Internal Revenue Bulletin 2001-32 (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. 2001–33, page 118.
Mutual life insurance companies; differential earnings
rate. The differential earnings rate for 2000 and the recom-
puted differential earnings rate for 1999 are set forth for use
by mutual life insurance companies to compute their income
tax liabilities for 2000.
Rev. Rul. 2001–36, page 119.
Federal rates; adjusted federal rates; adjusted feder-
al long-term rate and the long-term exempt rate. For
purposes of sections 382, 1274, 1288, and other sections
of the Code, tables set forth the rates for August 2001.
Rev. Rul. 2001–37, page 100.
Low-income housing credit; satisfactory bond; “bond
factor” amounts for the period July through
September 2001. This ruling announces the monthly bond
factor amounts to be used by taxpayers who dispose of qual-
ified low-income buildings or interests therein during the peri-
od July through September 2001.
T.D. 8955, page 101.
Final regulations under section 679 of the Code relate to
transfers of property by U.S. persons to foreign trusts hav-
ing one or more beneficiaries. In addition, the regulations
revise section 1.958–1, direct and indirect ownership of
stock, and amend section 1.958–2, constructive ownership
of stock.
T.D. 8956, page 112.
Final regulations under section 684 of the Code relate to the
recognition of gain on certain transfers to certain foreign
trusts and estates. The regulations affect United States per-
sons who transfer appreciated property to foreign trusts and
estates. In addition, the regulations explain the application of
section 684 and provide certain exceptions to the general
rule of gain recognition.
EMPLOYEE PLANS
Notice 2001–46, page 122.
Nonapplication of nondiscrimination rules; certain
church and governmental plans. This notice extends the
relief relating to the application of nondiscrimination rules for
certain church and governmental retirement plans. Notice
2001–9 modified.
Announcement 2001–82, page 123.
This announcement provides an alternative model amendment
for proposed regulations (REG–130477–00 and REG–
130481–00, 2001–11 I.R.B. 865) under section 401 of the
Code, which certain qualified plan sponsors may adopt if they
began making required minimum distributions for 2001 based
on proposed regulations published in 1987.
Internal Revenue
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Bulletin No. 2001–32
August 6, 2001
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.
Index for July begins on page iv.

August 6, 20012001–32 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
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basis. Bulletin contents are consolidated semiannually into
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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 Other Related Items, 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.
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These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
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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
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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.

Section 42.—Low-Income Hous-
ing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Low-income housing credit; satisfac-
tory bond; “bond factor” amounts for
the period July through September 2001.
This ruling announces the monthly bond
factor amounts to be used by taxpayers who
dispose of qualified low-income buildings
or interests therein during the period July
through September 2001.
Rev. Rul. 2001–37
In Rev. Rul. 90–60, 1990–2 C.B. 3, the
Internal Revenue Service provided guid-
ance to taxpayers concerning the general
methodology used by the Treasury De-
partment in computing the bond factor
amounts used in calculating the amount of
bond considered satisfactory by the Sec-
retary under § 42(j)(6) of the Internal
Revenue Code. It further announced that
the Secretary would publish in the Inter-
nal Revenue Bulletin a table of “bond fac-
tor” amounts for dispositions occurring
during each calendar month.
Rev. Proc. 99–11, 1999–1 C.B. 275, es-
tablished a collateral program as an alter-
native to providing a surety bond for tax-
payers to avoid or defer recapture of the
low-income housing tax credits under
§ 42(j)(6). Under this program, taxpayers
may establish a Treasury Direct Account
and pledge certain United States Treasury
securities to the Internal Revenue Service
as security.
This revenue ruling provides in Table 1
the bond factor amounts for calculating
the amount of bond considered satisfac-
tory under § 42(j)(6) or the amount of
United States Treasury securities to
pledge in a Treasury Direct Account
under Rev. Proc. 99–11 for dispositions of
qualified low-income buildings or inter-
ests therein during the period July through
September 2001.
August 6, 20011002001–32 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Table 1
Rev. Rul. 2001–37
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of 19871988198919901991199219931994199519961997
Disposition
Jul ’01 19.3035.4749.0260.4870.1870.2771.6872.9974.3075.7577.30
Aug ’01 19.3035.4749.0260.4870.1870.0971.4972.8074.1075.5577.10
Sep ’0119.3035.4749.0260.4870.1869.9171.3172.6173.9175.3676.91
Table 1 (cont’d)
Rev. Rul. 2001–37
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of 1998199920002001
Disposition
Jul ’0179.0780.8082.3683.98
Aug ’0178.8680.6082.1983.98
Sep ’0178.6780.4182.0583.98

