Transactions with Foreign Trusts and Receipt of Foreign Gifts

By Gina Gatchell, Director

The U.S. Treasury Department and the Internal Revenue Service have issued proposed regulations concerning Sections 643(i), 679, 6039F, 6048 and 6677 of the Internal Revenue Code.

These relate to transactions between U.S. persons and non-U.S. trusts (foreign trusts) which involve loans of cash and marketable securities, use of trust property, and receipt by U.S. persons of certain foreign gifts. Section 643(i) concerns loans by certain foreign trusts to U.S. persons. Section 679 concerns foreign trusts having one or more U.S. beneficiaries. Section 6039F concerns the information reporting requirements of U.S. persons in receipt of certain gifts from non-U.S. persons and non-U.S. estates. Section 6048 concerns information reporting to the Internal Revenue Service, of transactions between U.S. persons and foreign trusts.   Section 6677 concerns failure to comply with information reporting requirements in Section 6048.

Comments in respect of the proposed regulations close on 8 July 2024. Comments may be made electronically or by paper copy. A public hearing is scheduled for August 21, 2024.

Applicability to U.S. persons

Taxpayers may rely on these proposed regulations for any taxable year ending after May 8, 2024 and beginning on or before the date that final regulations are published in the Federal Register.

Taxpayers and all related persons must apply the proposed regulations in their entirety and consistently, for all taxable years beginning with the first taxable year of reliance until the applicability date of the final regulations, which is still to be confirmed.

The effect of the regulations is to:  

  • enact provisions issued under Notice 97-34 concerning loans from certain foreign trusts to U.S. persons and their relatives,
  • enact provisions concerning the use of foreign trust property by U.S. persons,
  • expand existing reporting requirements relating to the receipt by a U.S. person of certain  foreign gifts, and;
  • implement additional information reporting requirements concerning gifting between covered expatriates and U.S. persons.

Up to 58,000 U.S. persons are affected.

Scope of the regulations

The proposed regulations are related only to loans, use of trust property involving foreign trusts and U.S. persons, and the receipt of large gifts and inheritances from non-U.S. persons and foreign estates.

Proposed Regulation Summary

General Rule[1]:  

  1. Unless an exception applies, any loan of cash or marketable securities made from a foreign trust (whether from trust corpus or income) directly or indirectly to a U.S. grantor or beneficiary of the trust or to any U.S. person related to a U.S. grantor or beneficiary of the trust is treated as a section 643(i) distribution to such U.S. grantor or beneficiary as of the date on which the loan is made. For these purposes, a loan to a grantor trust or to a disregarded entity is treated as a loan to the owner of the grantor trust or of the disregarded entity. For example, a loan to a single member LLC treated as a disregarded entity is treated as a loan to the owner of the LLC.
  • This includes indirect loans made through an intermediary, an agent or nominee.
  • Loans from a foreign trust to a U.S. grantor or beneficiary or U.S. person related to a U.S. grantor or beneficiary through an intermediary are treated as made directly from the foreign trust to the U.S. grantor or beneficiary or U.S. person related to a U.S. grantor or beneficiary.
  • If a non-resident alien who is a grantor or beneficiary of a foreign trust receives a loan from the foreign trust and becomes a U.S. person within two years, that grantor or beneficiary will be subject to section 643(i) with respect to the outstanding amount of the loan as of the date the grantor or beneficiary acquires U.S. residence or citizenship if the loan was not a qualified obligation as of the date that it was made.
  • Any direct or indirect use of other property of a foreign trust by a U.S. grantor or beneficiary or any U.S. person related to a U.S. grantor or beneficiary is treated as a section 643(i) distribution to the U.S. grantor or beneficiary in the taxable year in which the use occurs. Use of property of a foreign trust by a grantor trust or a disregarded entity is treated as use by the owner of the grantor trust or of the disregarded entity. For example, use of trust property by a single member LLC treated as a disregarded entity would be treated as use by the owner of the LLC.
  • Indirect use of trust property also includes use by a foreign person, other than a non-resident alien individual who is a beneficiary of the foreign trust, if the foreign person is related to a U.S. grantor or beneficiary of the trust, unless the U.S. grantor or beneficiary reports the use of trust property on Part III of Form 3520, as required by proposed § 1.6048-4, and attaches to the U.S. grantor’s or beneficiary’s Federal income tax return an explanatory statement that demonstrates to the satisfaction of the IRS that the use of trust property would have been made without regard to the U.S. grantor’s or beneficiary’s relationship to the foreign trust.

