[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: 26CFR1.679-5]

[Page 320-321]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.679-5  Pre-immigration trusts.

    (a) In general. If a nonresident alien individual becomes a U.S. 
person and the individual has a residency starting date (as determined 
under section 7701(b)(2)(A)) within 5 years after directly or indirectly 
transferring property to a foreign trust (the original transfer), the 
individual is treated as having transferred to the trust on the 
residency starting date an amount

[[Page 321]]

equal to the portion of the trust attributable to the property 
transferred by the individual in the original transfer.
    (b) Special rules--(1) Change in grantor trust status. For purposes 
of paragraph (a) of this section, if a nonresident alien individual who 
is treated as owning any portion of a trust under the provisions of 
subpart E of part I of subchapter J, chapter 1 of the Internal Revenue 
Code, subsequently ceases to be so treated, the individual is treated as 
having made the original transfer to the foreign trust immediately 
before the trust ceases to be treated as owned by the individual.
    (2) Treatment of undistributed income. For purposes of paragraph (a) 
of this section, the property deemed transferred to the foreign trust on 
the residency starting date includes undistributed net income, as 
defined in section 665(a), attributable to the property deemed 
transferred. Undistributed net income for periods before the 
individual's residency starting date is taken into account only for 
purposes of determining the amount of the property deemed transferred.
    (c) Examples. The rules of this section are illustrated by the 
following examples:

    Example 1. Nonresident alien becomes resident alien. On January 1, 
2002, A, a nonresident alien individual, transfers property to a foreign 
trust, FT. On January 1, 2006, A becomes a resident of the United States 
within the meaning of section 7701(b)(1)(A) and has a residency starting 
date of January 1, 2006, within the meaning of section 7701(b)(2)(A). 
Under paragraph (a) of this section, A is treated as a U.S. transferor 
and is deemed to transfer the property to FT on January 1, 2006. Under 
paragraph (b)(2) of this section, the property deemed transferred to FT 
on January 1, 2006, includes the undistributed net income of the trust, 
as defined in section 665(a), attributable to the property originally 
transferred.
    Example 2. Nonresident alien loses power to revest property. On 
January 1, 2002, A, a nonresident alien individual, transfers property 
to a foreign trust, FT. A has the power to revest absolutely in himself 
the title to such property transferred and is treated as the owner of 
the trust pursuant to sections 676 and 672(f). On January 1, 2008, the 
terms of FT are amended to remove A's power to revest in himself title 
to the property transferred, and A ceases to be treated as the owner of 
FT. On January 1, 2010, A becomes a resident of the United States. Under 
paragraph (b)(1) of this section, for purposes of paragraph (a) of this 
section A is treated as having originally transferred the property to FT 
on January 1, 2008. Because this date is within five years of A's 
residency starting date, A is deemed to have made a transfer to the 
foreign trust on January 1, 2010, his residency starting date. Under 
paragraph (b)(2) of this section, the property deemed transferred to the 
foreign trust on January 1, 2010, includes the undistributed net income 
of the trust, as defined in section 665(a), attributable to the property 
deemed transferred.

[T.D. 8955, 66 FR 37889, July 20, 2001]