For a list of bond factor amounts ap-
plicable to dispositions occurring during
other calendar years, see: Rev. Rul. 98–3,
1998–1 C.B. 248, and Rev. Rul. 2001–2,
2001–2 I.R.B. 255. For dispositions oc-
curring during the period January through
March 2001, see Rev. Rul. 2001–10,
2001–10 I.R.B. 755. For dispositions
during the period April through June
2001, see Rev. Rul. 2001–19, 2001–18
I.R.B. 1143.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Gregory N. Doran of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this revenue ruling, con-
tact Mr. Doran at (202) 622-3040 (not a
toll-free call).
Section 280G.—Golden Para-
chute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 2001. See
Rev. Rul. 2001–36, page 119.
Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses Fol-
lowing Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of August 2001. See Rev.
Rul. 2001–36, page 119.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 467.—Certain Payments
for the Use of Property or Ser-
vices
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 468.—Special Rules for
Mining and Solid Waste Recla-
mation and Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 482.—Allocation of In-
come and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 2001. See
Rev. Rul. 2001–36, page 119.
Section 483.—Interest on Cer-
tain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of August 2001. See
Rev. Rul. 2001–36, page 119.
Section 679.—Foreign Trusts
Having One or More United
States Beneficiaries
26 CFR 1.679–2: Trusts treated as having a U. S.
beneficiary.
T. D. 8955
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Foreign Trusts That Have U.S.
Beneficiaries
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final 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 final
regulations affect United States per-
sons who transfer property to foreign
trusts.
DATES: Effective Date: These regula-
tions are effective July 20, 2001.
Applicability Date: For dates of applic-
ability, see §1.679–7.
FOR FURTHER INFORMATION CON-
TACT: Willard W. Yates at (202) 622-
3880 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On August 7, 2000, the IRS and Trea-
sury published a notice of proposed rule-
making (REG–209038–89, 2000–34
I.R.B. 191) in the Federal Register(65
FR 48185) inviting comments relating to
the treatment of U.S. persons who transfer
property to foreign trusts that have one or
more U.S. beneficiaries. Comments re-
sponding to the notice of proposed rule-
making were received and a public hear-
ing was held on November 8, 2000. After
consideration of all of the comments, the
proposed regulations are adopted as re-
vised by this Treasury decision. The revi-
sions are discussed below.
Explanation of Provisions
Comments Relating to §1.679–2: Trusts
Treated as Having a U.S. Beneficiary
A.Benefit to a U.S. Person
Under §1.679–2(a)(1) of the proposed
regulations, a foreign trust that has re-
ceived property from a U.S. transferor is
treated as having a U.S. beneficiary un-
less during the taxable year of the U.S.
transferor both of the following tests are
satisfied: (i) no part of the income or cor-
pus of the trust may be paid or accumu-
lated to or for the benefit of, either di-
rectly or indirectly, a U.S. person; and (ii)
if the trust is terminated at any time dur-
ing the taxable year, no part of the income
or corpus of the trust could be paid to or
for the benefit of, either directly or indi-
rectly, a U.S. person.
Section 1.679–2(a)(2)(i) of the pro-
posed regulations provides that, for pur-
poses of applying these tests, income or
corpus is considered to be paid or accu-
mulated to or for the benefit of a U.S. per-
son 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
2001–32 I.R.B.101August 6, 2001

August 6, 20011022001–32 I.R.B.
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 provide a nar-
row exception with respect to certain con-
tingent beneficiaries whose interests in
the trust are so remote as to be negligible.
One commenter suggests that
§1.679–2(a)(2) of the proposed regulations
(specifically, Example 5of §1.679–
2(a)(2)(iii)) is overly broad. The com-
menter suggests that a foreign trust should
not be treated as having a U.S. beneficiary
where the trust’s only asset consists of
stock of a foreign corporation, the trust will
terminate one year after the death of a U.S.
transferor, whereupon distributions of cor-
pus or income may be made to a U.S. per-
son, and the trust receives no income from
the corporation during the term of its exis-
tence. The commenter argues that because
the foreign trust receives no income from
the foreign corporation during the trust’s
existence, the U.S. person’s status as a ben-
eficiary provides the U.S. person with noth-
ing of value and, therefore, the foreign trust
should not be treated as having a U.S. bene-
ficiary.
The commenter’s argument overlooks
the clear legislative intent underlying sec-
tion 679 that a foreign trust will be treated
as having a U.S. beneficiary even in situa-
tions where there exists only the possibility
of distribution of income or corpus to or the
accumulation of corpus for the benefit of a
U.S. person. H.R. Rep. No. 658, 94th
Cong., 1st Sess., at 210 (1975). The fact
that a foreign trust holds an asset, such as
the stock of a foreign corporation, that pro-
duces no income during the term of the
trust’s existence is of no import for pur-
poses of determining whether the trust will
be treated as having a U.S. beneficiary. The
determining factor in such a situation is that
the trust holds corpus for the future benefit
of a U.S. person, regardless of whether the
corpus consists of stock with respect to
which no dividends have been paid or some
other asset that produces no current in-
come. Accordingly, the final regulations
adopt the rule of the proposed regulations.
B.Records and Documents
Section 1.679–2(a)(4) of the proposed
regulations provides that a trust may be
treated as having a U.S. beneficiary by
reference, inter alia, to written and oral
agreements and understandings not con-
tained in the trust document, and to
whether the terms of the trust instrument
are actually or reasonably expected to be
disregarded by the parties to the trust. A
commenter states that this rule creates
new and unclear rules for purposes of de-
termining whether an arrangement consti-
tutes a trust for Federal income tax pur-
poses.
The determination as to whether an
arrangement will be treated as a trust is
made pursuant to the rules set forth in
§301.7701–4 of the regulations. The reg-
ulations under section 679 address only
the determination of whether a foreign
trust will be treated as having a U.S. bene-
ficiary. The final regulations are not in-
tended to provide factors in addition to
the rules of §301.7701–4 for purposes of
determining whether an arrangement con-
stitutes a trust for federal income tax pur-
poses.
C.Trusts Acquiring a U.S. Beneficiary
The proposed regulations anticipate sit-
uations where the beneficiary of a foreign
trust may change. Section 1.679–2(c)(1)
of the proposed regulations provides that
if a foreign trust is not treated as having a
U.S. beneficiary (within the meaning of
§1.679–2(a)) but subsequently is treated
as having 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 undistributed net income, as de-
fined 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.
A commenter suggests that the rule
treating the U.S. transferor as having ad-
ditional income in the first year the for-
eign trust acquires the U.S. beneficiary
exceeds the authority of section 679, not-
ing that in most cases the transferor will
not have received any income from the
trust.
Section 1.679–2(c)(1) of the proposed
regulations follows closely the legislative
history underlying section 679 regarding
the U.S. transferor’s recognition of addi-
tional income. The legislative history pro-
vides that the amount of the additional in-
come shall be the foreign trust’s undistrib-
uted net income, i.e., accumulated income
that would be taxable to a beneficiary
upon distribution, as of the close of the
immediately preceding taxable year. H.R.
Rep. No. 658, 94th Cong., 1st Sess., at
211, Fn. 13 (1975). In short, the legislative
history provides that the U.S. transferor’s
additional income shall receive the same
treatment as accumulation distributions to
beneficiaries of a foreign trust. Accumu-
lated income distributions to beneficiaries
of foreign trusts are subject to the interest
charge provided for in section 668. Ac-
cordingly, the provision for additional in-
come in §1.679–2(c)(1) of the final regu-
lations, as well as the application of the
interest charge provided for in section
668, are necessary to carry out the legisla-
tive purpose of section 679. The rule of
the proposed regulations is adopted by the
final regulations without change.
Comments Relating to §1.679–3: Trans-
fers
A.Indirect Transfers - Principal Pur-
pose of Tax Avoidance
Section 1.679–3(a) of the proposed reg-
ulations broadly defines the term transfer
as any direct, indirect, or constructive
transfer by a U.S. person to a foreign trust.
Section 1.679–3(c) of the proposed regu-
lations provides rules for determining
when there is an indirect transfer. Under
§1.679–3(c)(1) of the proposed regula-
tions, 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 indirect transfer by a U.S.
person if the transfer is made pursuant to a
plan one of the principal purposes of
which is the avoidance of U.S. tax. Sec-
tion 1.679–3(c)(2) of the proposed regula-
tions deems a transfer to have been made
pursuant to such a plan if certain condi-
tions are present.
The deemed-principal-purpose test of
§1.679–3(c)(2) of the proposed regula-
tions is similar to the deemed-principal-
purpose test in §1.643(h)–1(a) of the regu-
lations, which concerns distributions from
foreign trusts to U.S. persons through in-
termediaries, except that the presumption
in the proposed regulations applies with-
out regard to the period of time between

