[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: 26CFR1.673(a)-1]

[Page 294-295]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.673(a)-1  Reversionary interests; income payable to beneficiaries 
other than certain charitable organizations; general rule.

    (a) Under section 673(a), a grantor, in general, is treated as the 
owner of any portion of a trust in which he has a reversionary interest 
in either the corpus or income if, as of the inception of that portion 
of the trust, the grantor's interest will or may reasonably be expected 
to take effect in possession or enjoyment within 10 years commencing 
with the date of transfer of that portion of the trust. However, the 
following types of reversionary interests are excepted from the general 
rule of the preceding sentence:
    (1) A reversionary interest after the death of the income 
beneficiary of a trust (see paragraph (b) of this section); and
    (2) Except in the case of transfers in trust made after April 22, 
1969, a reversionary interest in a charitable trust meeting the 
requirements of section 673(b) (see Sec. 1.673(b)-1). Even though the 
duration of the trust may be such that the grantor is not treated as its 
owner under section 673, and therefore is not taxed on the ordinary 
income, he may nevertheless be treated as an owner

[[Page 295]]

under section 677(a)(2) if he has a reversionary interest in the corpus. 
In the latter case, items of income, deduction, and credit allocable to 
corpus, such as capital gains and losses, will be included in the 
portion he owns. See Sec. 1.671-3 and the regulations under section 
677. See Sec. 1.673(d)-1 with respect to a postponement of the date 
specified for reacquisition of a reversionary interest.
    (b) Section 673(c) provides that a grantor is not treated as the 
owner of any portion of a trust by reason of section 673 if his 
reversionary interest in the portion is not to take effect in possession 
or enjoyment until the death of the person or persons to whom the income 
of the portion is regardless of the life expectancies of the income 
beneficiaries. If his reversionary interest is to take effect on or 
after the death of an income beneficiary or upon the expiration of a 
specific term of years, whichever is earlier, the grantor is treated as 
the owner if the specific term of years is less than 10 years (but not 
if the term is 10 years or longer).
    (c) Where the grantor's reversionary interest in a portion of a 
trust is to take effect in possession or enjoyment by reason of some 
event other than the expiration of a specific term of years or the death 
of the income beneficiary, the grantor is treated as the owner of the 
portion if the event may reasonably be expected to occur within 10 years 
from the date of transfer of that portion, but he is not treated as the 
owner under section 673 if the event may not reasonably be expected to 
occur within 10 years from that date. For example, if the reversionary 
interest in any portion of a trust is to take effect on or after the 
death of the grantor (or any person other than the person to whom the 
income is payable) the grantor is treated under section 673 as the owner 
of the portion if the life expectancy of the grantor (or other person) 
is less than 10 years on the date of transfer of the portion, but not if 
the life expectancy is 10 years or longer. If the reversionary interest 
in any portion is to take effect on or after the death of the grantor 
(or any person other than the person to whom the income is payable) or 
upon the expiration of a specific term of years, whichever is earlier, 
the grantor is treated as the owner of the portion if on the date of 
transfer of the portion either the life expectancy of the grantor (or 
other person) or the specific term is less than 10 years; however, if 
both the life expectancy and the specific term are 10 years or longer 
the grantor is not treated as the owner of the portion under section 
673. Similarly, if the grantor has a reversionary interest in any 
portion which will take effect at the death of the income beneficiary or 
the grantor, whichever is earlier, the grantor is not treated as an 
owner of the portion unless his life expectancy is less than 10 years.
    (d) It is immaterial that a reversionary interest in corpus or 
income is subject to a contingency if the reversionary interest may, 
taking the contingency into consideration, reasonably be expected to 
take effect in possession or enjoyment within 10 years. For example, the 
grantor is taxable where the trust income is to be paid to the grantor's 
son for 3 years, and the corpus is then to be returned to the grantor if 
he survives that period, or to be paid to the grantor's son if he is 
already decreased.
    (e) See section 671 and Sec. Sec. 1.671-2 and 1.671-3 for rules for 
treatment of items of income, deduction, and credit when a person is 
treated as the owner of all or only a portion of a trust.

[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 7357, 40 FR 
23742, June 2, 1975]