Exceptions to the General Rule[2]:

  1. Not applicable to any loan of cash in exchange for a qualified obligation within the meaning of proposed § 1.643(i)-2(b)(2)(iii). The proposed regulations do not provide an exception from the general rule for loans of marketable securities as such a rule would be more difficult to apply, and it is less likely that a foreign trust would make a loan of marketable securities. The Treasury Department and the IRS request comments on whether qualified obligation rules are needed for loans of marketable securities.
  • Concerning the use of trust property other than a loan of cash or marketable securities, the general rule will not apply to the extent that the foreign trust receives the fair market value of such use within a reasonable period, stated as 60 days or less, from the start of the use of the trust property. The fair market value of the use will be based on all the facts and circumstances, including the type of property used and the period of use.
  • Aggregate use by members of a group consisting of the U.S. grantors and beneficiaries and the U.S. persons related to them for a total of 14 days or less during the taxable year, other than a loan of cash or marketable securities, by a U.S. grantor or beneficiary or a U.S. person related to a U.S. grantor or beneficiary.
  • Cash loans made by a foreign corporation to a U.S. beneficiary of the foreign trust to the extent the aggregate amount of all such loans to the beneficiary does not exceed undistributed earnings and profits of the foreign corporation attributable to amounts that are, or have been, included in the beneficiary’s gross income under section 951, 951A, or 1293.

Definition of a Qualified Obligation

All of the following criteria must be satisfied for a Qualified Obligation to exist.

  1. the obligation must be in writing.
  2. the term of the obligation must not exceed five years.
  3. all payments on the obligation must be made in cash in U.S. dollars.
  4. The obligation must be issued at par and must provide for stated interest at a fixed rate or a qualified floating rate within the meaning of § 1.1275-5(b).
  • The yield to maturity must be not less than 100 percent and not greater than 130 percent of the applicable Federal rate in effect under section 1274(d) on the day on which the obligation is issued.
  • all stated interest on the obligation must be qualified stated interest within the meaning of § 1.1273-1(c).

In addition, proposed regulations have been issued for modifications to obligations, further obligations issued, cessation of qualified obligation status. The IRS can also aggregate two qualified obligations and reject the status if these are deemed to be issued for the principle purpose of tax avoidance.

Trust Property Attributable to Non grantor Trust Portion

A loan or use of trust property from a partial non grantor trust must be apportioned in a manner that is reasonable based on all the facts and circumstances, including the terms of the governing instrument, local law, and the practice of the trustee, if it is reasonable and consistent. However, if a loan or use of trust property can be made from only one portion of the foreign trust because the type of property loaned or used is held only by that portion, then the loan or use of property is attributable to that portion.

Reporting

Any loan of cash or marketable securities by a foreign trust to a U.S. person and any use by a U.S. person of property belonging to a foreign trust, without regard to whether such loan or use of property is treated as a section 643(i) distribution, also is a distribution within the meaning of proposed § 1.6048-4(b) and subject to information reporting.

For cash loans the issue price of the loan as of the date of the loan is treated as a distribution.

For marketable securities the fair market value of the securities as of the date of the loan is treated as a distribution.

The fair market value of the use of property, less any payments made for the use of the property within 60 days is treated as a distribution.

Apportionment of distribution between multiple U.S. grantors and beneficiaries

If a U.S. person who is not a U.S. grantor or beneficiary of a foreign trust but who is related to more than one U.S. grantor or beneficiary of the foreign trust receives a loan of cash or marketable securities from the trust, or uses trust property, and the loan or use is treated as a distribution, then each U.S. grantor or beneficiary who is related to the U.S. person receiving the loan or using trust property is treated as receiving an equal share of the  distribution.

U.S. tax treatment of distribution from certain foreign trusts to U.S. persons

If, under these proposed regulations, a U.S. person/persons is deemed to have received a distribution from a foreign trust,

  1. a foreign trust usually treats the distribution as an amount properly paid, credited, or required to be distributed by the trust.
  2. That trust may be allowed a distribution deduction in computing its taxable income.
  3. In the case of a confirmed distribution of marketable securities from a foreign trust, the trust recognizes gain or loss as if the marketable securities had been sold at fair market value.
  4. Any capital gain recognized by the foreign trust is included in the trust’s distributable net income.
  5. A U.S. grantor or beneficiary would be treated as including in gross income the fair market value of the marketable securities.
  6. The foreign trust would be allowed to deduct the fair market value of the marketable securities to the extent allowed.

