Internal Revenue Bulletin 2000-34 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

INCOME TAX
Rev. Rul. 2000–39, page 184.
LIFO; price indexes; department stores.
The June
2000 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, June 30, 2000.
REG–209038–89, page 191.
Proposed regulations under section 679 of the Code relate
to transfers of property by U.S. persons to foreign trusts
having one or more United States beneficiaries. A public
hearing is scheduled for November 8, 2000.
REG–108522–00, page 187.
Proposed regulations under section 684 of the Code relate
to tax on transfers of appreciated property to foreign trusts
and foreign estates. A public hearing is scheduled for
November 8, 2000.
EXEMPT ORGANIZATIONS
Announcement 2000–70, page 204.
A list is given of organizations now classified as private
foundations.
GIFT TAX
Rev. Proc. 2000–34, page 186.
This procedure provides guidance for submitting the infor-
mation required under section 301.6501(c)–1(f)(2) of the
Procedure and Administration Regulations to adequately dis-
close a gift if the information was not initially submitted with
a gift tax return filed for the calendar year in which the gift
was made.
Internal Revenue
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Bulletin No. 2000–34
August 21, 2000
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.
Announcement of Disbarments and Suspensions begins on page 206.

August 21, 20002000–34 I.R.B.
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

August 21, 20001842000–34 I.R.B.
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The June 2000 Bureau of Labor
Statistics price indexes are accepted for
use by department stores employing the
retail inventory and last-in, first-out in-
ventory methods for valuing inventories
for tax years ended on, or with reference
to, June 30, 2000.
Rev. Rul. 2000–39
The following Department Store Inven-
tory Price Indexes for June 2000 were is-
sued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472–1(k) of
the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for appro-
priate application to inventories of depart-
ment stores employing the retail inven-
tory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, June 30, 2000.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsJuneJunefrom June 1999
19992000to June 2000
1
1. Piece Goods - - - - - - - - - - - - - - - - - - - - -555.1496.1-10.6
2. Domestics and Draperies - - - - - - - - - - - -630.1615.8-2.3
3. Women’s and Children’s Shoes - - - - - - - -645.1626.5-2.9
4. Men’s Shoes - - - - - - - - - - - - - - - - - - - - -876.9926.15.6
5. Infants’ Wear - - - - - - - - - - - - - - - - - - - -610.1642.25.3
6. Women’s Underwear - - - - - - - - - - - - - - -561.4568.31.2
7. Women’s Hosiery - - - - - - - - - - - - - - - - -322.8334.2 3.5
8. Women’s and Girls’ Accessories - - - - - - -549.3538.3-2.0
9. Women’s Outerwear and Girls’ Wear - - - -392.0385.0-1.8
10. Men’s Clothing - - - - - - - - - - - - - - - - - - -624.1613.5-1.7
11. Men’s Furnishings - - - - - - - - - - - - - - - - -630.4621.5-1.4
12. Boys’ Clothing and Furnishings - - - - - - - -488.9491.7 0.6
13. Jewelry - - - - - - - - - - - - - - - - - - - - - - - -961.2924.3-3.8
14. Notions - - - - - - - - - - - - - - - - - - - - - - - -747.4768.32.8
15. Toilet Articles and Drugs - - - - - - - - - - - -968.8971.10.2
16. Furniture and Bedding - - - - - - - - - - - - - -682.9670.6-1.8
17. Floor Coverings - - - - - - - - - - - - - - - - - -602.7607.90.9
18. Housewares - - - - - - - - - - - - - - - - - - - - -801.4780.7-2.6
19. Major Appliances - - - - - - - - - - - - - - - - -235.7233.6-0.9
20. Radio and Television - - - - - - - - - - - - - - -66.359.8-9.8
21. Recreation and Education
2
- - - - - - - - - - -98.793.0-5.8
22. Home Improvements
2
- - - - - - - - - - - - - -127.6128.20.5
23. Auto Accessories
2
- - - - - - - - - - - - - - - - -106.7106.3-0.4
Groups 1 - 15: Soft Goods - - - - - - - - - - - - -599.9592.9-1.2
Groups 16 - 20: Durable Goods - - - - - - - - - -452.2438.1-3.1
Groups 21 - 23: Misc. Goods
2
- - - - - - - - - - -104.1100.2-3.7
Store Total
3
- - - - - - - - - - - - - - - - - - - - - - - -545.0534.9-1.9
1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

2000–34 I.R.B.185August 21, 2000
DRAFTING INFORMATION
The principal author of this revenue
ruling is Alan J. Tomsic of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Tomsic on (202) 622-4970 (not a toll-free
call).
Section 2001.—Imposition and
Rate of Tax
26 CFR 20.2001–1: Valuation of adjusted taxable
gifts and section 2701(d) taxable events.
If a taxpayer does not submit the information re-
quired under section 301.6501(c)–1(f) of the Proce-
dure and Administrative Regulations to adequately
disclose a gift on the initial gift tax return filed for
the calendar year in which the gift was made, what
procedure must the taxpayer follow to submit the re-
quired information in order to commence the run-
ning of the period of limitations on assessment of
the gift tax for the purpose of determining the
amount of adjusted taxable gifts? See Rev. Proc.
2000–34, page 186.
Section 2504.—Taxable Gifts for
Preceding Calendar Periods
26 CFR 25.2504–2: Determination of gifts for
preceding calendar periods.
If a taxpayer does not submit the information re-
quired under section 301.6501(c)–1(f) of the Proce-
dure and Administrative Regulations to adequately
disclose a gift on the initial gift tax return filed for
the calendar year in which the gift was made, what
procedure must the taxpayer follow to submit the re-
quired information in order to commence the run-
ning of the period of limitations on assessment of
the gift tax for the purpose of determining the cor-
rect amount of taxable gifts for the preceding calen-
dar periods? See Rev. Proc. 2000–34, page 186.
Section 6501.—Limitations on
Assessment and Collection
26 CFR 301.6501(c)–1: Exceptions to general
period of limitations on assessment and collection.
If a taxpayer does not submit the information re-
quired under section 301.6501(c)–1(f) of the Proce-
dure and Administrative Regulations to adequately
disclose a gift on the initial gift tax return filed for
the calendar year in which the gift was made, what
procedure must the taxpayer follow to submit the re-
quired information in order to commence the run-
ning of the period of limitations on assessment of
the gift tax? See Rev. Proc. 2000–34, page 186.

26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, §§ 2001, 2504, 6501; 20.2001–1,
25.2504–2, 301.6501(c)–1.)
Rev. Proc. 2000–34
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance for submitting the information re-
quired under § 6501(c)(9) of the Internal
Revenue Code and § 301.6501(c)–1(f) of
the Procedure and Administration Regula-
tions to adequately disclose a gift if the
information was not initially submitted
with a gift tax return filed for the calendar
year in which the gift was made. The pe-
riod of limitations on assessment under
§ 6501(a) will commence to run with re-
spect to such a gift when the taxpayer ad-
equately discloses the gift on an amended
gift tax return filed pursuant to this rev-
enue procedure. The period of assess-
ment will generally expire 3 years after
the date such amended return is filed.
SECTION 2. BACKGROUND
Under § 6501(c)(9), as amended by the
Taxpayer Relief Act of 1997, 1997–4
(Vol. 1) C.B. 1, 69, and the Internal Rev-
enue Restructuring and Reform Act of
1998, P.L. 105-206, 112 Stat. 685, if the
value of a gift is required to be shown on
a gift tax return but is not disclosed on the
return, or on a statement attached to the
return, in a manner adequate to apprise
the Internal Revenue Service of the nature
of the transfer, the period of limitations on
assessment of gift tax with respect to the
gift will not begin to run. If the transfer is
adequately disclosed on the gift tax return
and the period of limitations on assess-
ment of gift tax has expired, then, under
§ 2504(c), the value of the gift cannot be
adjusted for purposes of determining
“prior taxable gifts” and the current gift
tax liability and, under § 2001(f), the
value of the gift cannot be adjusted for
purposes of determining “adjusted taxable
gifts” and the estate tax liability.
Section 301.6501(c)–1(f)(2) provides
that a transfer is adequately disclosed on a
return only if it is reported in a manner
adequate to apprise the Service of the na-
ture of the gift and the basis for the value
reported. Section 301.6501(c)–1(f)(2)(i)
through (v) sets forth the information that
must be disclosed on the gift tax return, or
on a statement attached to the return, to
adequately apprise the Service of the na-
ture of the gift and its value.
The period of limitations on assessment
of gift tax with respect to a gift will com-
mence to run only if the donor sub-
mits the information required under
§ 301.6501(c)–1(f)(2) to adequately dis-
close that gift. The general rule under
§ 6501(a), that gift tax must be assessed
within 3 years of the later to occur of the
date the gift tax return is filed or due (ex-
cept as otherwise provided under
§§ 6501(c) and(e)), applies from the date
the donor submits all the required infor-
mation for that gift, if that information
was not originally submitted with the gift
tax return.
SECTION 3. SCOPE
This revenue procedure applies where
the donor filed a federal gift tax return
(Form 709, United States Gift (and Gen-
eration-Skipping Transfer) Tax Return)
for the appropriate calendar year but
failed to adequately disclose a gift be-
cause the gift was not reported on the re-
turn or because the information required
under § 301.6501(c)–1(f)(2) for the gift
was not submitted with the return. This
revenue procedure does not apply in any
situation where § 6501(c)(1), (c)(2), or
(c)(3) applies.
SECTION 4. PROCEDURE
To commence the running of the period
of limitations on assessment with respect
to a gift that was not adequately disclosed
on a federal gift tax return, the donor must
file an amended gift tax return for the cal-
endar year in which the gift was made.
The amended return must identify the
transfer and provide all of the information
required under § 301.6501(c)–1(f)(2) that
was not previously submitted with the
original gift tax return. The amended re-
turn must be filed with the same Internal
Revenue Service Center where the donor
previously filed the gift tax return for the
calendar year. The top of the first page of
the amended return must have the words
“Amended Form 709 for gift(s) made in
[insert the calendar year that the gift
was made]- In accordance with Rev.
Proc. 2000–34, 2000–34 I.R.B. 186.”
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective
with respect to amended returns filed to
comply with § 301.6501(c)–1(f)(2) after
August 21, 2000. Submissions filed on or
before this date to comply with the ade-
quate disclosure requirements under the
statute and regulations will be accepted
by the Service as effective to commence
the running of the period of limitations as
of the date filed, provided the submission
contains sufficient information to consti-
tute adequate disclosure under
§ 301.6501(c)–1(f)(2). The taxpayer is
not required to conform submissions filed
on or before this date to the requirements
of this revenue procedure.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is William L. Blodgett of the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue procedure contact Mr. Blodgett
on (202) 622-3090 (not a toll free call).
August 21, 20001862000–34 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous

2000–34 I.R.B.187August 21, 2000
Part IV. Items of General Interest
Notice of Proposed Rulemaking
and Notice of Public Hearing
Recognition of Gain on Certain
Transfers to Certain Foreign
Trusts and Estates
REG–108522–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations under section 684 of
the Internal Revenue Code relating to
recognition of gain on certain transfers to
certain foreign trusts and estates. The
proposed regulations affect United States
persons who transfer property to foreign
trusts and estates. This document also
provides notice of a public hearing on
these proposed regulations.
DATES: Written or electronic comments
must be received by November 6, 2000.
Requests to speak (with outlines of oral
comments to be discussed) at the public
hearing scheduled for November 8, 2000,
must be submitted by October 18, 2000.
ADDRESSES: Send submissions to:
CC:MSP:RU (REG–108522–00), room
5226, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to:
CC:MSP:RU (REG–108522–00), Cou-
rier’s Desk, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington,
DC. Alternatively, taxpayers may submit
comments electronically via the Internet by
selecting the “Tax Regs” option on the IRS
Home Page, or by submitting comments di-
rectly to the IRS Internet site at:
http://www.irs.gov/tax_regs/regslist.html.
The public hearing will be held in Room
3313, Internal Revenue Building, 1111
Constitution Ave., NW., Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Karen
A. Rennie Quarrie at (202) 622-3880;
concerning the submissions and hearing,
Sonya M. Cruse at (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 684 of the Internal Revenue
Code (Code) was added by Section
1131(b) of the Taxpayer Relief Act of
1997 (the Act), Public Law 105-34 (111
Stat. 788) (August 5, 1997). The addition
affects the transfer of property by United
States persons to certain foreign trusts and
foreign estates.
1. Prior Law
Prior to the enactment of section 684,
section 1491, with certain exceptions, im-
posed a 35-percent excise tax on transfers
of property by a United States person to a
foreign trust or estate. Section 1491 ap-
plied to all transfers of appreciated prop-
erty whether or not at fair market value
and whether or not the transfer was made
with donative intent. The excise tax was
intended to curtail transfers of appreciated
property to foreign trusts, because a for-
eign trust could dispose of the property
and invest the proceeds of the sale outside
the United States without incurring any
U.S. tax. If the excise tax applied, the for-
eign trust could not increase the basis of
the property contributed to the trust.
Under section 1492(3), the U.S. transferor
could make an election under section 1057
to treat a transfer of appreciated property
to a foreign trust as a sale or exchange of
such property and pay an income tax in-
stead of an excise tax on the gain.
2. Overview of Changes
Section 1131 of the Act repealed sec-
tions 1491 through 1494 and section 1057
of the Code and enacted section 684. In
so doing, Congress eliminated the excise
tax on transfers of appreciated property to
foreign trusts and foreign estates in favor
of an income tax on transfers of appreci-
ated property to foreign trusts and foreign
estates. Unlike previous law, however,
Congress provided explicit regulatory au-
thority to make exceptions to the manda-
tory tax on such transfers. These regula-
tions explain the application of section
684 and provide certain exceptions from
its application.
Pursuant to section 684(a) of the Code,
any transfer of property by a U.S. person
to a foreign trust or estate is treated as a
taxable disposition of the property, except
to the extent provided in regulations.
Such a transfer is treated as a sale or ex-
change of the property for its fair market
value. The U.S. transferor must immedi-
ately recognize gain equal to the excess of
the property’s fair market value over its
adjusted basis in the hands of the U.S.
transferor.
Pursuant to section 684(b), a U.S. per-
son will not be required to recognize gain
on the transfer of property to a foreign
trust if the U.S. transferor (or other per-
son) is considered to be the owner of the
trust under section 671.
Pursuant to section 684(c), if a domes-
tic trust becomes a foreign trust, all trust
assets are considered to be transferred to a
foreign trust. Thus, appreciated property
owned by the trust will be deemed sold on
the date that the trust status changes from
domestic to foreign, and gain must be rec-
ognized on that date.
Explanation of Provisions
§1.684–1 Recognition of gain on transfers
to certain foreign trusts and estates
Subject to certain exceptions discussed
below, the proposed regulations provide a
general rule of immediate recognition of
gain when a U.S. person transfers appre-
ciated property to a foreign trust or estate.
This immediate gain recognition applies
even if the U.S. transferor might other-
wise have been eligible to defer gain
recognition under another provision of the
Code. Losses are not permitted to be rec-
ognized under the provision. Moreover,
if multiple assets are transferred, the U.S.
transferor may not offset losses in some
property against gains in other property
under the provision.
A U.S. person who transfers property to
a foreign trust must comply with the re-
porting requirements set forth in section
6048 of the Code. See Notice 97–34
(1997–1 C.B. 422), which provides guid-
ance regarding the foreign trust reporting
requirements under section 6048.
§1.684–2 Transfers
The proposed regulations define the
term transferbroadly to mean any direct,