2001–32 I.R.B.103August 6, 2001
the transfer from the U.S. person to the in-
termediary and from the intermediary to
the foreign trust. In contrast, the deemed-
principal-purpose test of §1.643(h)–
1(a)(2)(ii) applies only if property is dis-
tributed to the U.S. person during the pe-
riod beginning 24 months before and end-
ing 24 months after the intermediary’s
receipt of property from the foreign trust.
A commenter suggests that a similar time
limit should be provided in §1.679–3(c)(2)
with respect to outbound transfers.
In the context of section 643(h), Trea-
sury and the IRS weighed the potential for
abuse in that area against the possible ad-
verse effect that the deemed-principal-pur-
pose test could have on legitimate transac-
tions, and concluded that a time limitation
in §1.643(h)–1(a)(2) was appropriate.
However, Treasury and the IRS believe
the potential for abuse is greater in the
case of outbound transfers to foreign trusts
than in the case of inbound trust distribu-
tions to U.S. beneficiaries. Congress en-
acted section 679 in order to prevent the
tax-free accumulation of income earned
by foreign trusts over long periods of time
that provided foreign trusts with an un-
warranted advantage over domestic trusts.
H.R. Rep. No. 658, 94th Cong., 1st Sess.,
at 207 (1975). Providing for a time limita-
tion to the application of §1.679–3(c)
could allow for easy circumvention of
Congress’ purpose in enacting section
679. Treasury and the IRS recognize that
some transfers that were not intended to
avoid U.S. tax may come within the pre-
sumption in the absence of a specific time
limit. However, under such circumstances
§1.679–3(c)(2)(ii) provides taxpayers with
a way to rebut the application of the
deemed-principal-purpose test. Therefore,
the final regulations do not include a time
limitation to the application of
§1.679–3(c)(2)(i).
B.Indirect Transfers - Corporate Distri-
butions
One commenter asked about the appli-
cation of the indirect transfer rules set
forth in §1.679–3(c) of the proposed regu-
lations to successive corporate distribu-
tions up a chain of wholly-owned corpo-
rations to an ultimate shareholder that is a
foreign trust. The commenter expressed
concern that, if one of the lower-tier cor-
porations were a domestic corporation,
§1.679–3(c) of the proposed regulations
could potentially treat the distributions as
an indirect transfer from the domestic cor-
poration to the foreign trust that would be
subject to the general rule of §1.679–1.
Even if the distributions were charac-
terized as an indirect transfer from a do-
mestic corporation to a foreign trust under
§1.679–3(c), the indirect transfer would
generally be treated as a transfer for fair
market value under the final sentence of
§1.679–4(b)(1) and would therefore be
excepted from the general rule of
§1.679–1 pursuant to §1.679–4(a)(4).
Therefore, no special rules have been
added to the final regulations to address
this situation.
C.Transfers to Entities Owned by For-
eign Trusts
Section 1.679–3(f) of the proposed reg-
ulations provides specific rules regarding
transfers by a U.S. person to an entity
owned by a foreign trust if the U.S. per-
son is related to the foreign trust. The
transfer is treated as a transfer from the
U.S. person to the foreign trust, followed
by a transfer from the foreign trust to the
entity owned by the foreign trust, unless
the U.S. person demonstrates to the satis-
faction 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. A commenter noted po-
tential conflicts with this rule and judicial
doctrines concerning constructive corpo-
rate distributions.
Section 1.679–3(f) is not intended to
override judicial doctrines concerning
constructive corporate distributions. For
example, if judicial doctrines would
recharacterize a direct transfer of property
by a domestic corporation to an entity
owned by a foreign trust as a constructive
dividend of the property to the domestic
corporation’s shareholder followed by a
constructive transfer of the property by
that shareholder to the foreign trust and a
constructive contribution by the foreign
trust to the entity owned by the foreign
trust, then those judicial doctrines would
apply (and §1.679–3(f) would not apply)
to the transaction.
Comments Relating to §1.679–4: Excep-
tions to General Rule - Transfers to
Trusts Described in Section 501(c)(3)
Section 1.679–4(a)(3) of the proposed
regulations provides an exception to the
general rule of §1.679–1 for transfers to
a foreign trust that has already received a
ruling or determination letter from the
IRS recognizing the trust’s tax exempt
status under section 501(c)(3), provided
that the letter has been neither revoked
nor modified. Commenters questioned
the requirement that a foreign trust ob-
tain a ruling or determination letter from
the IRS recognizing the trust’s tax ex-
empt status under section 501(c)(3).
They assert that the requirement may in-
terfere with a U.S. person’s ability to
make contributions to a foreign charita-
ble entity that may not be familiar with
U.S. tax laws and may not have any rea-
son to obtain a determination letter from
the IRS. They suggest that the final reg-
ulations require only that the U.S. trans-
feror disclose to the IRS, at such time
and in such manner as the IRS may pro-
vide, that the transfer has been made and
that the transferor believes the transferee
is an organization described in section
501(c)(3).
In response to commenters’ concerns,
the final regulations eliminate the require-
ment that the foreign trust receive a ruling
or determination letter from the IRS rec-
ognizing the trust’s tax-exempt status
under section 501(c)(3). The final regula-
tions provide instead that the general rule
of §1.679–1 does not apply to any transfer
of property to a foreign trust that is de-
scribed in section 501(c)(3). However,
taxpayers should be aware that, under No-
tice 97–34 (1997–1 C.B. 422), the U.S.
transferor has a reporting obligation on
Form 3520 with respect to such a transfer,
unless the foreign trust has received a rul-
ing or determination letter from the IRS
recognizing the trust’s tax exempt status
under section 501(c)(3). Moreover, if the
IRS subsequently determines that the for-
eign trust is not described in section
501(c)(3), the exception will not apply for
any taxable year of the U.S. transferor,
and the U.S. transferor may be subject to
interest and penalties, if applicable.
Clarification Regarding Section 958
The final regulations clarify the lan-
guage of §1.958–1(b) of the proposed
regulations with respect to persons who
are treated as owners under sections 671
through 679 of any portion of a foreign
trust that includes the stock of a foreign
corporation.

Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions and, because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small busi-
nesses.
Drafting Information
The principal author of these final reg-
ulations is Willard W. Yates of the Office
of Associate Chief Counsel (Interna-
tional). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
* * * * *
Adoption of Amendments to the Regu-
lations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read in part as fol-
lows:
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 1.679–0, 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 Own-
ers” to read as follows:
§1.679–0 Outline of major topics.
This section lists the major paragraphs
contained in §§1.679–1 through 1.679–7
as follows:
§1.679–1 U.S. transferor treated as
owner of foreign trust.
(a) In general.
(b) Interaction with sections 673 through
678.
(c) Definitions.
(1) U.S. transferor.
(2) U.S. person.
(3) Foreign trust.
(4) Property.
(5) Related person.
(6) Obligation.
(d) Examples.
§1.679–2 Trusts treated as having a U.S.
beneficiary.
(a) Existence of U.S. beneficiary.
(1) In general.
(2) Benefit to a U.S. person.
(i) In general.
(ii) Certain unexpected beneficiaries.
(iii) Examples.
(3) Changes in beneficiary’s status.
(i) In general.
(ii) Examples.
(4) General rules.
(i) Records and documents.
(ii) Additional factors.
(iii) Examples.
(b) Indirect U.S. beneficiaries.
(1) Certain foreign entities.
(2) Other indirect beneficiaries.
(3) Examples.
(c) Treatment of U.S. transferor upon for-
eign trust’s acquisition or loss of U.S.
beneficiary.
(1) Trusts acquiring a U.S. beneficiary.
(2) Trusts ceasing to have a U.S. benefi-
ciary.
(3) Examples.
§1.679–3 Transfers.
(a) In general.
(b) Transfers by certain trusts.
(1) In general.
(2) Example.
(c) Indirect transfers.
(1) Principal purpose of tax avoidance.
(2) Principal purpose of tax avoidance
deemed to exist.
(3) Effect of disregarding intermediary.
(i) In general.
(ii) Special rule.
(iii) Effect on intermediary.
(4) Related parties.
(5) Examples.
(d) Constructive transfers.
(1) In general.
(2) Examples.
(e) Guarantee of trust obligations.
(1) In general.
(2) Amount transferred.
(3) Principal repayments.
(4) Guarantee.
(5) Examples.
(f) Transfers to entities owned by a for-
eign trust.
(1) General rule.
(2) Examples.
§1.679–4 Exceptions to general rule.
(a) In general.
(b) Transfers for fair market value.
(1) In general.
(2) Special rule.
(i) Transfers for partial consideration.
(ii) Example.
(c) Certain obligations not taken into ac-
count.
(d) Qualified obligations.
(1) In general.
(2) Additional loans.
(3) Obligations that cease to be qualified.
(4) Transfers resulting from failed quali-
fied obligations.
(5) Renegotiated loans.
(6) Principal repayments.
(7) Examples.
§1.679–5 Pre-immigration trusts.
(a) In general.
(b) Special rules.
(1) Change in grantor trust status.
(2) Treatment of undistributed income.
(c) Examples.
§1.679–6 Outbound migrations of do-
mestic trusts.
(a) In general.
(b) Amount deemed transferred.
August 6, 20011042001–32 I.R.B.

