:

2000–34 I.R.B. 207 August 21, 2000

Announcement of the Disbarment and Suspension of Attorneys,Certified Public Accountants, Enrolled Agents, and Enrolled ActuariesFrom Practice Before the Internal Revenue Service

Name Address Designation Effective Date

Luebben, William Hot Springs, AR CPA February 11, 2000

August 21, 2000 i 2000–34 I.R.B.

Revenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe theeffect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus,if an earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith modified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.

Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling ismodified because it corrects a publishedposition. (Compare with amplified andclarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the

new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this casethe previously published ruling is firstmodified and then, as modified, is super-seded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may be pub-lished that includes the list in the originalruling and the additions, and supersedesall prior rulings in the series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current use and for-merly used will appear in material published in theBulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

Definition of Terms

2000–34 I.R.B. ii August 21, 2000

Numerical Finding List1

Bulletins 2000–27 through 2000–33

Announcements:

2000–57, 2000–28 I.R.B. 1152000–58, 2000–30 I.R.B. 1352000–59, 2000–29 I.R.B. 1202000–60, 2000–31 I.R.B. 1492000–61, 2000–30 I.R.B. 1362000–62, 2000–30 I.R.B. 1372000–63, 2000–31 I.R.B. 1492000–64, 2000–31 I.R.B. 1492000–65, 2000–31 I.R.B. 1502000–66, 2000–32 I.R.B. 1602000–67, 2000–32 I.R.B. 1602000–68, 2000–32 I.R.B. 1612000–69, 2000–33 I.R.B. 183

Court Decisions:

2068, 2000–28 I.R.B. 109

Notices:

2000–33, 2000–27 I.R.B. 972000–34, 2000–33 I.R.B. 1722000–35, 2000–29 I.R.B. 1182000–36, 2000–33 I.R.B. 1732000–37, 2000–29 I.R.B. 1182000–38, 2000–33 I.R.B. 1742000–39, 2000–30 I.R.B. 1322000–40, 2000–30 I.R.B. 1342000–41, 2000–33 I.R.B. 177

Proposed Regulations:

REG–105316–98, 2000–27 I.R.B. 98REG–116495–99, 2000–33 I.R.B. 179

Railroad Retirement Quarterly Rate:

2000–28, I.R.B. 1122000–29, I.R.B. 117

Revenue Procedures:

2000–28, 2000–27 I.R.B. 602000–29, 2000–28 I.R.B. 1132000–30, 2000–28 I.R.B. 1132000–31, 2000–31 I.R.B. 1462000–32, 2000–33 I.R.B. 172

Revenue Rulings:

2000–32, 2000–27 I.R.B. 12000–33, 2000–31 I.R.B. 1422000–34, 2000–29 I.R.B. 1162000–35, 2000–31 I.R.B. 1382000–36, 2000–31 I.R.B. 1402000–37, 2000–32 I.R.B. 1562000–38, 2000–32 I.R.B. 157

Treasury Decisions:

8886, 2000–27 I.R.B. 38888, 2000–27 I.R.B. 38889, 2000–30 I.R.B. 1248890, 2000–30 I.R.B. 1228891, 2000–32 I.R.B. 1528892, 2000–32 I.R.B. 1588893, 2000–31 I.R.B. 1438894, 2000–33 I.R.B. 162

1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 2000–1 through 2000–26is in Internal Revenue Bulletin 2000–27, dated July3, 2000.

August 21, 2000 iii 2000–34 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2000–27 through 2000–33

Proposed Regulations:

FI–42–90Withdrawn byAnnouncement 2000–63, 2000–31 I.R.B. 149

IA–38–93Withdrawn byAnnouncement 2000–68, 2000–32 I.R.B. 161

REG–107644–98Corrected byAnnouncement 2000–66, 2000–32 I.R.B. 160

Revenue Procedures:

98–50Modified and superseded byRev. Proc. 2000–31, 2000–31 I.R.B. 146

98–51Modified and superseded byRev. Proc. 2000–31, 2000–31 I.R.B. 146

99–18Modified by Rev. Proc. 2000–29, 2000–28 I.R.B. 113

99–34Superseded by Rev. Proc. 2000–28, 2000–27 I.R.B. 60

Treasury Decisions:

8883Corrected by Announcement 2000–57, 2000–28 I.R.B. 115

1 A cumulative list of current actions on previouslypublished items in Internal Revenue Bulletins2000–1 through 2000–26 is in Internal RevenueBulletin 2000–27, dated July 3, 2000.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by theSuperintendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

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