August 21, 20001882000–34 I.R.B.
indirect or constructive transfer. The de-
termination of whether an indirect or con-
structive transfer has occurred is made
under the rules set forth in proposed regu-
lation §1.679–3(c) and §1.679–3(d), re-
spectively, published in REG–209038–89
on page 191.
The proposed regulations provide that,
if a U.S. person is considered the owner
of any portion of a trust, a transfer of
property from that portion of the trust will
be considered a transfer by the U.S. per-
son that owns that portion of the trust.
Thus, for example, a U.S. person cannot
avoid the application of section 684 by
first transferring property to a trust which
he is treated as owning under the grantor
trust rules, then having that trust transfer
the property to a foreign trust that he is
not treated as owning.
§1.684–3 Exceptions to the general rule
of gain recognition
Under the proposed regulations, cer-
tain types of transfers are excepted from
the general rule of gain recognition set
forth in §1.684–1. A U.S. person who
transfers property to a foreign trust will
not be required to recognize gain on the
transfer to the extent such trust is consid-
ered owned by any person. For example,
if a U.S. person transfers property to a
foreign trust that is treated as having a
U.S. beneficiary under section 679 and
the U.S. person is treated as the owner of
the trust under that section, the general
rule of gain recognition will not apply at
that time. If, however, the trust subse-
quently ceases to be treated as owned by
the U.S. person, §1.684–2(e) provides
that the U.S. person will be treated as
having transferred the assets of the trust
to a foreign trust immediately before the
U.S. person ceases to be considered the
owner of the original trust. As a result,
the U.S. person will be subject to the
general rule of gain recognition at that
time (unless another exception, such as
the exception for certain transfers on
death, applies).
A transfer by a U.S. person to a trust
which has received a ruling or determi-
nation letter from the IRS recognizing
the trust’s exempt status under section
501(c)(3) will be exempt from the gen-
eral rule of gain recognition if the trust’s
ruling or determination letter has been
neither revoked nor modified.
The proposed regulations also provide
an exception for transfers by a U.S. per-
son to a foreign trust at death if the prop-
erty transferred is included in the U.S.
person’s gross estate for U.S. estate tax
purposes and the basis of the property in
the hands of the foreign trust is deter-
mined under section 1014(a) of the
Code. For example, if a U.S. person pre-
viously transferred property to a foreign
trust and was treated as the owner of the
trust under section 679, for purposes of
section 684 the cessation of ownership
status upon the U.S. person’s death is
treated as a deemed transfer to the for-
eign trust by the decedent immediately
before her death. If the person retained
sufficient powers over the trust to cause
the trust property to be included in her
gross estate for estate tax purposes and
the basis of the property in the hands of
the foreign trust is determined under sec-
tion 1014(a) of the Code, the general rule
of gain recognition does not apply.
However, to the extent the trust property
is not included in her estate and the for-
eign trust does not receive a step-up in
basis in the property under section
1014(a), the exception does not apply.
The proposed regulations also provide
an exception to the general rule of gain
recognition under §1.684–1 if property is
transferred for fair market value to an
unrelated foreign trust. The determina-
tion of whether a foreign trust is a related
foreign trust is made under the principles
set forth in §1.679–1(c)(5). Thus, for ex-
ample, if a U.S. person sells property for
fair market value to an unrelated foreign
trust, the general rule of section 684 will
not apply. However, if the sale is to a re-
lated foreign trust, immediate gain
recognition is required (unless another
exception applies), even if another provi-
sion of the Code would permit deferral
of recognition.
Finally, the proposed regulations pro-
vide that the general rule does not apply
to a distribution to a trust with respect to
an interest held by the trust in a non-trust
entity (e.g., a corporation or partnership),
or an interest in certain commercial trusts.
For example, if a foreign trust owns stock
of a U.S. corporation and the U.S. corpo-
ration makes a distribution to the trust that
is properly characterized as a dividend
with respect to the trust’s stock owner-
ship, section 684 does not apply.
§1.684–4 Outbound migration of
domestic trust
The proposed regulations provide that
if a U.S. person transfers property to a do-
mestic trust and, for any reason, the do-
mestic trust becomes a foreign trust, the
domestic trust will be deemed to have
transferred all of its assets to a foreign
trust. The domestic trust must immedi-
ately recognize gain unless an exception
in §1.684–3 applies at that time (e.g., the
U.S. person is living at the time of the
trust’s change in status and is treated as
the owner of the trust under section 679).
The domestic trust must also fulfill the re-
porting requirements set forth in section
6048 of the Code and Notice 97–34.
The proposed regulations incorporate
the relief for inadvertent migrations set
forth in §301.7701–7(d)(2). For example,
if a trust’s status changes from domestic
to foreign because of an inadvertent
change in the trustee, the trust will avoid
the application of the general gain recog-
nition rule if, within 12 months, it makes
necessary changes to the trustee in order
to remain a domestic trust.
§1.684–5 Effective dates
This section of the proposed regula-
tions provides effective dates with respect
to §§1.684–1 through 1.684–4. The rules
apply with respect to transfers of property
to foreign trusts or foreign estates made
after August 7, 2000. The primary reason
for this effective date is to immediately
address taxpayer concerns with respect to
the provision of regulatory exceptions to
the general rule of gain recognition under
section 684(a). It should be noted, how-
ever, that the Internal Revenue Service is
not restricted from applying general in-
come tax principles to transactions prior
to the effective dates of the proposed reg-
ulations to determine, for example, that a
U.S. person has made a transfer to a for-
eign trust.
Special Analysis
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Ex-
ecutive Order 12866. Therefore, regula-
tory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to

2000–34 I.R.B.189August 21, 2000
these regulations, and because the regu-
lation does not impose a collection of in-
formation on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section
7805(f) of the Internal Revenue Code,
this notice of proposed rulemaking will
be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small businesses.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. The IRS and Treasury specifically
request comments on the clarity of the
proposed regulations and how they can be
made easier to understand. All comments
will be available for public inspection and
copying.
A public hearing has been scheduled
for November 8, 2000, at 10 a.m. in room
3313, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington,
DC. Because of access restrictions, visi-
tors will not be admitted beyond the Inter-
nal Revenue Building lobby more than 15
minutes before the start of the hearing.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by November 6, 2000, and
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (signed original and eight (8)
copies) by October 18, 2000.
A period of ten (10) minutes will be al-
located to each person for making com-
ments.
An agenda showing the scheduling to
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Karen A. Rennie Quarrie of the
Office of Associate Chief Counsel (Inter-
national). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 % % %
Section 1.684–1 also issued under 26
U.S.C. 643(a)(7) and 684(a).
Section 1.684–2 also issued under 26
U.S.C. 643(a)(7) and 684(a).
Section 1.684–3 also issued under 26
U.S.C. 643(a)(7) and 684(a).
Section 1.684–4 also issued under 26
U.S.C. 643(a)(7) and 684(a).
Section 1.684–5 also issued under 26
U.S.C. 643(a)(7) and 684(a). * * *
Par. 2. Sections 1.684–1, 1.684–2,
1.684–3, 1.684–4 and 1.684–5 are added
under the undesignated centerheading
“Miscellaneous” to read as follows:
§1.684–1 Recognition of gain on transfers
to certain foreign trusts and estates.
(a) Immediate recognition of gain—(1)
In general. Any U.S. person who trans-
fers property to a foreign trust or foreign
estate shall be required to recognize gain
at the time of the transfer equal to the ex-
cess of the fair market value of the prop-
erty transferred over the adjusted basis
(for purposes of determining gain) of such
property in the hands of the U.S. trans-
feror unless an exception applies under
the provisions of §1.684–3. The amount
of gain recognized is determined on an
asset-by-asset basis.
(2) No recognition of loss.Under this
section a U.S. person may not recognize
loss on the transfer of an asset to a foreign
trust or foreign estate. A U.S. person may
not offset gain realized on the transfer of
an appreciated asset to a foreign trust or
foreign estate by a loss realized on the
transfer of a depreciated asset to the for-
eign trust or foreign estate.
(b) Definitions.The following defini-
tions apply for purposes of this section:
(1) U.S. person.The term U.S. person
means a United States person as defined
in section 7701(a)(30), and includes a
nonresident alien individual who elects
under section 6013(g) to be treated as a
resident of the United States.
(2) U.S. transferor.The term U.S.
transferor means any U.S. person who
makes a transfer (as defined in §1.684–2)
of property to a foreign trust or foreign es-
tate.
(3) Foreign trust.Section 7701(a)
(31)(B) defines foreign trust.
(4) Foreign estate.Section 7701(a)
(31)(A) defines foreign estate.
(c) Reporting requirements.A U.S.
person who transfers property to a foreign
trust or foreign estate must comply with
the reporting requirements under section
6048.
(d) Examples.The following exam-
ples illustrate the rules of this section. In
all examples, A is a U.S. person and FT is
a foreign trust. The examples are as fol-
lows:
Example 1. Transfer to foreign trust. Atransfers
property that has a fair market value of 1000X to FT.
A’s adjusted basis in the property is 400X. FThas
no U.S. beneficiary within the meaning of §1.679–2,
and no person is treated as owning any portion of
FT. Under paragraph (a)(1) of this section, Arecog-
nizes gain at the time of the transfer equal to 600X.
Example 2. Transfer of multiple properties. A
transfers property Q, with a fair market value of
1000X, and property R, with a fair market value of
2000X, to FT. At the time of the transfer, A’s ad-
justed basis in property Q is 700X, and A’s adjusted
basis in property R is 2200X. FThas no U.S. bene-
ficiary within the meaning of §1.679–2, and no per-
son is treated as owning any portion of FT. Under
paragraph (a)(1) of this section, Arecognizes the
300X of gain attributable to property Q. Under
paragraph (a)(2) of this section, Adoes not recog-
nize the 200X of loss attributable to property R, and
may not offset that loss against the gain attributable
to property Q.
Example 3. Transfer for less than fair market
value. Atransfers property that has a fair market
value of 1000X to FTin exchange for 400X of cash.
A’s adjusted basis in the property is 200X. FThas
no U.S. beneficiary within the meaning of §1.679–2,
and no person is treated as owning any portion of
FT. Under paragraph (a)(1) of this section, Arecog-
nizes gain at the time of the transfer equal to 800X.
Example 4. Exchange of property for private an-
nuity. Atransfers property that has a fair market
value of 1000X to FTin exchange for FT’s obliga-
tion to pay A50X per year for the rest of A’s life.
The obligation has an issue price of 1000X. A’s ad-
justed basis in the property is 100X. FThas no U.S.
beneficiary within the meaning of §1.679–2, and no
person is treated as owning any portion of FT. Ais
required to recognize gain equal to 900X immedi-
ately upon transfer of the property to the trust. This
result applies even though Amight otherwise have
been allowed to defer recognition of gain under an-
other provision of the Internal Revenue Code.
Example 5. Transfer of property to related for-
eign trust in exchange for qualified obligation. A
transfers property that has a fair market value of
1000X to FTin exchange for FT’s obligation to
make payments to A during the next four years. FT

August 21, 20001902000–34 I.R.B.
is related to Aas defined in §1.679–1(c)(5). The
obligation, which has an issue price of 1000X, is
treated as a qualified obligation within the meaning
of §1.679–4(d), and no person is treated as owning
any portion of FT. A’s adjusted basis in the property
is 100X. Ais required to recognize gain equal to
900X immediately upon transfer of the property to
the trust. This result applies even though Amight
otherwise have been allowed to defer recognition of
gain under another provision of the Internal Rev-
enue Code. Section 1.684–3(d) provides rules relat-
ing to transfers for fair market value to unrelated
foreign trusts.
§1.684–2 Transfers.
(a) In general. A transfer means a di-
rect, indirect, or constructive transfer.
(b) Indirect transfers—(1) In general.
Section 1.679–3(c) shall apply to deter-
mine if a transfer to a foreign trust or for-
eign estate, by any person, is treated as an
indirect transfer by a U.S. person to the
foreign trust or foreign estate.
(2) Examples. The following exam-
ples illustrate the rules of this paragraph
(b). In all examples, A is a U.S. citizen,
FTis a foreign trust, and I is A’s uncle,
who is a nonresident alien. The examples
are as follows:
Example 1. Principal purpose of tax avoidance.
Acreates and funds FTfor the benefit of A’s cousin,
who is a nonresident alien. FThas no U.S. benefi-
ciary within the meaning of §1.679– 2, and no per-
son is treated as owning any portion of FT. In 2004,
Adecides to transfer additional property with a fair
market value of 1000X and an adjusted basis of
600X to FT. Pursuant to a plan with a principal pur-
pose of avoiding the application of section 684, A
transfers the property to I. I subsequently transfers
the property to FT. Under paragraph (b) of this sec-
tion and §1.679–3(c), Ais treated as having trans-
ferred the property to FT.
Example 2. U.S. person unable to demonstrate
that intermediary acted independently. Acreates
and funds FTfor the benefit of A’s cousin, who is a
nonresident alien. FThas no U.S. beneficiary within
the meaning of §1.679–2, and no person is treated as
owning any portion of FT. On July 1, 2004, Atrans-
fers property with a fair market value of 1000X and
an adjusted basis of 300X to I, a foreign person. On
January 1, 2007, at a time when the fair market
value of the property is 1100X, I transfers the prop-
erty to FT. Ais unable to demonstrate to the satis-
faction of the Commissioner, under §1.679–
3(c)(2)(ii), that I acted independently of Ain making
the transfer to FT. Under this paragraph (b) and
§1.679–3(c), Ais treated as having transferred the
property to FT. Under this paragraph (b) and
§1.679–3(c)(3), I is treated as an agent of A, and the
transfer is deemed to have been made on January 1,
2007. Under §1.684–1(a), Arecognizes gain equal
to 800X on that date.
(c) Constructive transfers. Section
1.679–3(d) shall apply to determine if a
transfer to a foreign trust or foreign estate
is treated as a constructive transfer by a
U.S. person to the foreign trust or foreign
estate.
(d) Transfers by certain trusts—(1) In
general. If any portion of a trust is treated
as owned by a U.S. person, a transfer of
property from that portion of the trust to a
foreign trust is treated as a transfer from
the owner of that portion to the foreign
trust.
(2) Examples. The following exam-
ples illustrate the rules of this paragraph
(d). In all examples, Ais a U.S. person,
DTis a domestic trust, and FTis a foreign
trust. The examples are as follows:
Example 1. Transfer by a domestic trust. On
January 1, 2001, Atransfers property which has a
fair market value of 1000X and an adjusted basis of
200X to DT. A retains the power to revoke DT. On
January 1, 2003, DTtransfers property which has a
fair market value of 500X and an adjusted basis of
100X to FT. At the time of the transfer, FThas no
U.S. beneficiary as defined in §1.679–2 and no per-
son is treated as owning any portion of FT. Ais
treated as having transferred the property to FTand
is required to recognize gain of 400X, under
§1.684–1, at the time of the transfer by DTto FT.
Example 2. Transfer by a foreign trust. On Janu-
ary 1, 2001, Atransfers property which has a fair
market value of 1000X and an adjusted basis of
200X to FT1. At the time of the transfer, FT1has a
U.S. beneficiary as defined in §1.679–2 and Ais
treated as the owner of FT1under section 679. On
January 1, 2003, FT1transfers property which has a
fair market value of 500X and an adjusted basis of
100X to FT2. At the time of the transfer, FT2has no
U.S. beneficiary as defined in §1.679–2 and no per-
son is treated as owning any portion of FT2. Ais
treated as having transferred the property to FT2and
is required to recognize gain of 400X, under
§1.684–1, at the time of the transfer by FT1to FT2.
(e) Transfers when foreign trust no
longer treated as owned by a U.S.
person—(1) In general. If any portion of
a foreign trust is treated as owned by a
U.S. person under subpart E of part I of
subchapter J, chapter 1 of the Internal
Revenue Code, and such portion ceases to
be treated as owned by that person under
such subpart, the U.S. person shall be
treated as having transferred, immediately
before the trust is no longer treated as
owned by that U.S. person, the assets of
such portion to a foreign trust.
(2) Examples. The following exam-
ples illustrate the rules of this paragraph
(e). In all examples, Ais a U.S. citizen
and FTis a foreign trust. The examples
are as follows:
Example 1. Loss of U.S. beneficiary. (i) On Janu-
ary 1, 2001, Atransfers property, which has a fair
market value of 1000X and an adjusted basis of
400X, to FT. At the time of the transfer, FThas a
U.S. beneficiary within the meaning of §1.679–2,
and Ais treated as owning FTunder section 679.
Under §1.684–3(a), §1.684–1 does not cause A to
recognize gain at the time of the transfer.
(ii) On July 1, 2003, FTceases to have a U.S.
beneficiary within the meaning of §1.679–2, and as
of that date neither Anor any other person is treated
as owning any portion of FT. On that date, the fair
market value of the property is 1200X, and its ad-
justed basis equals 350X. Under paragraph (e)(1) of
this section, Ais treated as having transferred the
property to FTon July 1, 2003, and must recognize
850X of gain at that time under §1.684–1.
Example 2. Death of grantor. (i) The initial facts
are the same as in paragraph (i) of Example 1.
(ii) On July 1, 2003, Adies, and as of that date no
other person is treated as the owner of FT. On that
date, the fair market value of the property is 1200X,
and its adjusted basis equals 350X. Under para-
graph (e)(1) of this section, Ais treated as having
transferred the property to FTimmediately before
his death, and generally is required to recognize
850X of gain at that time under §1.684–1. However,
an exception may apply under §1.684–3(c).
Example 3. Release of a power. (i) On January
1, 2001, Atransfers property that has a fair market
value of 500X and an adjusted basis of 200X to FT.
At the time of the transfer, FTdoes not have a U.S.
beneficiary within the meaning of §1.679–2. How-
ever, Aretains the power to revoke the trust. Ais
treated as the owner of the trust under section 676
and, therefore, under §1.684–3(a), Ais not required
to recognize gain under §1.684–1 at the time of the
transfer.
(ii) On January 1, 2007, Areleases the power to
revoke the trust and, as of that date, neither Anor
any other person is treated as owning any portion of
FT. On that date, the fair market value of the prop-
erty is 900X, and its adjusted basis is 200X. Under
paragraph (e)(1) of this section, Ais treated as hav-
ing transferred the property to FTon January 1,
2007, and must recognize 700X of gain at that time.
(f) Transfers to entities owned by a for-
eign trust. Section 1.679–3(f) provides
rules that apply with respect to transfers
of property by a U.S. person to an entity
in which a foreign trust holds an owner-
ship interest.
§1.684–3 Exceptions to general rule of
gain recognition.
(a) Transfers to grantor trusts. The
general rule of gain recognition under
§1.684–1 shall not apply to any transfer
of property by a U.S. person to a foreign
trust to the extent that any person is
treated as the owner of the trust under sec-
tion 671. Section 1.684–2(e) provides
rules regarding a subsequent change in
the status of the trust.
(b) Transfers to charitable trusts. The
general rule of gain recognition under
§1.684–1 shall not apply to any transfer
of property to a foreign trust that has re-
ceived a ruling or determination letter,
which has been neither revoked nor modi-
fied, from the Internal Revenue Service

