[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: 26CFR1.672(f)-1]

[Page 285-286]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.672(f)-1  Foreign persons not treated as owners.

    (a) General rule--(1) Application of the general rule. Section 
672(f)(1) provides that subpart E of part I, subchapter J, chapter 1 of 
the Internal Revenue Code (the grantor trust rules) shall apply

[[Page 286]]

only to the extent such application results in an amount (if any) being 
currently taken into account (directly or through one or more entities) 
in computing the income of a citizen or resident of the United States or 
a domestic corporation. Accordingly, the grantor trust rules apply to 
the extent that any portion of the trust, upon application of the 
grantor trust rules without regard to section 672(f), is treated as 
owned by a United States citizen or resident or domestic corporation. 
The grantor trust rules do not apply to any portion of the trust to the 
extent that, upon application of the grantor trust rules without regard 
to section 672(f), that portion is treated as owned by a person other 
than a United States citizen or resident or domestic corporation, unless 
the person is described in Sec. 1.672(f)-2(a) (relating to certain 
foreign corporations treated as domestic corporations), or one of the 
exceptions set forth in Sec. 1.672(f)-3 is met, (relating to: trusts 
where the grantor can revest trust assets; trusts where the only amounts 
distributable are to the grantor or the grantor's spouse; and 
compensatory trusts). Section 672(f) applies to domestic and foreign 
trusts. Any portion of the trust that is not treated as owned by a 
grantor or another person is subject to the rules of subparts A through 
D (section 641 and following), part I, subchapter J, chapter 1 of the 
Internal Revenue Code.
    (2) Determination of portion based on application of the grantor 
trust rules. The determination of the portion of a trust treated as 
owned by the grantor or other person is to be made based on the terms of 
the trust and the application of the grantor trust rules and section 671 
and the regulations thereunder.
    (b) Example. The following example illustrates the rules of this 
section:

    Example. (i) A, a nonresident alien, funds an irrevocable domestic 
trust, DT, for the benefit of his son, B, who is a United States 
citizen, with stock of Corporation X. A's brother, C, who also is a 
United States citizen, contributes stock of Corporation Y to the trust 
for the benefit of B. A has a reversionary interest within the meaning 
of section 673 in the X stock that would cause A to be treated as the 
owner of the X stock upon application of the grantor trust rules without 
regard to section 672(f). C has a reversionary interest within the 
meaning of section 673 in the Y stock that would cause C to be treated 
as the owner of the Y stock upon application of the grantor trust rules 
without regard to section 672(f). The trustee has discretion to 
accumulate or currently distribute income of DT to B.
    (ii) Because A is a nonresident alien, application of the grantor 
trust rules without regard to section 672(f) would not result in the 
portion of the trust consisting of the X stock being treated as owned by 
a United States citizen or resident. None of the exceptions in Sec. 
1.672(f)-3 applies because A cannot revest the X stock in A, amounts may 
be distributed during A's lifetime to B, who is neither a grantor nor a 
spouse of a grantor, and the trust is not a compensatory trust. 
Therefore, pursuant to paragraph (a)(1) of this section, A is not 
treated as an owner under subpart E of part I, subchapter J, chapter 1 
of the Internal Revenue Code, of the portion of the trust consisting of 
the X stock. Any distributions from such portion of the trust are 
subject to the rules of subparts A through D (641 and following), part 
I, subchapter J, chapter 1 of the Internal Revenue Code.
    (iii) Because C is a United States citizen, paragraph (a)(1) of this 
section does not prevent C from being treated under section 673 as the 
owner of the portion of the trust consisting of the Y stock.

    (c) Effective date. The rules of this section are applicable to 
taxable years of a trust beginning after August 10, 1999.

[T.D. 8831, 64 FR 43275, Aug. 10, 1999]