(c) Example.
§1.679–7 Effective dates.
(a) In general.
(b) Special rules.
§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.
See also §301.7701–7 of this chapter.
(4) Property. The term propertymeans
any property including 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
evidence of indebtedness, and, to the ex-
tent not previously described, any annuity
contract.
(d) Examples. The following examples
illustrate the rules of paragraph (a) of this
section. In these examples, Ais a resident
alien, Bis A’s son, who is a resident alien,
Cis A’s father, who is a resident alien, D
is A’s uncle, who is a nonresident alien,
and FTis a foreign trust. The examples
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-
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 (2) of this section. In these ex-
amples, 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 fol-
lows:
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 instrument further provides that in 2011,
the trust will terminate and the trustee may distribute
the trust assets to either or both of Band C, in the
trustee’s discretion. If the trust terminates unexpect-
edly prior to 2011, all trust assets must be distributed
to C. Because it is possible that income may be ac-
cumulated in each year, and that the accumulated in-
come ultimately may be distributed to B, a U.S. per-
son, 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 dis-
2001–32 I.R.B.105August 6, 2001

tributions 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 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. 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
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 examples
illustrate the rules of paragraph (a)(3) of
this section. In these examples, Ais a res-
ident alien, Bis A’s son, who is a resident
alien, Cis A’s daughter, who is a nonresi-
dent 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
August 6, 20011062001–32 I.R.B.

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. 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 by A.
However, 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 because it would not have been the first time C
became 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, 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. 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 examples
illustrate the rules of this paragraph (b).
Unless otherwise noted, Ais a resident
alien. Bis A’s son and is a resident alien.
FTis a foreign trust. The examples are as
follows:
Example 1. Trust benefitting foreign
corporation. Atransfers property to FT. The bene-
ficiary of FTis FC, a foreign corporation. FChas
outstanding solely 100 shares of common stock. B
owns 49 shares of the FCstock and FC2, also a for-
eign corporation, owns the remaining 51 shares.
FC2has outstanding solely 100 shares of common
stock. Bowns 49 shares of FC2and nonresident
alien individuals 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. benefi-
ciary.
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-
2001–32 I.R.B.107August 6, 2001

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. benefi-
ciary. 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 beginning
in the first taxable year following the last
taxable year of the U.S. transferor during
which the trust was treated as having a
U.S. beneficiary (unless the U.S. transferor
is treated as an owner thereof pursuant to
sections 673 through 677). The U.S. trans-
feror is treated as making a transfer of
property to the foreign trust on the first day
of the first taxable year following 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 prop-
erty 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 applied. For rules regarding
the recognition of gain on transfers to for-
eign trusts, see section 684.
(3) Examples. The rules of this para-
graph (c) are illustrated by the following
examples. Ais a resident alien, Bis A’s
son, and FTis a foreign trust. The exam-
ples 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, B
is a nonresident alien. Ais not treated as the owner
of any portion of FTunder sections 673 through
677. FTaccumulates 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. Assume paragraph (a)(4) of this sec-
tion is not applicable under the facts and circum-
stances.
(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 DTand 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 Commis-
sioner that—
(A) The intermediary has a relationship
with a beneficiary of the foreign trust that
establishes a reasonable basis for con-
cluding 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 prop-
erty is treated as transferred to the foreign
trust by the U.S. person in the year the
property is transferred, or made avail-
able, by the intermediary to the foreign
trust. The fair market value of the prop-
erty 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-
August 6, 20011082001–32 I.R.B.

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
section, 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” in-
stead 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 additional
1000X to the foreign trust. Pursuant to a plan with a
principal purpose of avoiding the application of sec-
tion 679, A transfers 1000X to I, a foreign person. I
subsequently 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, FB
loans 450X to FT. Ais unable to demonstrate to the
satisfaction of the Commissioner, pursuant to para-
graph (c)(2) of this section, that FBhas a relation-
ship with FTthat establishes a reasonable basis for
concluding that FBwould make a loan to FTor that
FBacted independently of Ain making the loan.
Under paragraph (c)(1) of this section, Ais deemed
to have transferred 450X directly to FTon January
1, 2005. Under paragraph (c)(3) of this section, FB
is treated as an agent of A. For possible exceptions
with respect to qualified obligations of the trust, and
the treatment of principal repayments with respect to
obligations of the trust that are not qualified obliga-
tions, 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 in-
cludes any assumption or satisfaction of a
foreign 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 ex-
amples 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
corporation, 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 re-
spect to the trust guarantees (within the
meaning of paragraph (e)(4) of this sec-
tion) 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 guar-
antee in an amount determined under para-
graph (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 ad-
justed issue price of the obligation (within
the meaning of §1.1275–1(b)) plus any
accrued but unpaid qualified stated inter-
est (within the meaning of §1.1273–1(c)).
(3) Principal repayments. If a U.S.
person is treated under this paragraph (e)
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, as-
sures, 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 viabil-
ity; and
(iii) Includes an arrangement reflected
in a comfort letter, regardless of whether
the arrangement gives rise to a legally en-
forceable 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 meaning of
§1.679–1(c)(5). The result is the same as in Exam-
ple 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.
2001–32 I.R.B.109August 6, 2001