2000–34 I.R.B.191August 21, 2000
recognizing the trust’s exempt status
under section 501(c)(3).
(c) Certain transfers at death. The
general rule of gain recognition under
§1.684–1 shall not apply to any transfer
of property by reason of death of the U.S.
transferor if such property is included in
the gross estate of the U.S. transferor for
Federal estate tax purposes and the basis
of the property in the hands of the foreign
trust is determined under section 1014(a).
(d) Transfers for fair market value to
unrelated trusts. The general rule of gain
recognition under §1.684–1 shall not
apply to any transfer of property for fair
market value to a foreign trust that is not a
related foreign trust as defined in
§1.679–1(c)(5). Section §1.671–2(e)
(2)(ii) defines fair market value.
(e) Certain distributions to trusts. For
purposes of this section, a transfer does
not include a distribution to a trust with
respect to an interest held by such trust in
an entity other than a trust or an interest in
certain investment trusts described in
§301.7701–4(c) of this chapter, liquidat-
ing trusts described in §301.7701–4(d) of
this chapter, or environmental remedia-
tion trusts described in §301.7701–4(e) of
this chapter.
(f) Examples. The following examples
illustrate the rules of this section. In all
examples, Ais a U.S. citizen and FTis a
foreign trust. The examples are as fol-
lows:
Example 1. Transfer to owner trust. In 2001, A
transfers property which has a fair market value of
1000X and an adjusted basis equal to 400X to FT.
At the time of the transfer, FThas a U.S. beneficiary
within the meaning of §1.679–2, and Ais treated as
owning FTunder section 679. Under paragraph (a)
of this section, §1.684–1 does not cause Ato recog-
nize gain at the time of the transfer. See §1.684–2(e)
for rules that may require Ato recognize gain if the
trust is no longer owned by A.
Example 2. Property included in U.S. trans-
feror’s estate at death.(i) The initial facts are the
same as Example 1.
(ii) Adies on July 1, 2004. The fair market value
at A’s death of all property transferred to FTby Ais
1500X. The basis in the property is 400X. A re-
tained the power to revoke FT, thus, the value of all
property owned by FTat A’s death is includible in
A’s gross estate for U.S. estate tax purposes. Pur-
suant to paragraph (c) of this section, Ais not re-
quired to recognize gain under §1.684–1 to the ex-
tent the property is included in A’s gross estate and
the basis of the property in the hands of the foreign
trust is determined under section 1014(a).
Example 3. Property not included in U.S. trans-
feror’s estate at death. (i) The initial facts are the
same as Example 1.
(ii) Adies on July 1, 2004. The fair market value
at A’s death of all property transferred to FTby Ais
1500X. The basis in the property is 400X. Are-
tained no power over FTand the value of the prop-
erty transferred to FTis not required to be included
in A’s gross estate. Under §1.684–2(e)(1), Ais
treated as having transferred the property to FTim-
mediately before his death, and must recognize
1100X of gain at that time under §1.684–1.
Example 4. Transfer of property for fair market
value to an unrelated foreign trust. Asells a house
with a fair market value of 1000X to FTin exchange
for a 30-year note issued by FT. Ais not related to FT
as defined in §1.679–1(c)(5). The note has an issue
price of 1000X. FTis not treated as owned by any
person. Pursuant to paragraph (d) of this section, Ais
not required to recognize gain under §1.684–1.
§1.684–4 Outbound migrations of
domestic trusts.
(a) In general. If a U.S. person trans-
fers property to a domestic trust, and such
trust becomes a foreign trust, the trust
shall be treated for purposes of this sec-
tion as having transferred all of its assets
to a foreign trust and the trust is required
to recognize gain on the transfer under
§1.684–1(a). The trust must also comply
with the rules of section 6048.
(b) Date of transfer. The transfer de-
scribed in this section shall be deemed to
occur immediately before, but on the
same date that, the trust meets the defini-
tion of a foreign trust set forth in section
7701(a)(31)(B).
(c) Inadvertent migrations. In the
event of an inadvertent migration, as de-
fined in §301.7701(d)(2) of this chapter, a
trust may avoid the application of this
section by complying with the procedures
set forth in §301.7701–7(d)(2) of this
chapter.
(d) Examples. The following examples
illustrate the rules of this section. In all
examples, Ais a U.S. citizen, Bis a U.S.
citizen, Cis a nonresident alien, Tis a
trust. The examples are as follows:
Example 1. Migration of domestic trust with U.S.
beneficiaries. Atransfers property which has a fair
market value of 1000X and an adjusted basis equal
to 400X to T, a domestic trust, for the benefit of A’s
children who are also United States citizens. Bis the
trustee of T. On January 1, 2001, while Ais still
alive, Bresigns as trustee and Cbecomes successor
trustee under the terms of the trust. Pursuant to
§301.7701–7(d) of this chapter, Tbecomes a foreign
trust. Thas U.S. beneficiaries within the meaning of
§1.679–2 and Ais, therefore, treated as owning FT
under section 679. Pursuant to §1.684–3(a), neither
Anor Tis required to recognize gain at the time of
the migration. Section 1.684–2(e) provides rules
that may require Ato recognize gain upon a subse-
quent change in the status of the trust.
Example 2. Migration of domestic trust with no
U.S. beneficiaries. Atransfers property which has a
fair market value of 1000X and an adjusted basis
equal to 400X to T, a domestic trust for the benefit
of A’s mother who is not a citizen or resident of the
United States. Bis the trustee of T. On January 1,
2001, while A is still alive, Bresigns as trustee and C
becomes successor trustee under the terms of the
trust. Pursuant to §301.7701–7(d) of this chapter, T
becomes a foreign trust, FT. FThas no U.S. benefi-
ciaries within the meaning of §1.679–2 and no per-
son is treated as owning any portion of FT. Tis re-
quired to recognize gain of 600X on January 1,
2001. Paragraph (c) of this section provides rules
with respect to an inadvertent migration of a domes-
tic trust.
§1.684–5 Effective date.
(a) Sections 1.684–1 through 1.684–4
apply to transfers of property to foreign
trusts and foreign estates after August 7,
2000.
David A. Mader,
Acting Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Au-
gust 2, 2000, 1:04 p.m., and published in the issue of
the Federal Register for August 7, 2000, 65 F.R.
48198)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Foreign Trusts That Have U.S.
Beneficiaries
REG–209038–89
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations under section 679 of
the Internal Revenue Code relating to
transfers of property by U.S. persons to
foreign trusts having one or more United
States beneficiaries. The proposed regu-
lations affect United States persons who
transfer property to foreign trusts. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written or electronic comments
must be received by November 6, 2000.
Requests to speak (with outlines of oral
comments) to be discussed at the public
hearing scheduled for November 8, 2000,

at 10 a.m. must be submitted by October
18, 2000.
ADDRESSES: Send submissions to:
CC:MSP:RU (REG–209038–89), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered between the hours of 8 a.m. and 5
p.m. to: CC:MSP:RU (REG–209038–89),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW., Washing-
ton, DC. Alternatively, taxpayers may sub-
mit comments electronically via the Inter-
net by selecting the “Tax Regs” option on
the IRS Home Page, or by submitting com-
ments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/regs
list.html. The public hearing will be held
in room 3313, Internal Revenue Building,
1111 Constitution Avenue, NW., Washing-
ton, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Willard W. Yates at (202) 622-3880; con-
cerning submissions and the hearing,
Sonya M. Cruse, (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 679 was added to the Internal
Revenue Code (Code) by the Tax Reform
Act of 1976 (1976 Act), Public Law 94-
445, Sec. 1013(a), (90 Stat. 1614). Sec-
tion 679 was amended significantly by the
Small Business Job Protection Act of
1996 (1996 Act), Public Law 104-188,
Secs. 1903(a)(1), 1903(a)(2), 1903(b),
1903(c) and 1903(f) (110 Stat. 1755).
1. Law Prior to 1976
Sections 671 through 678 (the grantor
trust rules) treat grantors and other per-
sons who hold certain powers or interests
over a domestic or foreign trust as owners
of the portion of the trust with respect to
which they hold the powers or interests.
If the grantor or other person is a U.S. cit-
izen or resident, the grantor trust rules re-
sult in the taxation of the worldwide in-
come of the trust (or portion thereof) to
the grantor or other person.
Prior to the enactment of section 679, if a
trust was not subject to the grantor trust
rules (nongrantor trust), the income of the
domestic or foreign trust generally was
taxed to the trust to the extent the income
was not currently distributed or required to
be distributed to the beneficiaries of the
trust. The income of a foreign nongrantor
trust was taxed in basically the same man-
ner as the income of a nonresident alien in-
dividual. Foreign trusts were subject to
U.S. tax only on their U.S.-source income
(other than capital gains) and on any in-
come effectively connected with a U.S.
trade or business (or treated as effectively
connected with a U.S. trade or business).
Like nonresident alien individuals, foreign
nongrantor trusts were generally not sub-
ject to U.S. tax on foreign-source income.
Prior to the enactment of section 679,
U.S. persons often established foreign non-
grantor trusts that invested in assets that
generated foreign-source income only.
These foreign trusts avoided all U.S. tax on
their income. In addition, these trusts gen-
erally invested in countries that did not tax
interest or dividends paid to foreign in-
vestors, and the trusts generally were
formed and administered in countries that
did not tax trusts. Accordingly, in many
cases these trusts paid no income tax any-
where in the world. Although U.S. benefi-
ciaries were subject to U.S. tax when a for-
eign nongrantor trust distributed income to
them, the use of foreign nongrantor trusts
permitted tax-free accumulations of in-
come, giving foreign trusts a significant ad-
vantage over domestic trusts.
2. Overview of 1976 Changes
Congress believed that allowing tax-free
accumulation of income was inappropriate
and provided an unwarranted advantage to
foreign trusts over domestic trusts. Con-
gress enacted section 679 as part of the
1976 Act to provide generally that where a
U.S. person directly or indirectly transfers
property to a foreign trust, the income of
the foreign trust is taxable to the transferor
if the trust has a U.S. beneficiary. Accord-
ingly, the trust is treated as a grantor trust
whether or not the transferor retains any
power or interest with respect to the trust.
Congress enacted exceptions for certain
transfers for fair market value, for transfers
by reason of death, and for transfers to cer-
tain employee benefit trusts.
3. Overview of 1996 Changes
Section 1903 of the 1996 Act made
several changes to section 679. These
changes focused primarily on areas where
taxpayers could improperly avoid the ap-
plication of section 679. For example,
Congress was concerned that certain tax-
payers attempted to come within the fair
market value exception of section
679(a)(2), thereby avoiding the applica-
tion of section 679(a)(1), by issuing trust
obligations that might not be repaid. H.R.
Rep. No. 542, 104th Cong., 2d Sess., pt. 2
at 25 (1996). Accordingly, the 1996 Act
added new section 679(a)(3), which gen-
erally provides that obligations issued by
the trust, by any grantor or beneficiary of
the trust, or by any person related to any
grantor or beneficiary are not taken into
account in applying the fair market value
exception except as provided in regula-
tions.
The 1996 Act also added new sections
679(a)(4) and (5) to prevent taxpayers
from improperly avoiding the application
of section 679. Section 679(a)(4) ensures
that certain foreign persons who transfer
property to a foreign trust in anticipation
of becoming U.S. persons (pre-immigra-
tion trusts) cannot avoid the rules of sec-
tion 679 by transferring property, directly
or indirectly, to a foreign trust and then
becoming a resident of the United States
within 5 years after the transfer. Section
679(a)(5) prevents U.S. individuals from
circumventing section 679 by transferring
property to a domestic trust and then
causing the domestic trust to become a
foreign trust.
In addition to the anti-avoidance mea-
sures, Congress added a new exception to
the general rule of section 679(a)(1) for
transfers of property to certain charitable
trusts. Congress also enacted new section
679(c)(3), which provides that beneficia-
ries who first become U.S. persons more
than 5 years after the date of a transfer are
disregarded for purposes of applying sec-
tion 679 with respect to that transfer.
The 1996 Act also amended section
6048 to expand the reporting require-
ments that apply to (i) a U.S. person who
transfers property to a foreign trust, and
(ii) a foreign trust that is treated as owned
by a U.S. person under the grantor trust
rules. The penalties under section 6677
for a failure to comply with these report-
ing requirements were also significantly
increased. See Notice 97–34 (1997–1
C.B. 422) and Forms 3520 and 3520A.
In addition, a transfer of appreciated
property by a U.S. person to a foreign
August 21, 20001922000–34 I.R.B.

2000–34 I.R.B.193August 21, 2000
trust may trigger the immediate recogni-
tion of any gain in the property under sec-
tion 684. A transfer to a foreign trust that
is treated as owned by a U.S. person
under section 679 generally is exempt
from this requirement at the time of the
transfer. However, if the trust subse-
quently ceases to be treated as owned by
the U.S. person, the change in the status
of the trust may trigger gain at the time of
the change.
Section 679 applies only for income tax
purposes. The estate and gift tax provi-
sions of the Code determine whether a
transfer to a foreign trust is subject to the
federal gift tax, or whether the corpus of a
foreign trust is included in the gross estate
of the U.S. transferor.
Explanation of Provisions
§1.679–1: U.S. Transferor Treated as
Owner of Foreign Trust.
Section 1.679–1(a) of the proposed
regulations provides that a U.S. transferor
who transfers property to a foreign trust is
treated as the owner of the portion of the
trust attributable to the property trans-
ferred during each taxable year that the
trust is treated as having a U.S. benefi-
ciary. This rule applies without regard to
whether the U.S. transferor retains any
power described in sections 673 through
677. If the U.S. transferor is treated as the
owner of a portion of a trust, under sec-
tion 671 all income, deductions, and cred-
its attributable to that portion must be
taken into account by the U.S. transferor
in determining the U.S. transferor’s tax li-
ability.
The determination of whether a foreign
trust is treated as having a U.S. benefi-
ciary is made under the rules set forth in
§1.679–2. Section 1.679–3 defines the
term transfer. Section 1.679–4 provides
exceptions to the general rule of
§1.679–1. Section 1.679–5 provides spe-
cial rules for pre-immigration trusts, and
§1.679–6 describes the treatment of a do-
mestic trust that becomes a foreign trust.
Section 1.679–7 provides effective dates.
Congress intended section 679 to over-
ride section 678. H.R. Rep. No. 658, 94th
Cong., 1st Sess., at 209 (1975). Accord-
ingly, §1.679–1(b) provides that a U.S.
transferor will be treated as the owner of
the portion of a trust attributable to the
property transferred to the trust by the
U.S. transferor whether or not another
person would be treated as the owner of
the same portion of the trust under section
678.
Section 1.679–1(c)(1) defines the term
U.S. transferorto mean any U.S. person
who directly, indirectly, or constructively
transfers property to a foreign trust.
Section 1.679–1(c)(2) defines the term
U.S. personby reference to section
7701(a)(30). Accordingly, section 679
can apply not only to individuals, but also
to entities. Section 1.679–1(c)(2) also
provides that a U.S. person includes an in-
dividual who elects under section 6013(g)
to be treated as a U.S. resident and an in-
dividual who is a dual resident taxpayer
within the meaning of §301.7701(b)–7(a).
Sections 1.679–1(c)(3), (4), (5), and (6)
define the terms foreign trust, property,
related person, and obligation, respec-
tively.
The proposed regulations do not pro-
vide specific guidance on the treatment of
joint owners that transfer property to a
foreign trust. Treasury and the IRS invite
comments with specific examples of areas
that may need comments with specific ex-
amples of areas that may need clarifica-
tion, such as, for example, the treatment
of community property or the joint own-
ership of property by non-citizen spouses.
The rules of this section apply with re-
spect to transfers to foreign trusts after
August 7, 2000.
§1.679–2: Trusts Treated as Having a
U.S. Beneficiary
The proposed regulations employ a
broad approach in determining whether a
foreign trust is treated as having a U.S.
beneficiary. This broad approach is con-
sistent with the legislative history of the
1976 Act. H.R. Rep. No. 658, 94th
Cong., 1st Sess., at 210 (1975).
Under §1.679–2(a)(1), a foreign trust
that has received property from a U.S.
transferor is treated as having a U.S. ben-
eficiary unless during the taxable year of
the U.S. transferor: (i) no part of the in-
come or corpus of the trust may be paid or
accumulated to or for the benefit of, either
directly or indirectly, a U.S. person; and
(ii) if the trust is terminated at any time
during the taxable year, no part of the in-
come or corpus of the trust could be paid
to or for the benefit of, either directly or
indirectly, a U.S. person. For purposes of
section 679, foreign trusts generally are
treated as having a U.S. beneficiary un-
less both of these requirements are satis-
fied.
Section 1.679–2(a)(2)(i) provides that,
for purposes of applying these tests, in-
come or corpus is considered to be paid or
accumulated to or for the benefit of a U.S.
person during a taxable year of the U.S.
transferor if during that year, directly or
indirectly, income may be distributed to,
or accumulated for the benefit of a U.S.
person, or corpus may be distributed to, or
held for the future benefit of, a U.S. per-
son. This determination is made without
regard to whether income or corpus is ac-
tually distributed to a U.S. person during
that year, and without regard to whether a
U.S. person’s interest in the trust income
or corpus is contingent on a future event.
The proposed regulations recognize
that it may be possible for a U.S. person
to obtain a future benefit from the trust
under certain unexpected circumstances
and that the possibility of such circum-
stances should not necessarily cause the
foreign trust to be treated as having a U.S.
beneficiary. Accordingly, §1.679–
2(a)(2)(ii) provides a narrow exception to
the general determination of whether a
U.S. person can obtain a benefit under the
foreign trust. Persons who are not named
as possible beneficiaries and are not
members of a class of beneficiaries as de-
fined in the trust instrument (or other rele-
vant agreements, understandings, records
and documents, as described below) are
not taken into consideration for purposes
of applying the general rule of
§1.679–2(a)(1) if the U.S. transferor
demonstrates to the satisfaction of the
Commissioner that their contingent inter-
est in the trust is so remote as to be negli-
gible. This exception does not apply with
respect to persons to whom distributions
could be made pursuant to a grant of dis-
cretion to the trustee or another person.
For example, if the trust instrument pro-
vides that the trustee can distribute corpus
to any of a large class of persons that
could include U.S. persons, this exception
would not apply.
The proposed regulations require an
annual determination of whether a foreign
trust is treated as having a U.S. benefi-
ciary. Under §1.679–2(a)(3), the possibil-
ity that a beneficiary who is not a U.S.
person could become a U.S. person will