U.S. information reporting obligations in respect of distribution from certain foreign trusts to U.S. persons

The foreign trust may issue a Foreign Nongrantor Trust Beneficiary Statement to each U.S. person, or U.S. relative of a U.S. person who receives any loan of cash or marketable securities or uses other trust property during the taxable year of the trust

This is whether or not such U.S. grantor or beneficiary would be required to take the amount into account as a distribution under these rules.

Tax consequences of a section 643(i) distribution

A U.S. grantor or beneficiary who is treated as receiving a section 643(i) distribution must determine the tax consequences of the distribution under either the actual calculation method (as defined in § 1.6048-4(d)(2)) or the default calculation method (as defined in § 1.6048-4(d)(3)). A U.S. grantor or beneficiary may not use the actual calculation method to determine the tax consequences of a section 643(i) distribution in a tax year in which the U.S. grantor or beneficiary has not received a Foreign Nongrantor Trust Beneficiary Statement (see § 1.6048-4(d)(2)) from the foreign trust before completing the U.S. grantor’s or beneficiary’s return, knows or has reason to know that the information in the Foreign Nongrantor Trust Beneficiary Statement is incorrect, or previously has used the default calculation method for the same trust. A U.S. grantor or beneficiary who previously has used the default calculation method must consistently use the default calculation method to determine the tax consequences of any subsequent distribution (within the meaning of § 1.6048-4(b)) from the same trust in all future years, except in the year in which the trust terminates. See § 1.6048-4(d)(3)(iii).

A U.S. grantor or beneficiary who does not receive a Foreign Nongrantor Trust Beneficiary Statement with respect to a section 643(i) distribution is required to determine the tax consequences of the distribution under the default calculation method.

Applicability of Notice 97-34 and 2024 Proposed Regulations: Loans from foreign trusts treated as taxable distribution to U.S. person

Classification of person for U.S. tax principlesClassification of trust for U.S. tax principles
Foreign Grantor TrustForeign Non-Grantor Trust
U.S. Settlor (‘U.S. grantor’)n/aapplicable
U.S. Beneficiaryn/aapplicable
U.S. Person who is a relative of U.S. settlor or U.S. beneficiary  n/aapplicable
Non-U.S. Person who is a relative of U.S. settlor or U.S. beneficiaryn/aapplicable
Non-U.S. person who is not a relative of a U.S. settlor  n/an/a

Changes to Section 679 – Foreign Trusts Treated as Having a U.S. Beneficiary

  1. Provide guidance to determine when a loan from a foreign trust to a U.S. person or the use of foreign trust property by a U.S. person causes the foreign trust to be treated as having a U.S. beneficiary.
  • Implements section 679(d), which generally provides that, if a U.S. person directly or indirectly transfers property to a foreign trust, the trust is presumed to have a U.S. beneficiary in certain circumstances.
  • Amends the current definition of U.S. person for these purposes by removing the  statement that a non-resident individual who elects to be treated as a resident of the United States is a U.S. person for this section.
  • Additionally, a U.S. person for purposes of section 679 will include a non-resident  individual who elects under section 6013(h) to be treated as a resident of the United States. An election under either section 6013(g) or (h) is effective for all purposes of chapter 1 of the Code, including section 679, and thus, no specific reference to either rule should be required.
  • A dual resident taxpayer (within the meaning of § 301.7701(b)-7(a)(1)) is not treated as a U.S. person with respect to any taxable year (or portion of a taxable year) for which such person computes U.S. tax liability as a non-resident individual pursuant to § 301.7701(b)-7.

Loans from foreign trusts & uses of trust property

  • Provides guidance under on the general rule that any direct or indirect loan of cash or marketable securities (whether from trust income or corpus) by a foreign trust to, or the direct or indirect use of any other property of a foreign trust by, any U.S. person (whether or not a beneficiary under the terms of the trust) will be treated as causing trust income or corpus to be paid to or accumulated for the benefit of a U.S. person for purposes of § 1.679-2(a)(1). For these purposes, a loan to, or use of any other property of a foreign trust by, a grantor trust or a disregarded entity is treated as a loan to, or use of trust property by, the owner of the grantor trust or of the disregarded entity. (For example, a loan to a single member LLC treated as a disregarded entity would be treated as a loan to the owner of the LLC.) Consequently, a foreign trust that is not already treated as having a U.S. beneficiary under § 1.679-2 is treated as having a U.S. beneficiary for purposes of § 1.679-1, with the result that a U.S. grantor who has made a transfer to the foreign trust is treated as the owner of the trust (or a portion of the trust).