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. Transfer treated as transfer to trust.
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. Atransfers property di-
rectly to FC. Because FTis the sole shareholder of
FC, Ais unable to demonstrate to the satisfaction of
the Commissioner that the transfer is properly attrib-
utable to A’s ownership interest in FC. Accordingly,
under this paragraph (f), Ais treated as having trans-
ferred 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 transferred directly to FT.
Under §1.367(a)–1T(c)(4)(ii), the transfer of prop-
erty by FTto FCis treated as a transfer of the prop-
erty by Ato FC.
Example 2. Transfer treated as transfer to trust.
The facts are the same as in Example 1, except that
FTis not treated as having a U.S. beneficiary
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 pur-
poses of §1.679–1(a). For rules regarding the
recognition of gain on the transfer, see section
684.
Example 3. Transfer not treated as transfer to
trust. Acreates and funds FT. FChas outstanding
solely 100 shares of common stock. FTowns 50
shares of FCstock, and Aowns the remaining 50
shares. On July 1, 2001, FTand Aeach transfer
1000X to FC. Ais able to demonstrate to the satis-
faction 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 trans-
feror;
(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 described in section 501(c)(3) (with-
out regard to the requirements of section
508(a)); 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 in-
terest in the trust is not property received
from the trust. For purposes of this sec-
tion, a distribution to a trust with respect
to an interest held by such trust in an en-
tity other than a trust or an interest in cer-
tain 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
transferred, 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 il-
lustrated 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 re-
spect to the foreign trust is for fair market
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 ap-
plicable Federal rate in effect under sec-
tion 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 pe-
riod 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
(this 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 for the year of the
transfer 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 in-
terest payments, on Form 3520 for every
year that the loan is outstanding.
(2) Additional loans. If, while the origi-
nal 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 ob-
tains 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 de-
termining whether the term of the original
obligation exceeds the specified 5-year
term. In addition, a series of obligations
issued and repaid by the trust (or a person
August 6, 20011102001–32 I.R.B.

related to the trust) is treated as a single
obligation if the transactions giving rise to
the obligations are structured with a prin-
cipal purpose to avoid the application of
this provision.
(3) Obligations that cease to be quali-
fied. If an obligation treated as a qualified
obligation subsequently fails to be a quali-
fied 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 trans-
fer 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 in-
terest (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
extended 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 obligation.
The subsequent obligation is separately
tested to determine if it is a qualified oblig-
ation.
(4) Transfers resulting from failed quali-
fied obligations. In general, a transfer re-
sulting from a failed qualified obligation is
deemed to occur on the date of the subse-
quent event that causes the obligation to no
longer be a qualified obligation. However,
based on all of the facts and circumstances,
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 obliga-
tion was issued, the transferor 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 transfer of
funds to a foreign trust after such renego-
tiation, extension, 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 de-
termining the portion of the trust attribut-
able to the property transferred.
(7) Examples. The rules of this para-
graph (d) are illustrated by the following
examples. In the examples, Aand Bare
U.S. residents 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 re-
spect 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 fair market value of the
obligation received by Bis taken into account for
purposes of determining whether B’s transfer is eli-
gible for the fair market value exception of para-
graph (a)(4) of this section, even though the obliga-
tion 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 ex-
ception of paragraph (a)(4) of this section. Accord-
ingly, §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 obliga-
tion and its adjusted issue price is 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.
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
paragraph (d)(1) of this section. Ais a related per-
son (as defined in §1.679–1(c)(5)) with respect to
FT. Two years later, Atransfers an additional
2000X to FTand receives another obligation from
FTthat has a maturity date four years from the
date that the second obligation was issued. Under
paragraph (d)(2) of this section, the original oblig-
ation 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 ad-
justed issue price (within the meaning of
§1.1275–1(b)) plus any accrued but unpaid quali-
fied stated interest (within the meaning of
§1.1273–1(c)) as of the date of issuance of the sec-
ond 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 directly or in-
directly transferring property to a foreign
trust (the original transfer), the individual
is treated as having transferred to the trust
on the residency starting date an amount
equal to the portion of the trust attribut-
able to the property transferred by the in-
dividual 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
treated 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. Undis-
tributed net income for periods before the
individual’s residency starting date is
taken into account only for purposes of
determining the amount of the property
deemed transferred.
2001–32 I.R.B.111August 6, 2001