August 21, 20001942000–34 I.R.B.
not cause that beneficiary to be treated as
a U.S. person for purposes of determining
whether there is a U.S. beneficiary until
the year in which the beneficiary actually
becomes a U.S. person. However, if that
non-U.S. beneficiary becomes a U.S. per-
son for the first time more than 5 years
after the date of the transfer, that benefi-
ciary is not treated as a U.S. person for
purposes of the U.S.-beneficiary determi-
nation even after the beneficiary actually
becomes a U.S. person.
Section 1.679–2(a)(4) makes it clear
that a trust may be treated as having a
U.S. beneficiary not only by reference to
the trust instrument, but also by reference
to all other written and oral agreements
and understandings relating to the trust.
Also, a trust may be treated as having a
U.S. beneficiary based on possible
amendments to the trust instrument, pos-
sible application of local law that would
require a U.S. beneficiary (unless the law
is not reasonably expected to be applied
under the facts and circumstances), or ac-
tual or reasonably expected disregard of
the terms of the trust instrument by the
parties to the trust.
A foreign trust is treated as having a
U.S. beneficiary if it can benefit a U.S.
person indirectly. Section 1.679–2(b)
provides that an amount is treated as paid
or accumulated to or for the benefit of a
U.S. person if it can be paid to or accumu-
lated for the benefit of a controlled for-
eign corporation (as defined in section
957(a)); a foreign partnership, if a U.S.
person is a partner of such partnership; or
a foreign trust or estate, if such trust or es-
tate has a U.S. beneficiary. In addition, a
foreign trust is treated as having a U.S.
beneficiary if a U.S. person can benefit
indirectly from the foreign trust by receiv-
ing distributions from the trust through an
intermediary, such as an agent or nomi-
nee, through the use of a debit or credit
card, or any other means where a U.S.
person may obtain an actual or construc-
tive benefit from the trust.
The proposed regulations anticipate sit-
uations where a foreign trust’s status as
having a U.S. beneficiary changes. Sec-
tion 1.679–2(c)(1) provides that if a for-
eign trust does not have a U.S. beneficiary
initially, but subsequently acquires a U.S.
beneficiary, the U.S. transferor is treated
as having additional income in the first
taxable year of the U.S. transferor in
which the trust is treated as having a U.S.
beneficiary. The amount of the additional
income is equal to the trust’s undistrib-
uted net income, as defined in section
665(a), at the end of the U.S. transferor’s
immediately preceding taxable year and is
subject to the rules of section 668, provid-
ing for an interest charge on accumulation
distributions from foreign trusts.
Section 1.679–2(c)(2) provides that if a
trust to which a U.S. transferor transferred
property is initially treated as having a
U.S. beneficiary, but subsequently ceases
to be treated as having a U.S. beneficiary,
the U.S. transferor is no longer treated as
the owner beginning in the following tax-
able year (unless the U.S. transferor is
otherwise treated as the owner under the
grantor trust rules). The U.S. transferor is
treated as making a transfer to the foreign
trust that may be subject to the gain
recognition rules of section 684.
The rules of this section apply with re-
spect to transfers to foreign trusts after
August 7, 2000.
§1.679–3 Transfers
Section 1.679–3(a) of the proposed
regulations broadly defines the term
transfer as any direct, indirect, or con-
structive transfer by a U.S. person to a
foreign trust. The rules are generally con-
sistent with the rules for determining
whether a person is considered to be a
grantor of a trust under §1.671–2(e).
Section 1.679–3(b) provides that a
transfer of property to a foreign trust from
either a domestic or foreign trust that is
owned by a U.S. person under sections
673 through 679 is treated as a transfer
from the owner of the transferor trust.
For example, if a U.S. person is treated as
the owner of a domestic trust under sec-
tion 676, and that domestic trust transfers
property to a foreign trust, the U.S. person
is treated as having transferred the prop-
erty to the foreign trust.
Section 1.679–3(c) provides rules for
determining when there is an indirect
transfer. Under §1.679–3(c)(1), a transfer
to a foreign trust by any person to whom a
U.S. person transfers property (referred to
as an intermediary) is treated as an indi-
rect transfer by a U.S. person if the trans-
fer is made pursuant to a plan one of the
principal purposes of which is the avoid-
ance of U.S. tax. Section 1.679–3(c)(2)
deems a transfer to have been made pur-
suant to such a plan if the U.S. transferor
is related to a U.S. beneficiary of the for-
eign trust, or has another relationship with
the foreign trust that establishes a reason-
able basis for concluding that the U.S.
transferor would make a transfer to the
foreign trust, and the U.S. person cannot
demonstrate to the satisfaction of the
Commissioner that:(i) the intermediary
has a relationship with a U.S. beneficiary
of the foreign trust that establishes a rea-
sonable basis for concluding that the in-
termediary would make a transfer to the
foreign trust, (ii) the intermediary acted
independently of the U.S. transferor, (iii)
the intermediary is not an agent of the
U.S. transferor under generally applicable
United States agency principles, and (iv)
that the intermediary timely complied
with the reporting requirements of section
6048 (including Notice 97–34), if applic-
able. This test is consistent with the leg-
islative history of the 1976 Act. H.R.
Rep. No. 658, 94th Cong., 1st Sess., at
209 (1975). This test is also similar to the
test in §1.643(h)–1(a), although the pre-
sumption in the proposed regulations ap-
plies without regard to the period of time
between the transfer from the U.S. person
to the intermediary and from the interme-
diary to the foreign trust.
Section 1.679–3(c)(3) explains that if a
transfer is treated as an indirect transfer,
the intermediary generally is treated as an
agent of the U.S. transferor, and the prop-
erty is treated as transferred to the foreign
trust by the U.S. transferor in the year the
property is transferred, or made available,
by the intermediary to the foreign trust.
The fair market value of the property trans-
ferred generally is determined as of the
date of the transfer by the intermediary to
the foreign trust. Although the intermedi-
ary is not treated as having transferred that
property to the foreign trust for purposes of
section 679, the intermediary must comply
with the reporting requirements of section
6048, if applicable.
Section 1.679–3(d) provides that a con-
structive transfer includes any assumption
or satisfaction of a foreign trust’s obliga-
tion. For example, a U.S. transferor’s pay-
ment of a foreign trust’s obligation to a
third party is treated as a constructive
transfer.
Congress anticipated that guarantees of
a trust obligation would be treated as trans-
fers. H.R. Rep. No. 658, 94th Cong., 1st

2000–34 I.R.B.195August 21, 2000
Sess., at 209 (1975). Section 1.679–3(e)
provides rules regarding the treatment of
guarantees as transfers. If a foreign trust
borrows money or other property from ei-
ther a U.S. or non-U.S. person who is not a
related person with respect to the trust (re-
ferred to as the lender), and a U.S. person
who is a related person with respect to the
trust (referred to as the U.S. guarantor)
guarantees the foreign trust’s obligation,
the U.S. guarantor is treated as having
made a transfer to the foreign trust. The
amount deemed transferred is the guaran-
teed portion of the adjusted issue price of
the obligation plus any accrued but unpaid
stated interest. Payments of principal by
the trust with respect to the obligation are
taken into account on and after the date of
the payment in determining the portion of
the trust attributable to the property
deemed transferred.
Section 1.679–3(f) provides specific
rules regarding transfers by a U.S. person
to an entity owned by a foreign trust if the
U.S. person is related to the foreign trust.
The transfer is treated as a transfer from
the U.S. person to the foreign trust, fol-
lowed by a transfer from the foreign trust
to the entity owned by the foreign trust,
unless the U.S. person demonstrates to the
satisfaction of the Commissioner that the
transfer to the entity is properly attribut-
able to the U.S. person’s ownership inter-
est in the entity.
Sections 1.679–3 applies to transfers
after August 7, 2000.
§1.679–4 Exceptions to General Rule
Pursuant to sections 679(a)(1) and
(a)(2), §1.679–4(a) provides the follow-
ing four exceptions to the general rule of
§1.679–1: (i) transfers to a foreign trust
by reason of the death of the transferor;
(ii) transfers to a foreign trust described in
sections 402(b), 404(a)(4), or 404A; (iii)
transfers to a foreign trust that has re-
ceived a ruling or determination letter,
which has been neither revoked nor modi-
fied, from the Internal Revenue Service
recognizing the trust’s tax exempt status
under section 501(c)(3); and (iv) transfers
to the extent they are for fair market
value.
Section 1.679–4(b) provides rules for
determining whether a transfer to a for-
eign trust is for fair market value. The
rules generally follow the rules for deter-
mining fair market value under
§1.671–2(e). For purposes of this deter-
mination, an interest in the trust is not
considered to be property received from
the trust. A distribution to a foreign trust
with respect to an interest held by such
trust in an entity other than a trust or in a
trust described in §301.7701–4(c), (d), or
(e) is considered to be a transfer for fair
market value. For example, a dividend
paid by a U.S. corporation to a foreign
trust with respect to the foreign trust’s
stock ownership in the corporation is not
a transfer that is subject to the general rule
of section §1.679–1.
Section 679(a)(3) provides that in de-
termining whether a transfer is for fair
market value, obligations received from
the trust or certain related persons are not
taken into account, except to the extent
provided in regulations. As noted above,
this provision reflects Congress’ concern
that certain taxpayers may have attempted
to take advantage of the fair market value
exception to section 679 by transferring
property to a foreign trust in exchange for
obligations issued by the trust (or related
persons) that might not be repaid. Con-
gress intended Treasury and the IRS to
exercise their regulatory authority to con-
sider whether there is a reasonable expec-
tation that an obligation of the trust would
be repaid. H.R. Conf. Rep. No. 737,
104th Cong., 2d Sess. 335 (1996).
The proposed regulations, in exercising
this authority, follow the approach in No-
tice 97–34 (1997–1 C.B. 422). The pro-
posed regulations describe the circum-
stances under which an obligation of a
foreign trust (or a person related to that
trust) will be treated as a qualified obliga-
tion that is taken into account for pur-
poses of determining whether a U.S.
transferor received fair market value from
a trust in exchange for a transfer by the
U.S. transferor. If the U.S. transferor, in
exchange for the property transferred, re-
ceives an obligation of the trust (or a re-
lated person) that is not a qualified obliga-
tion, the obligation is considered to have
no value for purposes of determining
whether the transferor received fair mar-
ket value.
The term obligation is defined in
§1.679–1(c)(6). Section 1.679–4(d) pro-
vides that to be treated as a qualified
obligation, an obligation must be reduced
to writing by an express written agree-
ment. The obligation must have a term
not in excess of five years. For purposes
of determining an obligation’s term, the
obligation’s maturity date is the last possi-
ble date it can be outstanding under the
terms of the obligation. Accordingly, de-
mand loans and private annuity transac-
tions do not constitute qualified obliga-
tions. In addition, all payments on a
qualified obligation must be denominated
in U.S. dollars. The yield to maturity can-
not be less than 100 percent of the applic-
able Federal rate and cannot be greater
than 130 percent of the applicable Federal
rate. The U.S. transferor must extend the
period for assessment of any income or
transfer tax attributable to the transfer and
any consequential income tax changes for
each year that the obligation is outstand-
ing, to a date not earlier than three years
after the maturity date of the obligation.
The extension is not necessary if the ma-
turity date of the obligation does not ex-
tend beyond the end of the U.S. trans-
feror’s taxable year and is paid within
such period. Finally, the U.S. transferor
must report the status of the loan, includ-
ing principal and interest payments, on
Form 3520 for every year that the loan is
outstanding.
Section 1.679–4(d) also incorporates
other rules regarding qualified obligations
from Notice 97–34. For example, under
certain circumstances, the issuance of ad-
ditional obligations by the foreign trust or
a person related to the foreign trust may
cause an obligation that had been a quali-
fied obligation to lose such status. Rene-
gotiation of the terms of the loan is treated
as a new loan. If an obligation loses its
status as a qualified obligation, the U.S.
transferor is treated as making a transfer
to the trust that may be subject to
§1.679–1. Principal repayments with re-
spect to obligations that are not qualified
obligations are taken into account on and
after the date of the payment in determin-
ing the portion of the trust attributable to
the property originally transferred.
The rules of this section generally
apply with respect to transfers to foreign
trusts after August 7, 2000. Special effec-
tive dates, based on the guidance set forth
in Notice 97–34, are provided for the
rules that apply to obligations.
§1.679–5 Pre–immigration Trusts
The 1996 Act added section 679(a)(4)
to address the potential abuse of nonresi-

dent aliens establishing foreign trusts
shortly before becoming U.S. persons.
Section 1.679–5 provides that if a nonres-
ident alien individual becomes a U.S. per-
son and the individual has a residency
starting date (as determined under section
7701(b)(2)(A)) within 5 years after di-
rectly or indirectly transferring property
to a foreign trust, the individual is deemed
to transfer the property to the trust on the
residency starting date. The amount
deemed transferred is the portion of the
trust attributable to the property trans-
ferred by the individual in the original
transfer. Section 1.679–5(b) provides that
if the nonresident alien individual is
treated under the grantor trust rules as the
owner of any portion of the trust and the
individual ceases to be so treated, the 5-
year period begins on the date the individ-
ual ceases to be so treated.
The property deemed transferred to the
foreign trust on the residency starting date
includes undistributed net income, as de-
fined in section 665(a), attributable to the
property transferred. Undistributed net
income for periods before the individual’s
residency starting date is taken into ac-
count only for purposes of determining
the portion of the trust that is attributable
to property transferred.
If an individual is treated as making a
deemed transfer pursuant to this provi-
sion, the reporting requirements of sec-
tion 6048 apply to the deemed transfer as
of the residency starting date.
The rules of this section apply to per-
sons whose residency starting date is after
August 7, 2000.
§1.679–6 Outbound Migrations of
Domestic Trusts
The proposed regulations implement
section 679(a)(5), which addresses the
situation where a trust that is a domestic
trust becomes a foreign trust. If an indi-
vidual who is a U.S. person transfers
property to a trust that is not a foreign
trust, and the trust becomes a foreign
trust while the U.S. person is alive, the
U.S. individual is treated as a U.S. trans-
feror and is deemed to transfer the prop-
erty to a foreign trust on the date the do-
mestic trust becomes a foreign trust.
The property deemed transferred to the
trust when it becomes a foreign trust in-
cludes undistributed net income, as de-
fined in section 665(a), attributable to
the property previously transferred.
Undistributed net income for periods
prior to the trust migration is taken into
account only for purposes of determin-
ing the portion of the trust that is attrib-
utable to the property transferred by the
U.S. person.
If a U.S. person is treated as making a
deemed transfer pursuant to this provi-
sion, the reporting requirements of sec-
tion 6048 apply to the deemed transfer as
of the date of the deemed transfer.
The rules of this section apply to trusts
that become foreign trusts after August 7,
2000.
§1.679–7 Effective Dates.
This section of the proposed regula-
tions provides effective dates with respect
to §§1.679–1 through 1.679–6. These ef-
fective dates are discussed above in the
context of each respective section.
Notwithstanding the effective dates in the
proposed regulations, the Internal Rev-
enue Service may apply the effective
dates that are applicable to section 679 of
the Internal Revenue Code. In addition,
the Internal Revenue Service is not re-
stricted from applying general income tax
principles to transactions prior to the ef-
fective dates of the proposed regulations
to determine, for example, that a U.S. per-
son has made a transfer to a foreign trust.
Certain Clarifications Regarding Section
958
The proposed regulations clarify that,
under §1.958–1(b), a person who is
treated as the owner of any portion of a
trust under section 679 and the other
grantor trust rules is treated as the owner
of the stock owned by the trust with re-
spect to that portion. This change is
merely intended as a clarification of exist-
ing law.
Existing §1.958–2(c)(1)(ii)(b) provides
that a person who is treated as the owner
of any portion of a trust under sections
671 through 678 is treated as the owner of
the stock owned by or for that portion of
the trust for purposes of the constructive
ownership rules of section 958(b). Be-
cause section 679 was not enacted until
1976, it is not referred to in the existing
regulations, which were issued in 1966.
The proposed regulations clarify that this
treatment also applies to persons treated
as the owner of any portion of a trust
under section 679. This change is merely
intended as a clarification of existing law.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also
has been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because the regulations
do not impose a collection of information
on small entities, the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and eight (8) copies) that
are submitted timely to the IRS. The IRS
and Treasury specifically request com-
ments on the clarity of the proposed regula-
tions and how they can be made easier to
understand. All comments will be available
for public inspection and copying.
A public hearing has been scheduled
for November 8, 2000, at 10 a.m. in room
3313, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington
DC. Because of access restrictions, visi-
tors will not be admitted beyond the Inter-
nal Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by November 6, 2000, and
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (signed original and eight (8)
copies) by October 18, 2000.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
August 21, 20001962000–34 I.R.B.

