Code Section 679
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 679 | 3/18/2010 | The Hiring Incentives to Restore Employment Act | Clarifications with respect to foreign trusts which are treated as having a United States beneficiary | *See sec. 1471 |
| 679 | 3/18/2010 | The Hiring Incentives to Restore Employment Act | Presumption that foreign trust has United States beneficiary | *See sec. 1471 |
| 643 and 679 | 3/18/2010 | The Hiring Incentives to Restore Employment Act | Uncompensated use of trust property | *See sec. 1471 |
*Note on Revenue Estimates
See section 1471, provision: Reporting on certain foreign accounts.
Clarifications with respect to foreign trusts which are treated as having a United States beneficiary
Explanation of Provision
In determining whether, under section 679, a foreign trust has a U.S. beneficiary, the provision clarifies that an amount is treated as accumulated for the benefit of a U.S. person even if the U.S. person’s interest in the trust is contingent on a future event. Under the provision, if any person has the discretion (by authority given in the trust agreement, by power of appointment, or otherwise) to make a distribution from the trust to, or for the benefit of, any person, the trust is treated as having a U.S. beneficiary unless (1) the terms of the trust specifically identify the class of persons to whom such distributions may be made, and (2) none of those persons is a U.S. person during the taxable year. The provision is meant to be consistent with existing regulations under section 679. The provision clarifies that if any U.S. person who directly or indirectly transfers property to the trust is directly or indirectly involved in any agreement or understanding (whether written, oral, or otherwise) that may result in the income or corpus of the trust being paid or accumulated to or for the benefit of a U.S. person, such agreement or understanding is treated as a term of the trust. It is assumed for these purposes that a transferor of property to the trust is generally directly or indirectly involved with agreements regarding the accumulation or disposition of the income and corpus of the trust.
Presumption that foreign trust has United States beneficiary
Explanation of Provision
Under the provision, if a U.S. person directly or indirectly transfers property to a foreign trust,648 the Secretary may treat the trust as having a U.S. beneficiary for purposes of section 679 unless such U.S. person submits information as required by the Secretary and demonstrates to the satisfaction of the Secretary that (1) under the terms of the trust, no part of the income or corpus of the trust may be paid or accumulated during the taxable year to or for the benefit of a U.S. person, and (2) if the trust were terminated during the taxable year, no part of the income or corpus of the trust could be paid to or for the benefit of a U.S. person.
Uncompensated use of trust property
Explanation of Provision
The provision expands section 643(i) to provide that any use of trust property by the U.S. grantor, U.S. beneficiary or any U.S. person related to a U.S. grantor or U.S. beneficiary is treated as a distribution of the fair market value of the use of the property to the U.S. grantor or U.S. beneficiary. The use of property is not treated as a distribution to the extent that the trust is paid the fair market value for the use of the property within a reasonable period of time. A subsequent return of property treated as a distribution under section 643(i) is disregarded for tax purposes.
For purposes of determining whether a foreign trust has a U.S. beneficiary under section 679, a loan of cash or marketable securities or the use of any other trust property by a U.S. person is treated as a payment from the trust to the U.S. person in the amount of the loan or the fair market value of the use of the property. A loan or use of property is not treated as a payment to the extent that the U.S. person repays the loan at a market rate of interest or pays the fair market value for the use of the trust property within a reasonable period of time.
648- A foreign trust for this purpose does not include deferred compensation and charitable trusts described in section 6048(a)(3)(B)(ii).
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