An indirect loan from a foreign trust to a U.S. person includes a loan made by any person, whether U.S. or foreign, if the foreign trust provides a guarantee[3] (for the loan. An indirect loan from a foreign trust to a U.S. person also includes a loan made through an intermediary, such as an agent or nominee of the foreign trust or of the U.S. beneficiary, and a loan from a person related (within the meaning of proposed § 1.643(i)-1(d)(9)) to the foreign trust.

Three exceptions are provided.

  1. Concerning 501©(3) U.S. tax-exempt organizations in receipt of a loan of cash or marketable securities from a foreign trust.
  2. Concerning loans of cash received by a U.S. person, where these are made in exchange for a qualified obligation. This is subject to the requirement to make timely repayments.  
  3. Concerning the use of trust property, the fair market value of the use of the proerpty is paid within a reasonable peirod from the date the use of the property commences.

The exceptions listed above do not apply where the loan is made through, or the propertry is used by an intermediary. Similarly, if a transaction is orchestrated by any other means where a U.S. person may obtain an actual or constructive benefit, the exceptions described above do not apply.

Guidance under section 679(d) regarding whether a foreign trust is deemed to have a U.S. beneficiary.

As a general rule, if a U.S. person directly or indirectly transfers property to a foreign trust (other than a compensatory or charitable trust described in § 1.679-4(a)(2) or (3)), the IRS may treat the trust as having a U.S. beneficiary for purposes of applying § 1.679-1 unless the U.S. person, for the tax year in which the transfer is made, (i) satisfies the information reporting requirements of proposed § 1.6048-2 with respect to the transfer, and (ii) attaches an explanatory statement to the U.S. person’s Federal income tax return demonstrating to the satisfaction of the IRS that the trust satisfies the requirements of § 1.679-2(a)(1) immediately after the transfer. Section 1.679-2(a)(1) provides that a foreign trust is treated as having a U.S. beneficiary unless, during the taxable year in which the U.S. person made the transfer, (i) no part of the income or corpus of the foreign trust may be paid to or accumulated for the benefit of, directly or indirectly, a U.S. person, and (ii) if the foreign trust is terminated at any time during the taxable year, no part of the income or corpus of the trust could be paid to or for the benefit of, directly or indirectly, a U.S. person.

Section 6039F—Information Reporting Rules for U.S. Recipients of Foreign Gifts

The proposed regulations provide information reporting rules for U.S. recipients of foreign gifts by generally incorporating the section 6039F guidance that was provided in Notice 97-34 (discussed in section III.C of the Background). They also provide additional guidance that is needed to implement all of section 6039F and to address certain abuses of which the IRS has become aware and relevant statutory developments since 1997, including the enactment of section 2801 dealing with gifts and bequests from certain expatriates.

General rule

If the aggregate amount of foreign gifts from a transferor exceeds the $100,000 reporting threshold, the proposed regulations require the U.S. person to separately identify each foreign gift in excess of $5,000 received from the transferor and from each foreign person related to the transferor, and to provide identifying information about the transferor and related foreign persons, including foreign individuals or foreign estates (for example, name and address). Specific identifying information about the transferor is not currently required to be provided on Form 3520.

Notwithstanding the reporting threshold described above, beginning on the date on which final regulations under section 2801 (tax on gifts and bequests from expatriates) apply, a U.S. person who receives foreign gifts that are covered gifts or bequests will be required to report the covered gifts or bequests under proposed § 1.6039F-1(a) if the aggregate amount of all covered gifts and bequests received by the U.S. person during the calendar year exceeds the exclusion amount under section 2801(c). See proposed § 1.6039F-1(h)(2). This exclusion amount is the dollar amount of the per-donee gift tax exclusion in effect under section 2503(b) for the calendar year ($18,000 for 2024).

A U.S. person is not required to report foreign gifts from a foreign corporation or partnership if, during the U.S. person’s taxable year, the aggregate amount of transfers received from any particular corporation or partnership does not exceed $10,000, as modified by cost-of-living adjustments under proposed § 1.6039F-1(c)(2)(v). The proposed regulations provide rules for aggregating and reporting foreign gifts from persons related to the transferor.

Proposed § 1.6039F-1(c)(2)(iv) provides that, with respect to spouses who file joint income tax returns under section 6013, the reporting threshold amounts apply separately to each spouse.