Drafting Information
The principal author of these proposed
regulations is Willard W. Yates of the Of-
fice of Associate Chief Counsel (Interna-
tional). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.679–1 also issued under 26
U.S.C. 643(a)(7) and 679(d).
Section 1.679–2 also issued under 26
U.S.C. 643(a)(7) and 679(d).
Section 1.679–3 also issued under 26
U.S.C. 643(a)(7) and 679(d).
Section 1.679–4 also issued under 26
U.S.C. 643(a)(7), 679(a)(3) and 679(d).
Section 1.679–5 also issued under 26
U.S.C. 643(a)(7) and 679(d).
Section 1.679–6 also issued under 26
U.S.C. 643(a)(7) and 679(d). * * *
Par. 2. Sections 1.679–1, 1.679–2,
1.679–3, 1.679–4, 1.679–5, 1.679–6, and
1.679–7 are added under the undesignated
center heading “Grantors and others
treated as substantial owners” to read as
follows:
§1.679–1 U.S. transferor treated as
owner of foreign trust.
(a) In general. A U.S. transferor who
transfers property to a foreign trust is
treated as the owner of the portion of the
trust attributable to the property trans-
ferred if there is a U.S. beneficiary of any
portion of the trust, unless an exception in
§1.679–4 applies to the transfer.
(b) Interaction with sections 673
through 678. The rules of this section
apply without regard to whether the U.S.
transferor retains any power or interest
described in sections 673 through 677. If
a U.S. transferor would be treated as the
owner of a portion of a foreign trust pur-
suant to the rules of this section and an-
other person would be treated as the
owner of the same portion of the trust pur-
suant to section 678, then the U.S. trans-
feror is treated as the owner and the other
person is not treated as the owner.
(c) Definitions. The following defini-
tions apply for purposes of this section
and §§1.679–2 through 1.679–7:
(1) U.S. transferor. The term U.S.
transferormeans any U.S. person who
makes a transfer (as defined in §1.679–3)
of property to a foreign trust.
(2) U.S. person. The term U.S. person
means a United States person as defined
in section 7701(a)(30), a nonresident
alien individual who elects under section
6013(g) to be treated as resident of the
United States, and an individual who is a
dual resident taxpayer within the meaning
of §301.7701(b)–7(a) of this chapter.
(3) Foreign trust. Section
7701(a)(31)(B) defines the term foreign
trust.
(4) Property. The term propertymeans
any propertyincluding cash.
(5) Related person. A person is a re-
lated personif, without regard to the
transfer at issue, the person is—
(i) A grantor of any portion of the trust
(within the meaning of §1.671–2(e)(1));
(ii) An owner of any portion of the trust
under sections 671 through 679;
(iii) A beneficiary of the trust; or
(iv) A person who is related (within the
meaning of section 643(i)(2)(B)) to any
grantor, owner or beneficiary of the trust.
(6) Obligation. The term obligation
means any bond, note, debenture, certifi-
cate, bill receivable, account receivable,
note receivable, open account, or other evi-
dence of indebtedness, and, to the extent not
previously described, any annuity contract.
(d) Examples. The following exam-
ples illustrate the rules of paragraph (a) of
this section. In these examples, Ais a res-
ident alien, Bis A’s son, who is a resident
alien, Cis A’s father, who is a resident
alien, Dis A’s uncle, who is a nonresident
alien, and FTis a foreign trust. The ex-
amples are as follows:
Example 1. Interaction with section 678. Acre-
ates and funds FT. FTmay provide for the educa-
tion of Bby paying for books, tuition, room and
board. In addition, Chas the power to vest the trust
corpus or income in himself within the meaning of
section 678(a)(1). Under paragraph (b) of this sec-
tion, Ais treated as the owner of the portion of FT
attributable to the property transferred to FTby A
and Cis not treated as the owner thereof.
Example 2. U.S. person treated as owner of a
portion of FT. Dcreates and funds FTfor the bene-
fit of B. Dretains a power described in section 676
and §1.672(f)–3(a)(1). Atransfers property to FT.
Under sections 676 and 672(f), Dis treated as the
owner of the portion of FTattributable to the prop-
erty transferred by D. Under paragraph (a) of this
section, Ais treated as the owner of the portion of
FTattributable to the property transferred by A.
§1.679–2 Trusts treated as having a U.S.
beneficiary.
(a) Existence of U.S. beneficiary—(1)
In general. The determination of whether
a foreign trust has a U.S. beneficiary is
made on an annual basis. A foreign trust
is treated as having a U.S. beneficiary un-
less during the taxable year of the U.S.
transferor—
(i) No part of the income or corpus of
the trust may be paid or accumulated to or
for the benefit of, directly or indirectly, a
U.S. person; and
(ii) If the trust is terminated at any time
during the taxable year, no part of the in-
come or corpus of the trust could be paid
to or for the benefit of, directly or indi-
rectly, a U.S. person.
(2) Benefit to a U.S. person—(i) In
general. For purposes of paragraph (a)(1)
of this section, income or corpus may be
paid or accumulated to or for the benefit
of a U.S. person during a taxable year of
the U.S. transferor if during that year, di-
rectly or indirectly, income may be dis-
tributed to, or accumulated for the benefit
of, a U.S. person, or corpus may be dis-
tributed to, or held for the future benefit
of, a U.S. person. This determination is
made without regard to whether income
or corpus is actually distributed to a U.S.
person during that year, and without re-
gard to whether a U.S. person’s interest in
the trust income or corpus is contingent
on a future event.
(ii) Certain unexpected beneficiaries.
Notwithstanding paragraph (a)(2)(i) of
this section, for purposes of paragraph
(a)(1) of this section, a person who is not
named as a beneficiary and is not a mem-
ber of a class of beneficiaries as defined
under the trust instrument is not taken into
consideration if the U.S. transferor
demonstrates to the satisfaction of the
Commissioner that the person’s contin-
gent interest in the trust is so remote as to
be negligible. The preceding sentence
does not apply with respect to persons to
whom distributions could be made pur-
suant to a grant of discretion to the trustee
or any other person. A class of beneficia-
2000–34 I.R.B.197August 21, 2000

ries generally does not include heirs who
will benefit from the trust under the laws
of intestate succession in the event that
the named beneficiaries (or members of
the named class) have all deceased
(whether or not stated as a named class in
the trust instrument).
(iii) Examples. The following exam-
ples illustrate the rules of paragraphs
(a)(1) and (a)(2) of this section. In these
examples, Ais a resident alien, Bis A’s
son, who is a resident alien, Cis A’s
daughter, who is a nonresident alien, and
FTis a foreign trust. The examples are as
follows:
Example 1. Distribution of income to U.S. per-
son. Atransfers property to FT. The trust instru-
ment provides that all trust income is to be distrib-
uted currently to B. Under paragraph (a)(1) of this
section, FTis treated as having a U.S. beneficiary.
Example 2. Income accumulation for the benefit
of a U.S. person. In 2001, Atransfers property to FT.
The trust instrument provides that from 2001 through
2010, the trustee of FTmay distribute trust income to
Cor may accumulate the trust income. The trust in-
strument further provides that in 2011, the trust will
terminate and the trustee may distribute the trust as-
sets to either or both of Band C, in the trustee’s dis-
cretion. If the trust terminates unexpectedly prior to
2011, all trust assets must be distributed to C. Be-
cause it is possible that income may be accumulated
in each year, and that the accumulated income ulti-
mately may be distributed to B, a U.S. person, under
paragraph (a)(1) of this section FTis treated as having
a U.S. beneficiary during each of A’s tax years from
2001 through 2011. This result applies even though
no U.S. person may receive distributions from the
trust during the tax years 2001 through 2010.
Example 3. Corpus held for the benefit of a U.S.
person. The facts are the same as in Example 2, ex-
cept that from 2001 through 2011, all trust income
must be distributed to C. In 2011, the trust will ter-
minate and the trustee may distribute the trust cor-
pus to either or both of Band C, in the trustee’s dis-
cretion. If the trust terminates unexpectedly prior to
2011, all trust corpus must be distributed to C. Be-
cause during each of A’s tax years from 2001
through 2011 trust corpus is held for possible future
distribution to B, a U.S. person, under paragraph
(a)(1) of this section FTis treated as having a U.S.
beneficiary during each of those years. This result
applies even though no U.S. person may receive dis-
tributions from the trust during the tax years 2001
through 2010.
Example 4. Distribution upon U.S. transferor’s
death. Atransfers property to FT. The trust instru-
ment provides that all trust income must be distrib-
uted currently to Cand, upon A’s death, the trust will
terminate and the trustee may distribute the trust
corpus to either or both of Band C. Because Bmay
receive a distribution of corpus upon the termination
of FT, and FTcould terminate in any year, FTis
treated as having a U.S. beneficiary in the year of
the transfer and in subsequent years.
Example 5. Distribution after U.S. transferor’s
death. The facts are the same as in Example 4, ex-
cept the trust instrument provides that the trust will
not terminate until the year following A’s death.
Upon termination, the trustee may distribute the
trust assets to either or both of Band C, in the
trustee’s discretion. All trust assets are invested in
the stock of X, a foreign corporation, and Xmakes
no distributions to FT. Although no U.S. person
may receive a distribution until the year after A’s
death, and FThas no realized income during any
year of its existence, during each year in which Ais
living corpus may be held for future distribution to
B, a U.S. person. Thus, under paragraph (a)(1) of
this section FTis treated as having a U.S. benefi-
ciary during each of A’s tax years from 2001 through
the year of A’s death.
Example 6. Constructive benefit to U.S. person.
Atransfers property to FT. The trust instrument pro-
vides that no income or corpus may be paid directly
to a U.S. person. However, the trust instrument pro-
vides that trust corpus may be used to satisfy B’s
legal obligations to a third party by making a pay-
ment directly to the third party. Under paragraphs
(a)(1) and (2) of this section, FTis treated as having
a U.S. beneficiary.
Example 7. U.S. person with negligible contin-
gent interest. Atransfers property to FT. The trust
instrument provides that all income is to be distrib-
uted currently to C, and upon C’s death, all corpus is
to be distributed to whomever of C’s three children
is then living. All of C’s children are nonresident
aliens. Under the laws of intestate succession that
would apply to FT, if all of C’s children are de-
ceased at the time of C’s death, the corpus would be
distributed to A’s heirs. A’s living relatives at the
time of the transfer consist solely of two brothers
and two nieces, all of whom are nonresident aliens,
and two first cousins, one of whom, E, is a U.S. citi-
zen. Although it is possible under certain circum-
stances that Ecould receive a corpus distribution
under the applicable laws of intestate succession, for
each year the trust is in existence Ais able to demon-
strate to the satisfaction of the Commissioner under
paragraph (a)(2)(ii) of this section that E’s contin-
gent interest in FTis so remote as to be negligible.
Provided that paragraph (a)(4) of this section does
not require a different result, FTis not treated as
having a U.S. beneficiary.
Example 8. U.S. person with non-negligible con-
tingent interest. Atransfers property to FT. The
trust instrument provides that all income is to be dis-
tributed currently to D, A’s uncle, who is a nonresi-
dent alien, and upon A’s death, the corpus is to be
distributed to Dif he is then living. Under the laws
of intestate succession that would apply to FT, Band
Cwould share equally in the trust corpus if Dis not
living at the time of A’s death. Ais unable to
demonstrate to the satisfaction of the Commissioner
that B’s contingent interest in the trust is so remote
as to be negligible. Under paragraph (a)(2)(ii) of
this section, FTis treated as having a U.S. benefi-
ciary as of the year of the transfer.
Example 9. U.S. person as member of class of
beneficiaries. Atransfers property to FT. The trust
instrument provides that all income is to be distrib-
uted currently to D, A’s uncle, who is a nonresident
alien, and upon A’s death, the corpus is to be distrib-
uted to Dif he is then living. If Dis not then living,
the corpus is to be distributed to D’s descendants.
D’s grandson, E, is a resident alien. Under para-
graph (a)(2)(ii) of this section, FTis treated as hav-
ing a U.S. beneficiary as of the year of the transfer.
Example 10. Trustee’s discretion in choosing
beneficiaries. Atransfers property to FT. The trust
instrument provides that the trustee may distribute
income and corpus to, or accumulate income for the
benefit of, any person who is pursuing the academic
study of ancient Greek, in the trustee’s discretion.
Because it is possible that a U.S. person will receive
distributions of income or corpus, or will have in-
come accumulated for his benefit, FTis treated as
having a U.S. beneficiary. This result applies even
if, during a tax year, no distributions or accumula-
tions are actually made to or for the benefit of a U.S.
person. Amay not invoke paragraph (a)(2)(ii) of
this section because a U.S. person could benefit pur-
suant to a grant of discretion in the trust instrument.
Example 11. Appointment of remainder benefi-
ciary. Atransfers property to FT. The trust instru-
ment provides that the trustee may distribute current
income to C, or may accumulate income, and, upon
termination of the trust, trust assets are to be distrib-
uted to C. However, the trust instrument further pro-
vides that D, A’s uncle, may appoint a different re-
mainder beneficiary. Because it is possible that a
U.S. person could be named as the remainder bene-
ficiary, and because corpus could be held in each
year for the future benefit of that U.S. person, FTis
treated as having a U.S. beneficiary for each year.
Example 12. Trust not treated as having a U.S.
beneficiary. Atransfers property to FT. The trust
instrument provides that the trustee may distribute
income and corpus to, or accumulate income for the
benefit of C. Upon termination of the trust, all in-
come and corpus must be distributed to C. Assume
that paragraph (a)(4) of this section is not applicable
under the facts and circumstances and that Aestab-
lishes to the satisfaction of the Commissioner under
paragraph (a)(2)(ii) of this section that no U.S. per-
sons are reasonably expected to benefit from the
trust. Because no part of the income or corpus of the
trust may be paid or accumulated to or for the bene-
fit of, either directly or indirectly, a U.S. person, and
if the trust is terminated no part of the income or
corpus of the trust could be paid to or for the benefit
of, either directly or indirectly, a U.S. person, FTis
not treated as having a U.S. beneficiary.
Example 13. U.S. beneficiary becomes non-U.S.
person. In 2001, Atransfers property to FT. The
trust instrument provides that, as long as Bremains a
U.S. resident, no distributions of income or corpus
may be made from the trust to B. The trust instru-
ment further provides that if Bbecomes a nonresi-
dent alien, distributions of income (including previ-
ously accumulated income) and corpus may be
made to him. If Bremains a U.S. resident at the time
of FT’s termination, all accumulated income and
corpus is to be distributed to C. In 2007, Bbecomes
a nonresident alien and remains so thereafter. Be-
cause income may be accumulated during the years
2001 through 2007 for the benefit of a person who is
a U.S. person during those years, FTis treated as
having a U.S. beneficiary under paragraph (a)(1) of
this section during each of those years. This result
applies even though Bcannot receive distributions
from FTduring the years he is a resident alien and
even though Bmight remain a resident alien who is
not entitled to any distribution from FT. Provided
that paragraph (a)(4) of this section does not require
a different result and that Aestablishes to the satis-
faction of the Commissioner under paragraph
(a)(2)(ii) of this section that no other U.S. persons
August 21, 20001982000–34 I.R.B.