(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 in-
dividual, 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, in-
cludes the undistributed net income of the trust, as
defined in section 665(a), attributable to the property
originally transferred.
Example 2. Nonresident alien loses power to
revest property. On January 1, 2002, A, a nonresident
alien individual, transfers property to a foreign trust,
FT. 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 FTare
amended to remove A’s power to revest in himself
title to the property transferred, and Aceases to be
treated as the owner of FT. On January 1, 2010, Abe-
comes a resident of the United States. Under para-
graph (b)(1) of this section, for purposes of paragraph
(a) of this section Ais treated as having originally
transferred the property to FTon January 1, 2008.
Because this date is within five years 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 undistributed net in-
come of the trust, as defined in section 665(a), attrib-
utable to the property deemed transferred.
§1.679–6 Outbound migrations of do-
mestic 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 prop-
erty to a foreign trust on the date the do-
mestic 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 in-
cludes undistributed net income, as de-
fined in section 665(a), attributable to the
property previously transferred. Undis-
tributed 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 property
transferred by the U.S. person.
(c) Example. The following example
illustrates the rules of this section. For
purposes of the example, Ais a resident
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)(30)(E) and §301.7701–
7(d)(ii)(A) of this chapter, DTbecomes a foreign
trust on January 1, 2003. Under paragraph (a) of
this section, Ais treated as transferring property to a
foreign trust on January 1, 2003. Under paragraph
(b) 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 deemed trans-
ferred.
§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 obliga-
tion issued after February 6, 1995,
whether or not in accordance with a pre-
existing arrangement or understanding.
For purposes of the rules of §1.679–4(c)
and (d), if an obligation issued on or be-
fore February 6, 1995, is modified after
that date, and the modification is a signifi-
cant 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 Au-
gust 7, 2000.
Par. 3. In §1.958–1, the first sentence
of paragraph (b) is revised to read as fol-
lows:
§1.958–1 Direct and indirect ownership
of stock.
* * * * *
(b) * * * For purposes of paragraph
(a)(2) of this section, stock owned, di-
rectly or indirectly, by or for a foreign
corporation, foreign partnership, foreign
trust (within the meaning of section
7701(a)(31)) described in sections 671
through 679, or other foreign trust or for-
eign estate (within the meaning of section
7701(a)(31)) shall be considered as being
owned proportionately by its sharehold-
ers, partners, grantors or other persons
treated as owners under sections 671
through 679 of any portion of the trust
that includes the stock, or beneficiaries,
respectively. * * *
* * * * *
§1.958–2 [Amended]
Par. 4. In §1.958–2, paragraph
(c)(1)(ii)(b) is amended by removing the
language “678” and adding “679” in its
place.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved July 9, 2001.
Mark Weinberger,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on July
19, 2001, 8:45 a.m., and published in the issue of the
Federal Register for July 20, 2001, 66 F.R. 37886)
Section 684.—Recognition of
Gain on Certain Transfers to
Certain Foreign Trusts and Es-
tates
26 CFR 1.684–1: Recognition of gain on transfers
to certain foreign trusts and estates.
T.D. 8956
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Recognition of Gain on Certain
Transfers to Certain Foreign
Trusts and Estates
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations under section 684 of the
Internal Revenue Code relating to recog-
August 6, 20011122001–32 I.R.B.