Exceptions to the General Rule

A U.S. person is not required to report foreign gifts from foreign individuals or foreign estates if, during the U.S. person’s taxable year, the aggregate amount of foreign gifts received, directly or indirectly, from any one individual or estate (the transferor) does not exceed $100,000, as modified by cost of living adjustments under proposed § 1.6039F-1(c)(2)(v). For purposes of determining whether the $100,000 reporting threshold is met, all foreign gifts (including covered gifts and bequests) from the transferor and from any foreign persons related to the transferor are aggregated.

Anti-Avoidance provisions

Proposed § 1.6039F-1(b)(2) includes an anti-avoidance rule that provides that the term foreign gift includes transfers from a person other than a U.S. person that the recipient does not treat as a gift, bequest, devise, or inheritance for Federal income tax purposes, such as a purported loan, if based on all the facts and circumstances the IRS determines that the transfer is in substance a gift. The IRS has become aware of U.S. persons who are seeking to circumvent the section 6039F information reporting rules by claiming that the amounts they receive from foreign persons are not foreign gifts because they do not treat them as gifts but that they are otherwise not taxable (claiming instead that the transfers are loans). These amounts, however, objectively have all the indicia of being a gift. Under the existing principles of Federal tax law, the IRS therefore will recharacterize these amounts as foreign gifts that should have been reported under section 6039F.

Gift valuation principles

The reportable amount of a foreign gift is the value of the property at the time of the transfer. The value of the property is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts.

The value is to be determined in accordance with the Federal gift tax valuation principles of section 2512 and sections 2701 through 2704 (chapter 14 of the Code) and the related regulations.

Penalty for Failure To File Information Concerning receipt of foreign gifts

The tax consequences of the receipt of the foreign gift will be determined by the IRS based on all the facts and circumstances. A U.S. person who fails to furnish the required information is subject to a penalty equal to five percent of the amount of the foreign gift for each month (or portion thereof) for which the failure continues, but not to exceed 25 percent of the amount of the foreign gift.

For purposes of determining the tax consequences of the receipt of the foreign gift, the IRS may take into account the purported gift rules in § 1.672(f)-4 (which address the treatment of a purported gift, as defined in § 1.672(f)-4(d), from a partnership or foreign corporation). Unless an exception described in § 1.672(f)-4(b), (e) or (f) applies, § 1.672(f)-4 generally requires a U.S. person who receives a purported gift or bequest, directly or indirectly, from a partnership or foreign corporation to include the purported gift or bequest in gross income as ordinary income.

Proposed § 1.6039F-1(e)(2)(i) explains that no penalty is imposed if the U.S. person shows that the failure to comply is due to reasonable cause and not due to willful neglect. The determination of whether a failure is due to reasonable cause and not due to willful neglect will be made under the principles set out in § 1.6664-4 and § 301.6651-1(c) and will be made on a case-by-case basis, taking into account all pertinent facts and circumstances.

Gifts from non-resident aliens and foreign estates

New reporting requirements for covered expatriates including the requirement for gifts exceeding the annual gift exclusion of $12,000 to be reported and also US persons receiving gifts in excess of US $100,000 per year must report the name and address of the transferor including the estate where an inheritance.

Notice of certain events

A responsible party, normally the grantor, or the exceutor of the estate of a deceased grantor is required to provide notice of reportable events.

a reportable event as: (i) the creation of a foreign trust by a U.S. person, (ii) any direct, indirect, or constructive transfer, within the meaning of § 1.679-3 or § 1.684-2, of property (including cash) to a foreign trust by a U.S. person, including a transfer by reason of death, and (iii) the death of a citizen or resident of the United States if the decedent was treated as the owner of any portion of a foreign trust under the grantor trust rules or if any portion of a foreign trust was included in the gross estate of the decedent. A reportable event also includes a U.S. person’s transfer of property to a domestic trust that becomes a foreign trust, as described in § 1.684-4 (outbound migrations of domestic trusts), and a U.S. person’s transfer of property in exchange for any obligation of the foreign trust or of a related person, as described in § 1.679-4, without regard to whether the obligation is a qualified obligation. A reportable event does not include transfers to certain foreign charitable trusts, foreign compensatory trusts, and tax-favored foreign retirement and non-retirement savings trusts,