are reasonably expected to benefit from the trust, FT
is not treated as having a U.S. beneficiary under
paragraph (a)(1) of this section during tax years after
2007.
(3) Changes in beneficiary’s status—
(i) In general. For purposes of paragraph
(a)(1) of this section, the possibility that a
person that is not a U.S. person could be-
come a U.S. person will not cause that
person to be treated as a U.S. person for
purposes of paragraph (a)(1) of this sec-
tion until the tax year of the U.S. trans-
feror in which that individual actually be-
comes a U.S. person. However, if a
person who is not a U.S. person becomes
a U.S. person for the first time more than
5 years after the date of a transfer to the
foreign trust by a U.S. transferor, that per-
son is not treated as a U.S. person for pur-
poses of applying paragraph (a)(1) of this
section with respect to that transfer.
(ii) Examples. The following exam-
ples illustrate the rules of paragraph (a)(3)
of this section. In these examples, Ais a
resident alien, Bis A’s son, who is a resi-
dent alien, Cis A’s daughter, who is a
nonresident alien, and FTis a foreign
trust. The examples are as follows:
Example 1. Non-U.S. beneficiary becomes U.S.
person. In 2001, Atransfers property to FT. The
trust instrument provides that all income is to be dis-
tributed currently to Cand that, upon the termination
of FT, all corpus is to be distributed to C. Assume
that paragraph (a)(4) of this section is not applicable
under the facts and circumstances and that A estab-
lishes to the satisfaction of the Commissioner under
paragraph (a)(2)(ii) of this section that no U.S. per-
sons are reasonably expected to benefit from the
trust. Under paragraph (a)(3)(i) of this section, FTis
not treated as having a U.S. beneficiary during the
tax years of Ain which Cremains a nonresident
alien. If Cfirst becomes a resident alien in 2004, FT
is treated as having a U.S. beneficiary commencing
in that year under paragraph (a)(3) of this section.
See paragraph (c) of this section regarding the treat-
ment of Aupon FT’s acquisition of a U.S. benefi-
ciary.
Example 2. Non-U.S. beneficiary becomes U.S.
person more than 5 years after transfer.The facts
are the same as in Example 1, except Cfirst becomes
a resident alien in 2007. FTis treated as not having a
U.S. beneficiary under paragraph (a)(3)(i) of this
section with respect to the property transfer. How-
ever, if Chad previously been a U.S. person during
any prior period, the 5-year exception in paragraph
(a)(3)(i) of this section would not apply in 2007 be-
cause it would not have been the first time Cbecame
a U.S. person.
(4) General rules—(i) Records and
documents. Even if, based on the terms of
the trust instrument, a foreign trust is not
treated as having a U.S. beneficiary
within the meaning of paragraph (a)(1) of
this section, the trust may nevertheless be
treated as having a U.S. beneficiary pur-
suant to paragraph (a)(1) of this section
based on the following—
(A) All written and oral agreements and
understandings relating to the trust;
(B) Memoranda or letters of wishes;
(C) All records that relate to the actual
distribution of income and corpus; and
(D) All other documents that relate to
the trust, whether or not of any purported
legal effect.
(ii) Additional factors. For purposes of
determining whether a foreign trust is
treated as having a U.S. beneficiary
within the meaning of paragraph (a)(1) of
this section, the following additional fac-
tors are taken into account–
(A) If the terms of the trust instrument
allow the trust to be amended to benefit a
U.S. person, all potential benefits that
could be provided to a U.S. person pur-
suant to an amendment must be taken into
account;
(B) If the terms of the trust instrument
do not allow the trust to be amended to
benefit a U.S. person, but the law applica-
ble to a foreign trust may require pay-
ments or accumulations of income or cor-
pus to or for the benefit of a U.S. person
(by judicial reformation or otherwise), all
potential benefits that could be provided
to a U.S. person pursuant to the law must
be taken into account, unless the U.S.
transferor demonstrates to the satisfaction
of the Commissioner that the law is not
reasonably expected to be applied or in-
voked under the facts and circumstances;
and
(C) If the parties to the trust ignore the
terms of the trust instrument, or if it is
reasonably expected that they will do so,
all benefits that have been, or are reason-
ably expected to be, provided to a U.S.
person must be taken into account.
(iii) Examples. The following exam-
ples illustrate the rules of paragraph (a)(4)
of this section. In these examples, A is a
resident alien, B is A’s son, who is a resi-
dent alien, C is A’s daughter, who is a
nonresident alien, and FT is a foreign
trust. The examples are as follows:
Example 1. Amendment pursuant to local law. A
creates and funds FTfor the benefit of C. The terms
of FT(which, according to the trust instrument, can-
not be amended) provide that no part of the income
or corpus of FTmay be paid or accumulated during
the taxable year to or for the benefit of any U.S. per-
son, either during the existence of FTor at the time
of its termination. However, pursuant to the applica-
ble foreign law, FTcan be amended to provide for
additional beneficiaries, and there is an oral under-
standing between Aand the trustee that Bcan be
added as a beneficiary. Under paragraphs (a)(1) and
(a)(4)(ii)(B) of this section, FTis treated as having a
U.S. beneficiary.
Example 2. Actions in violation of the terms of
the trust. Atransfers property to FT. The trust in-
strument provides that no U.S. person can receive
income or corpus from FTduring the term of the
trust or at the termination of FT. Notwithstanding
the terms of the trust instrument, a letter of wishes
directs the trustee of FTto provide for the educa-
tional needs of B, who is about to begin college.
The letter of wishes contains a disclaimer to the ef-
fect that its contents are only suggestions and rec-
ommendations and that the trustee is at all times
bound by the terms of the trust as set forth in the
trust instrument. Under paragraphs (a)(1) and
(a)(4)(ii)(C) of this section, FTis treated as having a
U.S. beneficiary.
(b) Indirect U.S. beneficiaries—(1)
Certain foreign entities. For purposes of
paragraph (a)(1) of this section, an
amount is treated as paid or accumulated
to or for the benefit of a U.S. person if the
amount is paid to or accumulated for the
benefit of—
(i) A controlled foreign corporation, as
defined in section 957(a);
(ii) A foreign partnership, if a U.S. per-
son is a partner of such partnership; or
(iii) A foreign trust or estate, if such
trust or estate has a U.S. beneficiary
(within the meaning of paragraph (a)(1)
of this section).
(2) Other indirect beneficiaries. For
purposes of paragraph (a)(1) of this sec-
tion, an amount is treated as paid or accu-
mulated to or for the benefit of a U.S. per-
son if the amount is paid to or
accumulated for the benefit of a U.S. per-
son through an intermediary, such as an
agent or nominee, or by any other means
where a U.S. person may obtain an actual
or constructive benefit.
(3) Examples. The following exam-
ples illustrate the rules of this paragraph
(b). Unless otherwise noted, Ais a U.S.
resident alien. Bis A’s son and is a resi-
dent alien. FTis a foreign trust. The ex-
amples are as follows:
Example 1. Trust benefitting foreign corpora-
tion. Atransfers property to FT. The beneficiary of
FTis FC, a foreign corporation. FChas outstanding
solely 100 shares of common stock. Bowns 49
shares of the FCstock and FC2, also a foreign cor-
poration, owns the remaining 51 shares. FC2has
outstanding solely 100 shares of common stock. B
owns 49 shares of FC2and nonresident alien indi-
viduals own the remaining 51 FC2shares. FCis a
controlled foreign corporation (as defined in section
957(a), after the application of section 958(a)(2)).
Under paragraphs (a)(1) and (b)(1)(i) of this section,
FTis treated as having a U.S. beneficiary.
2000–34 I.R.B.199August 21, 2000

August 21, 20002002000–34 I.R.B.
Example 2. Trust benefitting another trust. A
transfers property to FT. The terms of FTpermit
current distributions of income to B. Atransfers
property to another foreign trust, FT2. The terms of
FT2provide that no U.S. person can benefit either as
to income or corpus, but permit current distributions
of income to FT. Under paragraph (a)(1) of this sec-
tion, FTis treated as having a U.S. beneficiary and,
under paragraphs (a)(1) and (b)(1)(iii) of this sec-
tion, FT2is treated as having a U.S. beneficiary.
Example 3. Trust benefitting another trust after
transferor’s death. Atransfers property to FT. The
terms of FTrequire that all income from FTbe accu-
mulated during A’s lifetime. In the year following
A’s death, a share of FTis to be distributed to FT2,
another foreign trust, for the benefit of B. Under
paragraphs (a)(1) and (b)(1)(iii) of this section, FTis
treated as having a U.S. beneficiary beginning with
the year of A’s transfer of property to FT.
Example 4. Indirect benefit through use of debit
card. Atransfers property to FT. The trust instru-
ment provides that no U.S. person can benefit either
as to income or corpus. However, FTmaintains an
account with FB, a foreign bank, and FBissues a
debit card to Bagainst the account maintained by FT
and Bis allowed to make withdrawals. Under para-
graphs (a)(1) and (b)(2) of this section, FTis treated
as having a U.S. beneficiary.
Example 5. Other indirect benefit. Atransfers
property to FT. FTis administered by FTC, a for-
eign trust company. FTCforms IBC, an interna-
tional business corporation formed under the laws of
a foreign jurisdiction. IBCis the beneficiary of FT.
IBCmaintains an account with FB, a foreign bank.
FBissues a debit card to Bagainst the account main-
tained by IBCand Bis allowed to make with-
drawals. Under paragraphs (a)(1) and (b)(2) of this
section, FTis treated as having a U.S. beneficiary.
(c) Treatment of U.S. transferor upon
foreign trust’s acquisition or loss of U.S.
beneficiary—(1) Trusts acquiring a U.S.
beneficiary. If a foreign trust to which a
U.S. transferor has transferred property is
not treated as having a U.S. beneficiary
(within the meaning of paragraph (a) of
this section) for any taxable year of the
U.S. transferor, but the trust is treated as
having a U.S. beneficiary (within the
meaning of paragraph (a) of this section)
in any subsequent taxable year, the U.S.
transferor is treated as having additional
income in the first such taxable year of
the U.S. transferor in which the trust is
treated as having a U.S. beneficiary. The
amount of the additional income is equal
to the trust’s undistributed net income, as
defined in section 665(a), at the end of the
U.S. transferor’s immediately preceding
taxable year and is subject to the rules of
section 668, providing for an interest
charge on accumulation distributions
from foreign trusts.
(2) Trusts ceasing to have a U.S. bene-
ficiary. If, for any taxable year of a U.S.
transferor, a foreign trust that has received
a transfer of property from the U.S. trans-
feror ceases to be treated as having a U.S.
beneficiary, the U.S. transferor ceases to
be treated as the owner of the portion of
the trust attributable to the transfer begin-
ning in the first taxable year following the
last taxable year of the U.S. transferor
during which the trust was treated as hav-
ing a U.S. beneficiary (unless the U.S.
transferor is treated as an owner thereof
pursuant to sections 673 through 677).
The U.S. transferor is treated as making a
transfer of property to the foreign trust on
the first day of the first taxable year fol-
lowing the last taxable year of the U.S.
transferor during which the trust was
treated as having a U.S. beneficiary. The
amount of the property deemed to be
transferred to the trust is the portion of the
trust attributable to the prior transfer to
which paragraph (a)(1) of this section ap-
plied. For rules regarding the recognition
of gain on transfers to foreign trusts, see
section 684.
(3) Examples. The rules of this para-
graph (c) are illustrated by the following
examples. Ais a U.S. resident alien, Bis
A’s son, and FTis a foreign trust. The ex-
amples are as follows:
Example 1. Trust acquiring U.S. beneficiary. (i)
In 2001, Atransfers stock with a fair market value of
$100,000 to FT. The stock has an adjusted basis of
$50,000 at the time of the transfer. The trust instru-
ment provides that income may be paid currently to, or
accumulated for the benefit of, Band that, upon the
termination of the trust, all income and corpus is to be
distributed to B. At the time of the transfer, Bis a non-
resident alien. Ais not treated as the owner of any por-
tion of FTunder sections 671 through 677. FTaccu-
mulates a total of $30,000 of income during the
taxable years 2001 through 2003. In 2004, Bmoves to
the United States and becomes a resident alien. As-
sume paragraph (a)(4) of this section is not applicable
under the facts and circumstances.
(ii) Under paragraph (c)(1) of this section, Ais
treated as receiving an accumulation distribution in
the amount of $30,000 in 2004 and immediately
transferring that amount back to the trust. The accu-
mulation distribution is subject to the rules of sec-
tion 668, providing for an interest charge on accu-
mulation distributions.
(iii) Under paragraphs (a)(1) and (3) of this sec-
tion, beginning in 2005, Ais treated as the owner of
the portion of FTattributable to the stock transferred
by Ato FTin 2001 (which includes the portion at-
tributable to the accumulated income deemed to be
retransferred in 2004).
Example 2. Trust ceasing to have U.S. benefi-
ciary. (i) The facts are the same as in Example 1.
In 2008, Bbecomes a nonresident alien. On the date
Bbecomes a nonresident alien, the stock transferred
by Ato FTin 2001 has a fair market value of
$125,000 and an adjusted basis of $50,000.
(ii) Under paragraph (c)(2) of this section, begin-
ning in 2009, FTis not treated as having a U.S. ben-
eficiary, and Ais not treated as the owner of the por-
tion of the trust attributable to the prior transfer of
stock. For rules regarding the recognition of gain on
the termination of ownership status, see section 684.
§1.679–3 Transfers.
(a) In general. A transfer means a di-
rect, indirect, or constructive transfer.
(b) Transfers by certain trusts—(1) In
general. If any portion of a trust is treated
as owned by a U.S. person, a transfer of
property from that portion of the trust to a
foreign trust is treated as a transfer from
the owner of that portion to the foreign
trust.
(2) Example. The following example
illustrates this paragraph (b):
Example. In 2001, A, a U.S. citizen, creates and
funds DT, a domestic trust. Ahas the power to revest
absolutely in himself the title to the property in DT
and is treated as the owner of DTpursuant to section
676. In 2004, DTtransfers property to FT, a foreign
trust. Ais treated as having transferred the property
to FTin 2004 for purposes of this section.
(c) Indirect transfers—(1) Principal
purpose of tax avoidance. A transfer to a
foreign trust by any person (intermediary)
to whom a U.S. person transfers property
is treated as an indirect transfer by a U.S.
person to the foreign trust if such transfer
is made pursuant to a plan one of the prin-
cipal purposes of which is the avoidance
of United States tax.
(2) Principal purpose of tax avoidance
deemed to exist. For purposes of para-
graph (c)(1) of this section, a transfer is
deemed to have been made pursuant to a
plan one of the principal purposes of
which was the avoidance of United States
tax if—
(i) The U.S. person is related (within
the meaning of paragraph (c)(4) of this
section) to a beneficiary of the foreign
trust, or has another relationship with a
beneficiary of the foreign trust that estab-
lishes a reasonable basis for concluding
that the U.S. transferor would make a
transfer to the foreign trust; and
(ii) The U.S. person cannot demon-
strate to the satisfaction of the
Commissioner that—
(A) The intermediary has a relationship
with a beneficiary of the foreign trust that
establishes a reasonable basis for conclud-
ing that the intermediary would make a
transfer to the foreign trust;
(B) The intermediary acted indepen-
dently of the U.S. person;

