n-18-37.pdf

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Guidance in Connection with the Repeal of Section 682

Notice 2018-37

SECTION 1. OVERVIEW
This notice announces that the Department of the Treasury (Treasury
Department) and the Internal Revenue Service (IRS) intend to issue regulations
providing clarification of the application of the effective date provisions concerning the
repeal of § 682 of the Internal Revenue Code (Code) enacted on December 22, 2017,
by “An Act to provide for reconciliation pursuant to titles II and V of the concurrent
resolution on the budget for fiscal year 2018,” P.L. 115-97 (Act). This notice also
requests comments on whether guidance is needed with respect to the application of
§§ 672(e)(1)(A), 674(d), and 677 of the Code to trusts for the benefit of a spouse
following a divorce or separation.
SECTION 2. BACKGROUND
Section 71 of the Code as in effect prior to the Act provides rules regarding the
tax treatment of alimony and separate maintenance payments, with § 71(a) providing
that gross income includes amounts received as alimony or separate maintenance

payments. Along with certain restrictions, § 71(b)(1) defines the term “alimony or
separate maintenance payment” to mean any payment in cash if such payment is
received by (or on behalf of) a spouse under a divorce or separation instrument.
Section 71(b)(2) defines the term “divorce or separation instrument” to mean (A) a
decree of divorce or separate maintenance or a written instrument incident to such a
decree, (B) a written separation agreement, or (C) a decree (not described in former
§ 71(b)(2)(A)) requiring a spouse to make payments for the support and maintenance of
the other spouse.
Section 682 of the Code as in effect prior to the Act provides rules regarding the
tax treatment of the income of certain trusts payable to a former spouse who was
divorced or legally separated. Section 682(a) provides that there shall be included in
the gross income of a wife who is divorced or legally separated under a decree of
divorce or of separate maintenance (or who is separated from her husband under a
written separation agreement) the amount of the income of any trust which such wife is
entitled to receive and which, except for former § 682, would be includible in the gross
income of her husband, and such amount shall not, despite any other provision of
subtitle A of the Code, be includible in the gross income of such husband. Section
682(a), however, does not apply to any trust income payable under the terms of such
decree or agreement or the trust instrument for the support of the husband’s minor
children.
Section 682(b) provides that, for purposes of computing the taxable income of
the trust and the taxable income of a wife to whom § 682(a) applies, such wife shall be

considered as the beneficiary specified in part I of subchapter J of chapter 1 of the
Code.
Section 7701(a)(17) as in effect prior to the Act provides that, as used in § 682, if
the husband and wife therein referred to are divorced, wherever appropriate to the
meaning of former § 682, the term “wife” shall be read “former wife” and the term
“husband” shall be read “former husband;” and, if the payments described in former
§ 682 are made by or on behalf of the wife or former wife to the husband or former
husband instead of vice versa, wherever appropriate to the meaning of former § 682,
the term “husband” shall be read “wife” and the term “wife” shall be read “husband.”
Section 11051(b)(1)(B) and (C) of the Act prospectively repeal §§ 71 and 682,
and § 11051(b)(4)(A) makes conforming amendments to § 7701(a)(17). Section
11051(c) of the Act provides that the amendments made by § 11051 shall apply to: (1)
any divorce or separation instrument (as defined in former § 71(b)(2)) executed after
December 31, 2018, and (2) any divorce or separation instrument (as so defined)
executed on or before such date and modified after such date if the modification
expressly provides that the amendments made by such section apply to such
modification.
SECTION 3. TRUSTS TO WHICH SECTION 682 CONTINUES TO APPLY
The regulations will provide that § 682, as in effect prior to December 22, 2017,
will continue to apply with regard to trust income payable to a former spouse who was
divorced or legally separated under a divorce or separation instrument (as defined in
§ 71(b)(2)) executed on or before December 31, 2018, unless such instrument is

modified after that date and the modification provides that the changes made by
§ 11051 of the Act apply to the modification.
SECTION 4. REQUEST FOR COMMENTS
Section 672(e)(1)(A) of the Code provides that the grantor of a trust shall be
treated as holding any power or interest in such trust held by any individual who was the
spouse of the grantor at the time of the creation of such power or interest.
Section 674(a) of the Code provides, in general, that the grantor shall be treated
as the owner of any portion of a trust in respect of which the beneficial enjoyment of the
corpus or the income therefrom is subject to a power of disposition, exercisable by the
grantor or a nonadverse party (as defined in § 672(b)), or both, without the approval or
consent of any adverse party (as defined in § 672(a)). However, § 674(d) provides that
§ 674(a) shall not apply to a power solely exercisable (without the approval or consent
of any other person) by a trustee or trustees, none of whom is the grantor or spouse
living with the grantor, to distribute, apportion, or accumulate income to or for a
beneficiary or beneficiaries, or to, for, or within a class of beneficiaries, whether or not
the conditions of § 674(b)(6) or (7) are satisfied, if such power is limited by a reasonably
definite external standard which is set forth in the trust instrument.
Section 677(a) of the Code provides that the grantor of a trust shall be treated as
the owner of any portion of a trust, whether or not the grantor is treated as such owner
under § 674, whose income without the approval or consent of any adverse party is, or,
in the discretion of the grantor or a nonadverse party, or both, may be distributed to the
grantor or the grantor's spouse, or held or accumulated for future distribution to the

grantor or the grantor's spouse.
The Treasury Department and IRS request comments on whether guidance is
needed regarding the application of §§ 672(e)(1)(A), 674(d), and 677 following a divorce
or separation in light of the repeal of former § 682.
Written comments may be submitted by July 11, 2018 to Internal Revenue
Service, CC:PA:LPD:PR (Notice 2018-37), Room 5203, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044, or electronically to
Notice.Comments@irscounsel.treas.gov (please include “Notice 2018-37” in the subject
line). Alternatively, comments may be hand delivered between the hours of 8:00 a.m.
and 4:00 p.m. Monday to Friday to CC:PA:LPD:PR (Notice 2018-37), Courier's Desk,
Internal Revenue Service, 1111 Constitution Avenue NW, Washington, D.C. Comments
will be available for public inspection and copying.
SECTION 5. CONTACT INFORMATION
The principal author of this notice is Jennifer N. Keeney of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact Jennifer N. Keeney at (202) 317-6850 (not a toll-free call).