  1. As a general rule, a person who fails to timely file a required notice or return, or fails to provide complete and correct information, is subject to a penalty equal to the greater of $10,000 or 35 percent of the applicable gross reportable amount (defined in proposed § 1.6677-1(c)) for each such failure (or for each year, in the case of a failure under proposed § 1.6048-3 relating to information reporting about U.S. owners of foreign trusts). If a person reports an amount that is less than the gross reportable amount, the penalty is based on the amount that is unreported.
  2. if the failure to comply with the applicable reporting requirement continues for more than 90 days after the day on which the IRS mails notice of the failure to the U.S. person required to pay the penalty, the person is required to pay an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure continues.
  3. the aggregate amount of the penalties imposed by proposed § 1.6677-1(a)(1) and (2) (as modified by proposed § 1.6677-1(b), if applicable) with respect to any single failure may not exceed the gross reportable amount with respect to that failure (provided that the IRS receives enough information to accurately determine the gross reportable amount). In some cases, the IRS can begin to assess penalties before it has received enough information to determine the gross reportable amount. If the aggregate amount of the penalty collected exceeds the applicable gross reportable amount (because the penalty was assessed and collected before the IRS was able to determine the gross reportable amount), the IRS will refund the excess amount pursuant to section 6402.

Failures To Comply With Proposed § 1.6048-3

Two modifications to the rules of proposed § 1.6677-1(a) in the case of a notice or return required to be filed under proposed § 1.6048-3 (relating to information reporting about U.S. owners of foreign trusts). First, in the case of a notice or return required to be filed by a foreign trust under proposed § 1.6048-3(a), the U.S. owner, rather than the foreign trust, must pay the penalty. Second, the amount of any penalty that initially is imposed under proposed § 1.6677-1(a)(1) is the greater of $10,000 or five percent (rather than 35 percent) of the gross reportable amount.

Reasonable Cause

The penalty does not apply if the person required to file the notice or return (including a U.S. person who is treated as an owner of a foreign trust that fails to comply with proposed § 1.6048-3(b)) shows that the failure to file is due to reasonable cause and not due to willful neglect. The determination of whether a failure is due to reasonable cause and not due to willful neglect will be made under the principles set out in § 1.6664-4 and § 301.6651-1(c) and will be made on a case-by-case basis, taking into account all pertinent facts and circumstances. The fact that a foreign jurisdiction would impose a civil or criminal penalty on any person for disclosing the required information will not satisfy the reasonable cause exception. In addition, refusal on the part of a foreign trustee to provide information for any reason, including difficulty in producing the required information or the existence of provisions in the trust instrument that prevent the disclosure of required information, does not constitute reasonable cause.

Joint Filers

Married U.S. persons who jointly file Form 3520 for purposes of proposed §§ 1.6048-2 through 1.6048-4 and jointly file an income tax return under section 6013 (as described section IV.E of this Explanation of Provisions) are treated as a single U.S. person for purposes of assessing section 6677 penalties.

The IRS may treat married U.S. persons who file a joint income tax return under section 6013, but who did not file an information return as required under §§ 1.6048-2 through 1.6048-4, as a single U.S. person for purposes of assessing section 6677 penalties, unless the IRS determines that, based on all the facts and circumstances, only one of the spouses was subject to the information reporting requirement (for example, because only one spouse had an interest in the property constituting the transfer to, or receipt from, a foreign trust). In these cases, it can be difficult for the IRS to determine who, between spouses, should be treated as the transferor, grantor, or owner of, or the recipient of a distribution from, a foreign trust (because, for example, a transfer of property to, or the receipt of property from, a foreign trust was made from (or to) a joint bank account). By enabling the IRS to assess section 6677 penalties on a joint and several basis against married U.S persons who do not file information returns required under section 6048, proposed § 1.6677-1(f)(2) allows the IRS to properly enforce section 6048, while still allowing each spouse to demonstrate that they should not be jointly and severally liable for the section 6677 penalties assessed (for example, because one spouse did not have an interest in the underlying property giving rise to a reporting requirement under proposed §§ 1.6048-2 through 1.6048-4).

The liability of married U.S. persons treated as a single person is joint and several pursuant to proposed § 1.6677-1(f)(3).

Conclusion

Proposed regulations will affect U.S. persons who receive cash or property from trusts set up by non-US persons. Similarly, any use of trust property held by a foreign trust where less than fair market value is paid to the trust for use of property. This would include situations where a US person uses accommodation owned by a trust where that property was placed in a trust by non US persons.

Disclaimer

This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. NZ US Tax Specialists accepts no responsibility to any person whatsoever for the reliance placed on this material under any circumstances.

© 2024 NZ US Tax Specialists

[1] proposed § 1.643(i)-1(b)(1)

[2] proposed § 1.643(i)-2(a)

[3] within the meaning of § 1.679-3(e)(4))