(C) The intermediary is not an agent of
the U.S. person under generally applica-
ble United States agency principles; and
(D) The intermediary timely complied
with the reporting requirements of section
6048, if applicable.
(3) Effect of disregarding intermedi-
ary—(i) In general. Except as provided
in paragraph (c)(3)(ii) of this section, if a
transfer is treated as an indirect transfer
pursuant to paragraph (c)(1) of this sec-
tion, then the intermediary is treated as an
agent of the U.S. person, and the property
is treated as transferred to the foreign trust
by the U.S. person in the year the proper-
ty is transferred, or made available, by the
intermediary to the foreign trust. The fair
market value of the property transferred is
determined as of the date of the transfer
by the intermediary to the foreign trust.
(ii) Special rule. If the Commissioner
determines, or if the taxpayer can demon-
strate to the satisfaction of the Commis-
sioner, that the intermediary is an agent of
the foreign trust under generally applica-
ble United States agency principles, the
property will be treated as transferred to
the foreign trust in the year the U.S. per-
son transfers the property to the interme-
diary. The fair market value of the prop-
erty transferred will be determined as of
the date of the transfer by the U.S. person
to the intermediary.
(iii) Effect on intermediary. If a trans-
fer of property is treated as an indirect
transfer under paragraph (c)(1) of this sec-
tion, the intermediary is not treated as
having transferred the property to the for-
eign trust.
(4) Related parties. For purposes of
this paragraph (c), a U.S. transferor is
treated as related to a U.S. beneficiary of
a foreign trust if the U.S. transferor and
the beneficiary are related for purposes of
section 643(i)(2)(B), with the following
modifications–
(i) For purposes of applying section
267 (other than section 267(f)) and sec-
tion 707(b)(1), “at least 10 percent” is
used instead of “more than 50 percent”
each place it appears; and
(ii) The principles of section 267(b)(10),
using “at least 10 percent” instead of “more
than 50 percent,” apply to determine
whether two corporations are related.
(5) Examples. The rules of this para-
graph (c) are illustrated by the following
examples:
Example 1. Principal purpose of tax avoidance.
A, a U.S. citizen, creates and funds FT, a foreign
trust, for the benefit of A’s children, who are U.S.
citizens. In 2004, Adecides to transfer an addition-
al 1000X to the foreign trust. Pursuant to a plan with
a principal purpose of avoiding the application of
section 679, A transfers 1000X to I
, a foreign person.
Isubsequently transfers 1000X to FT. Under para-
graph (c)(1) of this section, Ais treated as having
made a transfer of 1000X to FT.
Example 2. U.S. person unable to demonstrate
that intermediary acted independently. A,a U.S. cit-
izen, creates and funds FT, a foreign trust, for the
benefit of A’s children, who are U.S. citizens. On
July 1, 2004, Atransfers XYZ stock to D, A’s uncle,
who is a nonresident alien. Dimmediately sells the
XYZ stock and uses the proceeds to purchase ABC
stock. On January 1, 2007, Dtransfers the ABC
stock to FT. Ais unable to demonstrate to the satis-
faction of the Commissioner, pursuant to paragraph
(c)(2) of this section, that Dacted independently of
Ain making the transfer to FT. Under paragraph
(c)(1) of this section, Ais treated as having trans-
ferred the ABC stock to FT. Under paragraph (c)(3)
of this section, Dis treated as an agent of A, and the
transfer is deemed to have been made on January 1,
2007.
Example 3. Indirect loan to foreign trust. A, a
U.S. citizen, previously created and funded FT, a
foreign trust, for the benefit of A’s children, who are
U.S. citizens. On July 1, 2004, Adeposits 500X with
FB, a foreign bank. On January 1, 2005, FBloans
450X to FT. Ais unable to demonstrate to the satis-
faction of the Commissioner, pursuant to paragraph
(c)(2) of this section, that FBhas a relationship with
FTthat establishes a reasonable basis for concluding
that FB would make a loan to FTor that FBacted
independently of Ain making the loan. Under para-
graph (c)(1) of this section, Ais deemed to have
transferred 450X directly to FTon January 1, 2005.
Under paragraph (c)(3) of this section, FBis treated
as an agent of A. For possible exceptions with
respect to qualified obligations of the trust, see
§1.679–4.
Example 4. Loan to foreign trust prior to deposit
of funds in foreign bank. The facts are the same as
in Example 3,
except that Amakes the 500X deposit
with FBon January 2, 2005, the day after FBmakes
the loan to FT. The result is the same as in Example
3.
(d) Constructive transfers—(1) In gen-
eral. For purposes of paragraph (a) of this
section, a constructive transfer includes
any assumption or satisfaction of a for-
eign trust’s obligation to a third party.
(2) Examples. The rules of this para-
graph (d) are illustrated by the following
examples. In each example, Ais a U.S.
citizen and FTis a foreign trust. The
examples are as follows:
Example 1. Payment of debt of foreign trust. FT
owes 1000X to Y, an unrelated foreign corporation,
for the performance of services by Yfor FT. In sat-
isfaction of FT’s liability to Y, Atransfers to Yprop-
erty with a fair market value of 1000X. Under para-
graph (d)(1) of this section, Ais treated as having
made a constructive transfer of the property to FT.
Example 2. Assumption of liability of foreign
trust. FTowes 1000X to Y, an unrelated foreign cor-
poration, for the performance of services by Yfor
FT. Aassumes FT’s liability to pay Y. Under para-
graph (d)(1) of this section, Ais treated as having
made a constructive transfer of property with a fair
market value of 1000X to FT.
(e) Guarantee of trust obligations—(1)
In general. If a foreign trust borrows
money or other property from any person
who is not a related person (within the
meaning of §1.679–1(c)(5)) with respect
to the trust (lender) and a U.S. person
(U.S. guarantor) that is a related person
with respect to the trust guarantees (with-
in the meaning of paragraph (e)(4) of this
section) the foreign trust’s obligation, the
U.S. guarantor is treated for purposes of
this section as a U.S. transferor that has
made a transfer to the trust on the date of
the guarantee in an amount determined
under paragraph (e)(2) of this section. To
the extent this paragraph causes the U.S.
guarantor to be treated as having made a
transfer to the trust, a lender that is a U.S.
person shall not be treated as having
transferred that amount to the foreign
trust.
(2) Amount transferred. The amount
deemed transferred by a U.S. guarantor
described in paragraph (e)(1) of this sec-
tion is the guaranteed portion of the
adjusted issue price of the obligation
(within the meaning of §1.1275–1(b))
plus any accrued but unpaid qualified stat-
ed interest (within the meaning of
§1.1273–1(c)).
(3) Principal repayments. If a U.S. per-
son is treated under this paragraph (d) as
having made a transfer by reason of the
guarantee of an obligation, payments of
principal to the lender by the foreign trust
with respect to the obligation are taken
into account on and after the date of the
payment in determining the portion of the
trust attributable to the property deemed
transferred by the U.S. guarantor.
(4) Guarantee. For purposes of this
section, the term guarantee–
(i) Includes any arrangement under
which a person, directly or indirectly,
assures, on a conditional or unconditional
basis, the payment of another’s obliga-
tion;
(ii) Encompasses any form of credit
support, and includes a commitment to
make a capital contribution to the debtor
or otherwise maintain its financial viabili-
ty; and
2000–34 I.R.B.201August 21, 2000

(iii) Includes an arrangement reflected
in a comfort letter, regardless of whether
the arrangement gives rise to a legally
enforceable obligation. If an arrangement
is contingent upon the occurrence of an
event, in determining whether the
arrangement is a guarantee, it is assumed
that the event has occurred.
(5) Examples. The rules of this para-
graph (e) are illustrated by the following
examples. In all of the examples, Ais a
U.S. resident and FTis a foreign trust.
The examples are as follows:
Example 1. Foreign lender. X, a foreign corpo-
ration, loans 1000X of cash to FTin exchange for
FT’s obligation to repay the loan. Aguarantees the
repayment of 600X of FT’s obligation. Under para-
graph (e)(2) of this section, Ais treated as having
transferred 600X to FT.
Example 2. Unrelated U.S. lender. The facts
are the same as in Example 1, except Xis a U.S.
person that is not a related person within the mean-
ing of §1.679–1(c)(5). The result is the same as in
Example 1.
(f) Transfers to entities owned by a for-
eign trust—(1) General rule. If a U.S.
person is a related person (as defined in
§1.679–1(c)(5)) with respect to a foreign
trust, any transfer of property by the U.S.
person to an entity in which the foreign
trust holds an ownership interest is treated
as a transfer of such property by the U.S.
person to the foreign trust followed by a
transfer of the property from the foreign
trust to the entity owned by the foreign
trust, unless the U.S. person demonstrates
to the satisfaction of the Commissioner
that the transfer to the entity is properly
attributable to the U.S. person’s owner-
ship interest in the entity.
(2) Examples. The rules of this para-
graph (f) are illustrated by the following
examples. In all of the examples, Ais a
U.S. citizen, FTis a foreign trust, and FC
is a foreign corporation. The examples
are as follows:
Example 1. Acreates and funds FT. which is
treated as having a U.S. beneficiary under §1.679–2.
FTowns all of the outstanding stock of FC. Atrans-
fers property directly to FC. Because FTis the sole
shareholder of FC, Ais unable to demonstrate to the
satisfaction of the Commissioner that the transfer is
properly attributable to A’s ownership interest in FC.
Accordingly, under this paragraph (f), Ais treated as
having transferred the property to FT, followed by a
transfer of such property by FTto FC. Under
§1.679–1(a), Ais treated as the owner of the portion
of FTattributable to the property treated as trans-
ferred directly to FT. Under §1.367(a)– 1T(c)(4)(ii),
the transfer of property by FTto FCis treated as a
transfer of the property by Ato FC.
Example 2. The facts are the same as in Example
1, except that FTis not treated as having a U.S. ben-
eficiary under §1.679– 2. Under this paragraph (f),
Ais treated as having transferred the property to FT,
followed by a transfer of such property by FTto FC.
Ais not treated as the owner of FTfor purposes of
§1.679–1(a). For rules regarding the recognition of
gain on the transfer, see section 684.
Example 3. Acreates and funds FT. FChas out-
standing solely 100 shares of common stock. FT
owns 50 shares of FCstock, and Aowns the remain-
ing 50 shares. On July 1, 2001, FTand Aeach trans-
fer 1000X to FC. Ais able to demonstrate to the sat-
isfaction of the Commissioner that A’s transfer to FC
is properly attributable to A’s ownership interest in
FC. Accordingly, under this paragraph (f), A’s trans-
fer to FCis not treated as a transfer to FT.
§1.679–4 Exceptions to general rule.
(a) In general. Section 1.679–1 does
not apply to—
(1) Any transfer of property to a foreign
trust by reason of the death of the transferor;
(2) Any transfer of property to a foreign
trust described in sections 402(b),
404(a)(4), or 404A;
(3) Any transfer of property to a foreign
trust that has received a ruling or determi-
nation letter, which has been neither
revoked nor modified, from the Internal
Revenue Service recognizing the trust’s tax
exempt status under section 501(c)(3); and
(4) Any transfer of property to a foreign
trust to the extent the transfer is for fair
market value.
(b) Transfers for fair market value—(1)
In general. For purposes of this section, a
transfer is for fair market value only to the
extent of the value of property received
from the trust, services rendered by the
trust, or the right to use property of the
trust. For example, rents, royalties, inter-
est, and compensation paid to a trust are
transfers for fair market value only to the
extent that the payments reflect an arm’s
length price for the use of the property of,
or for the services rendered by, the trust.
For purposes of this determination, an
interest in the trust is not property
received from the trust. For purposes of
this section, a distribution to a trust with
respect to an interest held by such trust in
an entity other than a trust or an interest in
certain investment trusts described in
§301.7701–4(c) of this chapter, liquidat-
ing trusts described in §301.7701–4(d) of
this chapter, or environmental remedia-
tion trusts described in §301.7701–4(e) of
this chapter is considered to be a transfer
for fair market value.
(2) Special rule—(i) Transfers for par-
tial consideration. For purposes of this
section, if a person transfers property to a
foreign trust in exchange for property
having a fair market value that is less than
the fair market value of the property trans-
ferred, the exception in paragraph (a)(4)
of this section applies only to the extent of
the fair market value of the property
received.
(ii) Example. This paragraph (b) is
illustrated by the following example:
Example. A, a U.S. citizen, transfers property
that has a fair market value of 1000X to FT, a for-
eign trust, in exchange for 600X of cash. Under this
paragraph (b), §1.679–1 applies with respect to the
transfer of 400X (1000X less 600X) to FT.
(c) Certain obligations not taken into
account. Solely for purposes of this sec-
tion, in determining whether a transfer by
a U.S. transferor that is a related person
(as defined in §1.679–1(c)(5)) with
respect to the foreign trust is for fair mar-
ket value, any obligation (as defined in
§1.679–1(c)(6)) of the trust or a related
person (as defined in §1.679–1(c)(5)) that
is not a qualified obligation within the
meaning of paragraph (d)(1) of this sec-
tion shall not be taken into account.
(d) Qualified obligations—(1) In gen-
eral. For purposes of this section, an
obligation is treated as a qualified obliga-
tion only if—
(i) The obligation is reduced to writing
by an express written agreement;
(ii) The term of the obligation does not
exceed five years (for purposes of deter-
mining the term of an obligation, the
obligation’s maturity date is the last possi-
ble date that the obligation can be out-
standing under the terms of the obliga-
tion);
(iii) All payments on the obligation are
denominated in U.S. dollars;
(iv) The yield to maturity is not less
than 100 percent of the applicable Federal
rate and not greater that 130 percent of the
applicable Federal rate (the applicable
Federal rate for an obligation is the
applicable Federal rate in effect under
section 1274(d) for the day on which the
obligation is issued, as published in the
Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter));
(v) The U.S. transferor extends the
period for assessment of any income or
transfer tax attributable to the transfer and
any consequential income tax changes for
each year that the obligation is outstand-
ing, to a date not earlier than three years
after the maturity date of the obligation
August 21, 20002022000–34 I.R.B.

(this extension is not necessary if the
maturity date of the obligation does not
extend beyond the end of the U.S. trans-
feror’s taxable year and is paid within
such period); when properly executed and
filed, such an agreement is deemed to be
consented to for purposes of
§301.6501(c)–1(d) of this chapter; and
(vi) The U.S. transferor reports the sta-
tus of the loan, including principal and
interest payments, on Form 3520 for
every year that the loan is outstanding.
(2) Additional loans. If, while the orig-
inal obligation is outstanding, the U.S.
transferor or a person related to the trust
(within the meaning of §1.679–1(c)(5))
directly or indirectly obtains another
obligation issued by the trust, or if the
U.S. transferor directly or indirectly
obtains another obligation issued by a per-
son related to the trust, the original oblig-
ation is deemed to have the maturity date
of any such subsequent obligation in
determining whether the term of the orig-
inal obligation exceeds the specified 5-
year term. In addition, a series of obliga-
tions issued and repaid by the trust (or a
person related to the trust) is treated as a
single obligation if the transactions giving
rise to the obligations are structured with
a principal purpose to avoid the applica-
tion of this provision.
(3) Obligations that cease to be quali-
fied. If an obligation treated as a quali-
fied obligation subsequently fails to be a
qualified obligation (e.g., renegotiation
of the terms of the obligation causes the
term of the obligation to exceed five
years), the U.S. transferor is treated as
making a transfer to the trust in an
amount equal to the original obligation’s
adjusted issue price (within the meaning
of §1.1275–1(b)) plus any accrued but
unpaid qualified stated interest (within
the meaning of §1.1273–1(c)) as of the
date of the subsequent event that causes
the obligation to no longer be a qualified
obligation. If the maturity date is extend-
ed beyond five years by reason of the
issuance of a subsequent obligation by
the trust (or person related to the trust),
the amount of the transfer will not exceed
the issue price of the subsequent obliga-
tion. The subsequent obligation is sepa-
rately tested to determine if it is a quali-
fied obligation.
(4) Transfers resulting from failed
qualified obligations. In general, a trans-
fer resulting from a failed qualified oblig-
ation is deemed to occur on the date of the
subsequent event that causes the obliga-
tion to no longer be a qualified obligation.
However, based on all of the facts and cir-
cumstances, the Commissioner may deem
a transfer to have occurred on any date on
or after the issue date of the original
obligation. For example, if at the time the
original obligation was issued, the trans-
feror knew or had reason to know that the
obligation would not be repaid, the
Commissioner could deem the transfer to
have occurred on the issue date of the
original obligation.
(5) Renegotiated loans. Any loan that
is renegotiated, extended, or revised is
treated as a new loan, and any distribution
of funds after such renegotiation, exten-
sion, or revision under a pre-existing loan
agreement is treated as a transfer subject
to this section.
(6) Principal repayments. The payment
of principal with respect to any obligation
that is not treated as a qualified obligation
under this paragraph is taken into account
on and after the date of the payment in
determining the portion of the trust attrib-
utable to the property transferred.
(7) Examples. The rules of this para-
graph (d) are illustrated by the following
examples. In all of the examples, Ais a
U.S. resident and FTis a foreign trust.
The examples are as follows:
Example 1. Demand loan. Atransfers 500X to
FTin exchange for a demand note that permits Ato
require repayment by FTat any time. Ais a related
person (as defined in §1.679–1(c)(5)) with respect to
FT. Because FT’s obligation to Acould remain out-
standing for more than five years, the obligation is
not a qualified obligation within the meaning of
paragraph (d) of this section and, pursuant to para-
graph (c) of this section, it is not taken into account
for purposes of determining whether A’s transfer is
eligible for the fair market value exception of para-
graph (a)(4) of this section. Accordingly, §1.679–1
applies with respect to the full 500X transfer to FT.
Example 2. Private annuity. Atransfers 4000X
to FTin exchange for an annuity from the foreign
trust that will pay A100X per year for the rest of A’s
life. Ais a related person (as defined in
§1.679–1(c)(5)) with respect to FT. Because FT’s
obligation to Acould remain outstanding for more
than five years, the obligation is not a qualified
obligation within the meaning of paragraph (d)(1) of
this section and, pursuant to paragraph (c) of this
section, it is not taken into account for purposes of
determining whether A’s transfer is eligible for the
fair market value exception of paragraph (a)(4) of
this section. Accordingly, §1.679–1 applies with
respect to the full 4000X transfer to FT.
Example 3. Loan to unrelated foreign trust. B
transfers 1000X to FTin exchange for an obligation
of the trust. The term of the obligation is fifteen
years. Bis not a related person (as defined in
§1.679–1(c)(5)) with respect to FT. Because Bis not
a related person, the adjusted issue price of the oblig-
ation received by Bis taken into account for purpos-
es of determining whether B’s transfer is eligible for
the fair market value exception of paragraph (a)(4)
of this section, even though the obligation is not a
qualified obligation within the meaning of paragraph
(d)(1) of this section.
Example 4. Transfer for an obligation with term
in excess of 5 years. Atransfers property that has a
fair market value of 5000X to FTin exchange for an
obligation of the trust. The term of the obligation is
ten years. Ais a related person (as defined in
§1.679–1(c)(5)) with respect to FT. Because the
term of the obligation is greater than five years, the
obligation is not a qualified obligation within the
meaning of paragraph (d)(1) of this section and, pur-
suant to paragraph (c) of this section, it is not taken
into account for purposes of determining whether
A’s transfer is eligible for the fair market value
exception of paragraph (a)(4) of this section.
Accordingly, §1.679–1 applies with respect to the
full 5000X transfer to FT.
Example 5. Transfer for a qualified obligation.
The facts are the same as in Example 4,except that
the term of the obligation is 3 years. Assuming the
other requirements of paragraph (d)(1) of this sec-
tion are satisfied, the obligation is a qualified oblig-
ation and its adjusted issue price is taken into
account for purposes of determining whether A’s
transfer is eligible for the fair market value excep-
tion of paragraph (a)(4) of this section.
Example 6. Effect of subsequent obligation on
original obligation. Atransfers property that has a
fair market value of 1000X to FTin exchange for an
obligation that satisfies the requirements of para-
graph (d)(1) of this section. Ais a related person (as
defined in §1.679–1(c)(5)) with respect to FT. Two
years later, Atransfers an additional 2000X to FT
and receives another obligation from FTthat has a
maturity date four years from the date that the sec-
ond obligation was issued. Under paragraph (d)(2)
of this section, the original obligation is deemed to
have the maturity date of the second obligation.
Under paragraph (a) of this section, Ais treated as
having made a transfer in an amount equal to the
original obligation’s adjusted issue price (within the
meaning of §1.1275–1(b)) plus any accrued but
unpaid qualified stated interest (within the meaning
of §1.1273–1(c)) as of the date of issuance of the
second obligation. The second obligation is tested
separately to determine whether it is a qualified
obligation for purposes of applying paragraph (a) of
this section to the second transfer.
§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 transferring property
to a foreign trust (the original transfer),
the individual is treated as having trans-
ferred to the trust on the residency starting
date an amount equal to the portion of the
2000–34 I.R.B.203August 21, 2000

