[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.643(d)-1]

[Page 61-63]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.643(d)-1  Definition of ``foreign trust created by a United States 
person''.

    (a) In general. For the purpose of part I, subchapter J, chapter 1 
of the Internal Revenue Code, the term foreign trust created by a United 
States person means that portion of a foreign trust (as defined in 
section 7701(a)(31)) attributable to money or property (including all 
accumulated earnings, profits, or gains attributable to such money or 
property) of a U.S. person (as defined in section 7701(a)(30)) 
transferred directly or indirectly, or under the will of a decedent who 
at the date of his death was a U.S. citizen or resident, to the foreign 
trust. A foreign trust created by a person who is not a U.S. person, to 
which a U.S. person transfers his money or property, is a foreign trust 
created by a U.S. person to the extent that the fair market value of the 
entire foreign trust is attributable to money or property of the U.S. 
person transferred to the foreign trust. The transfer of money or 
property to the foreign trust may be made either directly or indirectly 
by a U.S. person. Transfers of money or property to a foreign trust do 
not include transfers of money or property pursuant to a sale or 
exchange which is made for a full and adequate consideration. Transfers 
to which section 643(d) and this section apply are transfers of money or 
property which establish or increase the corpus of a foreign trust. The 
rules set forth in this section with respect to transfers by a U.S. 
person to a foreign trust also are applicable with respect to transfers 
under the will of a decedent who at the date of his death was

[[Page 62]]

a U.S. citizen or resident. For provisions relating to the information 
returns which are required to be filed with respect to the creation of 
or transfers to foreign trusts, see section 6048 and Sec. 16.3-1 of 
this chapter (Temporary Regulations under the Revenue Act of 1962).
    (b) Determination of a foreign trust created by a U.S. person--(1) 
Transfers of money or property only by a U.S. person. If all the items 
of money or property constituting the corpus of a foreign trust are 
transferred to the trust by a U.S. person, the entire foreign trust is a 
foreign trust created by a U.S. person.
    (2) Transfers of money or property by both a U.S. person and a 
person other than a U.S. person; transfers required to be treated as 
separate funds. Where there are transfers of money or property by both a 
U.S. person and a person other than a U.S. person to a foreign trust, 
and it is necessary, either by reason of the provisions of the governing 
instrument of the trust or by reason of some other requirement such as 
local law, that the trustee treat the entire foreign trust as composed 
of two separate funds, one consisting of the money or property 
(including all accumulated earnings, profits, or gains attributable to 
such money or property) transferred by the U.S. person and the other 
consisting of the money or property (including all accumulated earnings, 
profits, or gains attributable to such money or property) transferred by 
the person other than the U.S. person, the foreign trust created by a 
U.S. person shall be the fund consisting of the money or property 
transferred by the U.S. person. See example 1 in paragraph (c) of this 
section.
    (3) Transfers of money or property by both a U.S. person and a 
person other than a U.S. person; transfers not required to be treated as 
separate funds. Where the corpus of a foreign trust consists of money or 
property transferred to the trust (simultaneously or at different times) 
by a U.S. person and by a person who is not a U.S. person, the foreign 
trust created by a U.S. person within the meaning of section 643(d) is 
that portion of the entire foreign trust which, immediately after any 
transfer of money or property to the trust, the fair market value of 
money or property (including all accumulated earnings, profits, or gains 
attributable to such money or property) transferred to the foreign trust 
by the U.S. person bears to the fair market value of the corpus 
(including all accumulated earnings, profits, or gains attributable to 
the corpus) of the entire foreign trust.
    (c) Examples. The provisions of paragraph (b) of this section may be 
illustrated by the following examples. Example 1 illustrates the 
application of paragraph (b)(2) of this section. Example (2) illustrates 
the application of paragraph (b)(3) of this section in a case where 
there is no provision in the governing instrument of the trust or 
elsewhere which would require the trustee to treat the corpus of the 
trust as composed of more than one fund.

    Example 1. On January 1, 1964, the date of the creation of a foreign 
trust, a U.S. person transfers to it stock of a U.S. corporation with a 
fair market value of $50,000. On the same day, a person other than a 
U.S. person transfers to the trust Country X bonds with a fair market 
value of $25,000. The governing instrument of the trust provides that 
the income from the stock of the U.S. corporation is to be accumulated 
until A, a U.S. beneficiary, reaches the age of 21 years, and upon his 
reaching that age, the stock and income accumulated thereon are to be 
distributed to him. The governing instrument of the trust further 
provides that the income from the Country X bonds is to be accumulated 
until B, a U.S. beneficiary, reaches the age of 21 years, and upon his 
reaching that age, the bonds and income accumulated thereon are to be 
distributed to him. To comply with the provisions of the governing 
instrument of the trust that the income from the stock of the U.S. 
corporation be accumulated and distributed to A and that the income from 
the Country X bonds be accumulated and distributed to B, it is necessary 
that the trustee treat the transfers as two separate funds. The fund 
consisting of the stock of the U.S. corporation is a foreign trust 
created by a U.S. person.
    Example 2. On January 1, 1964, the date of the creation of a foreign 
trust, a U.S. person transfers to it property having a fair market value 
of $60,000 and a person other than a U.S. person transfers to it 
property having a fair market value of $40,000. Immediately after these 
transfers, the foreign trust created by a U.S. person is 60 percent of 
the entire foreign trust, determined as follows:

$60,000 (Value of property transferred by U.S. person)/$100,000 (Value 
of entire property transferred to trust)=60 percent


[[Page 63]]



The undistributed net income for the calendar years 1964 and 1965 is 
$20,000 which increases the value of the entire foreign trust to 
$120,000 ($100,000 plus $20,000). Accordingly, as of December 31, 1965, 
the portion of the foreign trust created by the U.S. person is $72,000 
(60 percent of $120,000). On January 1, 1966, the U.S. person transfers 
property having a fair market value of $40,000 increasing the value of 
the entire foreign trust to $160,000 ($120,000 plus $40,000) and 
increasing the value of the portion of the foreign trust created by the 
U.S. person to $112,000 ($72,000 plus $40,000). Immediately, after this 
transfer, the foreign trust created by the U.S. person is 70 percent of 
the entire foreign trust, determined as follows:

$112,000 (Value of property transferred by U.S. person)/$160,000 (Value 
of entire property transferred to the trust)=70 percent

[T.D. 6989, 34 FR 732, Jan. 17, 1969]