[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)-5]

[Page 294]
 
                       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)-5   Special rules.

    (a) Transfers by certain beneficiaries to foreign grantor--(1) In 
general. If, but for section 672(f)(5), a foreign person would be 
treated as the owner of any portion of a trust, any United States 
beneficiary of the trust is treated as the grantor of a portion of the 
trust to the extent the United States beneficiary directly or indirectly 
made transfers of property to such foreign person (without regard to 
whether the United States beneficiary was a United States beneficiary at 
the time of any transfer) in excess of transfers to the United States 
beneficiary from the foreign person. The rule of this paragraph (a) does 
not apply to the extent the United States beneficiary can demonstrate to 
the satisfaction of the Commissioner that the transfer by the United 
States beneficiary to the foreign person was wholly unrelated to any 
transaction involving the trust. For purposes of this paragraph (a), the 
term property includes cash, and a transfer of property does not include 
a transfer that is not a gratuitous transfer (within the meaning of 
Sec. 1.671-2(e)(2)). In addition, a gift is not taken into account to 
the extent such gift would not be characterized as a taxable gift under 
section 2503(b). For a definition of United States beneficiary, see 
section 679.
    (2) Examples. The following examples illustrate the rules of this 
section:

    Example 1. A, a nonresident alien, contributes property to FC, a 
foreign corporation that is wholly owned by A. FC creates a foreign 
trust, FT, for the benefit of A and A's children. FT is revocable by FC 
without the approval or consent of any other person. FC funds FT with 
the property received from A. A and A's family move to the United 
States. Under paragraph (a)(1) of this section, A is treated as a 
grantor of FT. (A may also be treated as an owner of FT under section 
679(a)(4).)
    Example 2. B, a United States citizen, makes a gratuitous transfer 
of $1 million to B's uncle, C, a nonresident alien. C creates a foreign 
trust, FT, for the benefit of B and B's children. FT is revocable by C 
without the approval or consent of any other person. C funds FT with the 
property received from B. Under paragraph (a)(1) of this section, B is 
treated as a grantor of FT. (B also would be treated as an owner of FT 
as a result of section 679.)

    (b) Entity characterization. Entities generally are characterized 
under United States tax principles for purposes of Sec. Sec. 1.672(f)-1 
through 1.672(f)-5. See Sec. Sec. 301.7701-1 through 301.7701-4 of this 
chapter. However, solely for purposes of Sec. 1.672(f)-4, a transferor 
that is a wholly owned business entity is treated as a corporation, 
separate from its single owner.
    (c) Effective date. The rules in paragraph (a) of this section are 
applicable to transfers to trusts on or after August 10, 1999. The rules 
in paragraph (b) of this section are applicable August 10, 1999.

[T.D. 8831, 64 FR 43280, Aug. 10, 1999, as amended by T.D. 8890, 65 FR 
41334, July 5, 2000]