trust attributable to the property trans-
ferred by the individual in the original
transfer.
(b) Special rules—(1) Change in
grantor trust status. For purposes of para-
graph (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 imme-
diately before the trust ceases to be treat-
ed as owned by the individual.
(2) Treatment of undistributed income.
For purposes of paragraph (a) of this sec-
tion, 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 purpos-
es of determining the amount of the prop-
erty 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, Abecomes 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,
Ais treated as a U.S. transferor and is deemed to
transfer the property to FTon January 1, 2006.
Under paragraph (b)(2) of this section, the property
deemed transferred to FTon January 1, 2006,
includes the undistributed net income of the trust, as
defined in section 665(a), attributable to the proper-
ty originally transferred.
Example 2. Nonresident alien loses power to
revest property. On January 1, 2002, A, a nonresi-
dent alien individual, transfers property to a foreign
trust, FT. Ahas 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 him-
self title to the property transferred, and Aceases to
be treated as the owner of FT. On January 1, 2010,
Abecomes a resident of the United States. Under
paragraph (b)(1) of this section, for purposes of para-
graph (a) of this section Ais treated as having origi-
nally transferred the property to FTon January 1,
2008. Because this date is within five year’s of A’s
residency starting date, Ais 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 undis-
tributed net income of the trust, as defined in section
665(a), attributable to the property deemed trans-
ferred.
§1.679–6 Outbound migrations of
domestic trusts.
(a) In general. Subject to the provi-
sions of paragraph (b) of this section, if an
individual who is a U.S. person transfers
property to a trust that is not a foreign
trust, and such trust becomes a foreign
trust while the U.S. person is alive, the
U.S. individual is treated as a U.S. trans-
feror and is deemed to transfer the proper-
ty to a foreign trust on the date the domes-
tic trust becomes a foreign trust.
(b) Amount deemed transferred. For
purposes of paragraph (a) of this section,
the property deemed transferred to the
trust when it becomes a foreign trust
includes undistributed net income, as
defined in section 665(a), attributable to
the property previously transferred.
Undistributed net income for periods prior
to the migration is taken into account only
for purposes of determining the portion of
the trust that is attributable to the proper-
ty transferred by the U.S. person.
(c) Example. The following example
illustrates the rules of this section. For
purposes of the example, Ais a U.S. resi-
dent alien, Bis A’s son, who is a resident
alien, and DTis a domestic trust. The
example is as follows:
Example. Outbound migration of domestic trust.
On January 1, 2002, Atransfers property to DT, for
the benefit of B. On January 1, 2003, DTacquires a
foreign trustee who has the power to determine
whether and when distributions will be made to B.
Under section 7701(a)(3)(B) and §301.7701–
7(d)(ii)(A), DTbecomes a foreign trust on January 1,
2003. Under paragraph (a) of this section, Ais treat-
ed as transferring property to a foreign trust on
January 1, 2003. Under paragraph (b) of this sec-
tion, the property deemed transferred to the trust
when it becomes a foreign trust includes undistrib-
uted net income, as defined in section 665(a), attrib-
utable to the property deemed transferred.
§1.679–7 Effective dates.
(a) In general. Except as provided in
paragraph (b) of this section, the rules of
§§1.679–1, 1.679–2, 1.679–3, and
1.679–4 apply with respect to transfers
after August 7, 2000.
(b) Special rules. (1) The rules of
§1.679–4(c) and (d) apply to an obligation
issued after February 6, 1995, whether or
not in accordance with a pre-existing
arrangement or understanding. For pur-
poses of the rules of §1.679–4(c) and (d),
if an obligation issued on or before
February 6, 1995, is modified after that
date, and the modification is a significant
modification within the meaning of
§1.1001–3, the obligation is treated as if it
were issued on the date of the modifica-
tion. However, the penalty provided in
section 6677 applies only to a failure to
report transfers in exchange for obliga-
tions issued after August 20, 1996.
(2) The rules of §1.679–5 apply to per-
sons whose residency starting date is after
August 7, 2000.
(3) The rules of §1.679–6 apply to
trusts that become foreign trusts after
August 7, 2000.
Par. 3. In §1.958–1, paragraph (b) is
amended by adding a new sentence after
the first sentence to read as follows:
§1.958–1 Direct and indirect ownership
of stock.
* * * * *
(b) * * * For purposes of the preceding
sentence, any person that is treated as the
owner of any portion of a trust pursuant to
sections 671 through 679 shall be treated
as a beneficiary of the trust and shall be
considered to own all of the stock owned
directly or indirectly by or for such por-
tion. * * *
* * * * *
§1.958–2 [Amended]
Par. 4. In §1.958–2, paragraph
(c)(1)(ii)(b) is amended by removing the lan-
guage “678” and adding “679” in its place.
David A. Mader,
Acting Deputy Commissioner
of Internal Revenue.
(Filed by the Office of Federal Register on August 2,
2000, 1:04 p.m., and published in the issue of the
Federal Register for August 7, 2000, 65 F.R. 48185)
Foundations Status of Certain
Organizations
Announcement 2000–70
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
August 21, 20002042000–34 I.R.B.

this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
Ace Boxing Club, Inc., Milwaukee, WI
Advocates for Public Transportation of
Monroe County, Stroudsburg, PA
African Health Foundation,
Los Angeles, CA
American Civil Rights Defense
Foundation, Orange, CA
American Culinary Federation Food
Source Network, Inc.,
N. Myrtle Beach, SC
American River Alano, Folsom, CA
Angels Shelter Ranch, LTD.,
Lompoc, CA
Anishinabe Miikana Project, Inc.,
Bemidji, MN
1996 Anniversary Commission
Celebrating Youngstown & Mahoning,
Youngstown, OH
Awutu Effutu and Friends Association of
Southern California, Los Angeles, CA
Azalea City Childrens Ballet, Mobile, AL
Blazing Angels, Inc., Langhorne, PA
Blue Water Area Land Conservancy,
Port Huron, MI
Born Again Music Ministry, Inc.,
Duluth, GA
Camino Real Seven Point Charities, Inc.,
Houston, TX
Cassville Junior Football League,
Cassville, MO
Central Western New York Youth
Basketball Clubs, Newark, NY
Changing Perspectives, Incorporated,
Mount Kisco, NY
Childrens Educational Foundation
Charitable Trust, Concord, CA
Childrens Talent Unlimited, Inc.,
Brooklyn, NY
Citizens for Safe Libraries, Bountiful, UT
Commission for Desert Hot Springs
Youth, Desert Hot Springs, CA
Community Impact, Inc., Durham, NC
Congregation B M Z, Inc., Brooklyn, NY
Cops and Cruisers, Oxnard, CA
Crossfade Productions, Inc.,
Belleville, NJ
The Disabled Traveler, Lapeer, MI
Dont Just Sit There, Inc., Atlanta, GA
Ekklesia Ministries, Rialto, CA
Emerson Playground Fund, Inc.,
Emerson, NJ
Encodings, Houston, TX
Foundation for Friends, Inc.,
Houston, TX
Friends of 60 Centre Street, Inc.,
New York, NY
Friends of Centennial Park, Inc.,
Nashville, TN
Friends of Fathers, Inc.,
W. Falmouth, MA
Friends of United Institutions of Arad,
Inc., Brooklyn, NY
GMB Youth Motorsport Services, Inc.,
Boston, MA
Glendale Neighborhood Watch Advisory
Board, Inc., Glendale, AZ
Godinger Lefkowitz Memorial
Foundation, Ridgewood, NY
Greater Opportunities for Advancing
Lifestyle, Inc., Torrance, CA
Hawaii International Music,
Honolulu, HI
Hoya Human Development Corporation,
Inc., Beaumont, TX
Hyde Park Tenant Association,
Kansas City, MO
Island Alliance, Inc., Boston, MA
J NE Home Care Services,
Missouri City, TX
Jefferson Institute, Philadelphia, PA
Kanawha Putnam Emergency Planning
Committee, Charleston, WV
Keren Sara Chana, Inc., Brooklyn, NY
Keren Aram Soba Foundation, Inc.,
Brooklyn, NY
Know Casinos, Richmond, VA
Lewis-Bennett Neighborhood
Association, Flint, MI
Living Water Ministries, Cloverport, KY
Los Angeles Harbor Housing,
Los Angeles, CA
Loving Space, Inc., Riviera Beach, FL
Maine Toy Train Museum, Portland, ME
McCamey Medical Services Foundation,
McCamey, TX
Medical Research Fundraisers for
Leukemia, Inc., S. Windsor, CT
Metro Area Junior Golfers, Inc.,
Detroit, MI
Metsa MLK Ed Bluestein Tannehill
Spingdale Airport Neighborhood
Improvement Committee, Austin, TX
Middlesex Youth Soccer League, Inc.,
Woburn, MA
Mission Foundation, Agoura Hills, CA
Moms and Dads, Inc., Kent, WA
Nalamdana, Inc., Cambridge, MA
Namibia Early Childhood Education
Fund, Inc., New York, NY
National Save-A-Pet Foundation, Inc.,
W. Palm Beach, FL
Norcross Charities, Inc., Phoenix, AZ
North Central Indiana Uganda Outreach,
Inc., Fishers, IN
Northeast Georgia Homeless Coalition,
Inc., Athens, GA
Olympic RHF Housing, Inc.,
Long Beach, CA
On The Youths Side, St. Louis, MO
Performing Arts & Humanities of
Sandpoint, Inc., Sandpoint, ID
Possibilities Unlimited, Inc.,
St. Augustine, FL
Quest Foundation USA, Inc.,
Augusta, GA
Safe Outreach Foundation, Inc.,
Mt, Vernon, OH
Safehouse Ministries, Inc., St. Louis, MO
Salisbury Civil War Prison Foundation,
Inc., Salisbury, NC
San Antonio Potters Guild,
San Antonio, TX
Sereno W. and Doris L. Johnson
Memorial Scholarship Foundation,
Boston, MA
Southern Tier Volunteer Organization,
Inc., Binghamton, NY
Stars Baseball Club Corporation,
Lexington, KY
Success View Network, Inc.,
Brooklyn, NY
Suicide Anonymous Treatment,
Beverly Hills, CA
Sunflower Economic Development
Corp., Sunflower, MS
Teens of Tomorrow Foundation, Lisly, IL
Terrebonne 2000, Houma, LA
Texas Best, Midland, TX
Unifying Movement, Inc.,
Port Orange, FL
Vehicle of Life Foundation, Berkeley, CA
West Bend Haunted Manor, Inc.,
West Bend, WI
Yad Veizer Leyehudei Russia, Inc.,
Brooklyn, NY
Zeta Omega Scholarship Fund,
Incorporated, Cleveland, OH
If an organization listed above submits
information that warrants the renewal of
2000–34 I.R.B.205August 21, 2000

its classification as a public charity or as a
private operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classi-
fication as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
vided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.
August 21, 20002062000–34 I.R.B.
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
actuaries to identify practitioners under
consent suspension from practice before
the Internal Revenue Service, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, and date or period of suspension.
This announcement will appear in the
weekly Bulletin at the earliest practicable
date after such action and will continue to
appear in the weekly Bulletins for five
successive weeks or for as many weeks as
is practicable for each attorney, certified
public accountant, enrolled agent or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Date of
NameAddressDesignationSuspension
Stoppenhagen, Larry Ft. Wayne, INCPAApril 14, 2000
to
April 13, 2001
Chon, James N. Hollywood, CACPAMay 22, 2000
to
May 21, 2003
Bleyer, Stephen A.Bala Cynwyd, PACPAJune 26, 2000
to
December 25, 2000
Knutson, OwenOuray, COCPAJuly 3, 2000
to
January 2, 2003
Silverman, Richard E.Fayetteville, NYCPAAugust 1, 2000
to
March 31, 2004
Holt, JeffreyLittle Rock, AREnrolledOctober 1, 2000
Agentto
March 31, 2003
Barbagallo, JosephNewton, PACPAOctober 15, 2000
to
October 14, 2004

Under Section 330, Title 31 of the
United States Code, the Secretary of the
Treasury, after due notice and opportunity
for hearing, is authorized to suspend or
disbar from practice before the Internal
Revenue Service any person who has vio-
lated the rules and regulations governing
the recognition of attorneys, certified
public accountants, enrolled agents or en-
rolled actuaries to practice before the In-
ternal Revenue Service.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or under suspension
from practice before the Internal Revenue
Service.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
actuaries to identify such disbarred or sus-
pended practitioners, the Director of Prac-
tice will announce in the Internal Revenue
Bulletin the names and addresses of prac-
titioners who have been suspended from
such practice, their designation as attor-
ney, certified public accountant, enrolled
agent or enrolled actuary, and the date of
disbarment or period of suspension. This
announcement will appear in the weekly
Bulletin for five successive weeks or as
long as it is practicable for each attorney,
certified public accountant, enrolled agent
or enrolled actuary so suspended or dis-
barred and will be consolidated and pub-
lished in the Cumulative Bulletin.
After due notice and opportunity for
hearing before an administrative law
judge, the following individuals has been
disbarred from further practice before the
Internal Revenue Service:
2000–34 I.R.B.207August 21, 2000
Announcement of the Disbarment and Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
NameAddressDesignation Effective Date
Luebben, WilliamHot Springs, AR CPAFebruary 11, 2000

August 21, 2000i2000–34 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

2000–34 I.R.B.iiAugust 21, 2000
Numerical Finding List
1
Bulletins 2000–27 through 2000–33
Announcements:
2000–57, 2000–28 I.R.B. 115
2000–58, 2000–30 I.R.B. 135
2000–59, 2000–29 I.R.B. 120
2000–60, 2000–31 I.R.B. 149
2000–61, 2000–30 I.R.B. 136
2000–62, 2000–30 I.R.B. 137
2000–63, 2000–31 I.R.B. 149
2000–64, 2000–31 I.R.B. 149
2000–65, 2000–31 I.R.B. 150
2000–66, 2000–32 I.R.B. 160
2000–67, 2000–32 I.R.B. 160
2000–68, 2000–32 I.R.B. 161
2000–69, 2000–33 I.R.B. 183
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–34, 2000–33 I.R.B. 172
2000–35, 2000–29 I.R.B. 118
2000–36, 2000–33 I.R.B. 173
2000–37, 2000–29 I.R.B. 118
2000–38, 2000–33 I.R.B. 174
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
2000–41, 2000–33 I.R.B. 177
Proposed Regulations:
REG–105316–98, 2000–27 I.R.B. 98
REG–116495–99, 2000–33 I.R.B. 179
Railroad Retirement Quarterly Rate:
2000–28, I.R.B. 112
2000–29, I.R.B. 117
Revenue Procedures:
2000–28, 2000–27 I.R.B. 60
2000–29, 2000–28 I.R.B. 113
2000–30, 2000–28 I.R.B. 113
2000–31, 2000–31 I.R.B. 146
2000–32, 2000–33 I.R.B. 172
Revenue Rulings:
2000–32, 2000–27 I.R.B. 1
2000–33, 2000–31 I.R.B. 142
2000–34, 2000–29 I.R.B. 116
2000–35, 2000–31 I.R.B. 138
2000–36, 2000–31 I.R.B. 140
2000–37, 2000–32 I.R.B. 156
2000–38, 2000–32 I.R.B. 157
Treasury Decisions:
8886, 2000–27 I.R.B. 3
8888, 2000–27 I.R.B. 3
8889, 2000–30 I.R.B. 124
8890, 2000–30 I.R.B. 122
8891, 2000–32 I.R.B. 152
8892, 2000–32 I.R.B. 158
8893, 2000–31 I.R.B. 143
8894, 2000–33 I.R.B. 162
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–1 through 2000–26
is in Internal Revenue Bulletin 2000–27, dated July
3, 2000.

August 21, 2000iii2000–34 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–33
Proposed Regulations:
FI–42–90
Withdrawn by
Announcement 2000–63, 2000–31 I.R.B. 149
IA–38–93
Withdrawn by
Announcement 2000–68, 2000–32 I.R.B. 161
REG–107644–98
Corrected by
Announcement 2000–66, 2000–32 I.R.B. 160
Revenue Procedures:
98–50
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
98–51
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
99–18
Modified by
Rev. Proc. 2000–29, 2000–28 I.R.B. 113
99–34
Superseded by
Rev. Proc. 2000–28, 2000–27 I.R.B. 60
Treasury Decisions:
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–1 through 2000–26 is in Internal Revenue
Bulletin 2000–27, dated July 3, 2000.

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