nition of gain on certain transfers to cer-
tain foreign trusts and estates. The regu-
lations affect United States persons who
transfer property to foreign trusts and es-
tates.
DATES: Effective Date: These regula-
tions are effective July 20, 2001.
Applicability Date: These regulations
are applicable to transfers of property to
foreign trusts and foreign estates after Au-
gust 7, 2000.
FOR FURTHER INFORMATION CON-
TACT: Karen A. Rennie-Quarrie, (202)
622-3880 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tions relating to the Income Tax Regula-
tions (CFR part 1) under section 684 of
the Internal Revenue Code (Code). On
August 7, 2000, Treasury and the IRS
published a notice of proposed rulemak-
ing (REG–108522–00, 2000–34 I.R.B.
187) in the Federal Register(65 FR
48198) under section 684 of the Code re-
lating to gain recognition on transfers of
property by U.S. persons to foreign trusts
and estates. Comments responding to the
notice of proposed rulemaking were re-
ceived and a public hearing was held on
November 8, 2000. After consideration
of all comments, the proposed regulations
are adopted as final regulations as revised
by this Treasury decision.
Explanation of Provisions
I.Comments and Changes to §1.684–1:
Recognition of Gain on Transfers to Cer-
tain Foreign Trusts and Estates
Under the proposed regulations, a U.S.
person who transfers property to a foreign
trust or estate generally must recognize
gain immediately even if deferral might
otherwise be permitted under another pro-
vision of the Code.
One commenter questioned the author-
ity for the conclusion in §1.684–1(d) Ex-
ample 4that a U.S. person must recognize
gain immediately upon the transfer of ap-
preciated property to a foreign trust in ex-
change for a private annuity. The general
rule in section 684(a) provides, in part,
that the transfer to the foreign trust is
treated as a sale or exchange for an
amount equal to the fair market value of
the property transferred and the transferor
must recognize the gain in the property,
except as provided in regulations. The
language of section 684(a) does not pro-
vide for any deferral of this gain. More-
over, the legislative history of former sec-
tion 1491 (the predecessor of section 684
regarding transfers of property by U.S.
persons to foreign trusts) makes it clear
that Congress did not look favorably upon
deferral in the context of transfers to for-
eign trusts in exchange for private annu-
ities: “The committee believes that any
policy in favor of permitting deferral of
tax in private annuity transactions should
not apply to a private annuity transaction
with a foreign trust.” S. Rep. No. 94–938,
at 217, n.5 (1976). Therefore, Treasury
and the IRS do not believe it would be ap-
propriate to adopt regulations that would
permit deferral in such a case. The final
regulations retain Example 4without
modification.
II.Comments and Changes to §1.684–2:
Transfers
The proposed regulations define the
term transfer broadly to mean any direct,
indirect, or constructive transfer. Section
1.684–2(e) of the proposed regulations
provides that if any portion of a foreign
trust is treated as owned by a U.S. person
and such portion ceases to be treated as
owned by such U.S. person, the U.S. per-
son is treated as having transferred the as-
sets of such portion to a foreign trust im-
mediately before the trust is no longer
treated as owned by the U.S. person. Sec-
tion 1.684–2(e)(2) Example 2illustrates
this rule in the case of the death of the
grantor.
One commenter questioned the author-
ity for the position that death is a transfer
to which section 684 applies. Section
684(a) expressly applies to “anytransfer
of property by a United States person to a
foreign estate or trust” (emphasis added).
Section 679 also generally applies to
transfers of property by U.S. persons to
foreign trusts. In the case of section 679,
however, section 679(a)(2)(A) specifi-
cally excepts transfers by reason of death
from the application of the general rule of
section 679. This exception implies that
Congress believed that, unless otherwise
excepted, a transfer by reason of death
would be a transfer to which section 679
applied. Because Congress provided no
exception in section 684 for transfers by
reason of death, it follows that section
684 applies to such transfers. Additional
support for this conclusion is found in the
information reporting rules in section
6048(a)(3)(A)(ii), which provides that a
“reportable event” includes “the transfer
of any money or property (directly or in-
directly) to a foreign trust by a United
States person, including a transfer by rea-
son of death” (emphasis added). Al-
though section 684 generally applies to
transfers by reason of death, §1.684–3(c)
provides an exception to the general rule
of gain recognition in the case of certain
transfers at death.
One commenter requested guidance
concerning a transfer of property by a do-
mestic trust (that is not treated as owned
by another person) to a foreign trust as a
result of the testamentary exercise of a
limited power of appointment with re-
spect to the domestic trust. Treasury and
the IRS believe that, under general princi-
ples regarding limited powers of appoint-
ment, the domestic trust, and not the
holder of the limited power of appoint-
ment, is the transferor of the property.
Accordingly, the domestic trust must rec-
ognize gain under the general rule of
§1.684–1(a) unless an exception applies.
The final regulations do not include any
special rules for such transfers.
One commenter asked about the inter-
action of §1.684–2(d) and §1.684–2(e) in
the context of an actual transfer of prop-
erty from a foreign trust that is treated as
owned by a U.S. person to either a for-
eign charitable organization or a U.S.
charity. Under §1.684–2(d) of the pro-
posed regulations, 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. Under
§1.684–2(e) of the proposed regulations,
if a portion of a foreign trust that is treated
as owned by a U.S. person ceases to be
treated as owned by the U.S. person, the
U.S. person is treated as having trans-
ferred the assets of that portion of the trust
to a foreign trust immediately before such
portion is no longer treated as owned by
the U.S. person.
The commenter noted that §1.684–2(e)
of the proposed regulation could be read
to apply in situations where a portion of a
2001–32 I.R.B.113August 6, 2001

foreign trust ceases to be treated as owned
by a U.S. person because of an actual
transfer of property from the trust. The
final regulations clarify that §1.684–2(e)
does not apply (and that §1.684–2(d) may
apply) when any portion of a trust ceases
to be owned by a U.S. person by reason of
an actual transfer of property from the
trust. As a result, the general rule of gain
recognition under §1.684–1(a) would not
apply to an actual transfer by a foreign
trust that is treated as owned by a U.S.
person to a foreign charitable trust that
meets the requirements of §1.684–3(b), or
to a U.S. charity, even if the transfer
causes the portion of the trust to cease to
be owned by the U.S. person.
III. Comments and Changes to
§1.684–3: Exceptions to the General
Rule of Gain Recognition
Section 1.684–3(a) of the proposed
regulations provides that a U.S. person
who transfers property to a foreign trust is
not required to recognize gain on the
transfer to the extent that any person is
treated as the owner of the trust under sec-
tion 671. One commenter questioned
whether the term any personincludes for-
eign persons. Although not specifically
addressed in the final regulations, it is un-
derstood that the term any personin-
cludes foreign as well as U.S. persons.
Section 1.684–3(b) of the proposed reg-
ulations provides an exception for transfers
to a foreign trust that has already received
a ruling or determination letter from the
IRS recognizing the trust’s tax exempt sta-
tus under section 501(c)(3), provided that
the letter has been neither revoked nor
modified. Commenters questioned the re-
quirement that a foreign trust obtain a rul-
ing or determination letter from the IRS
recognizing the trust’s tax exempt status
under section 501(c)(3). They assert that
the requirement may interfere with a U.S.
person’s ability to make contributions to a
foreign charitable entity that may not be fa-
miliar with U.S. tax laws and may not have
any reason to obtain a determination letter
from the IRS. They suggest that the final
regulations require only that the U.S. trans-
feror disclose to the IRS, at such time and
in such manner as the IRS may provide,
that the transfer has been made and that the
U.S. transferor believes the transferee is an
organization described in section
501(c)(3).
In response to commenters’ concerns,
the final regulations eliminate the require-
ment that the foreign trust receive a ruling
or determination letter from the IRS rec-
ognizing the trust’s tax exempt status
under section 501(c)(3). The final regula-
tions provide, instead, that the general
rule of gain recognition does not apply to
any transfer of property to a foreign trust
that is described in section 501(c)(3)
(without regard to the requirements of
section 508(a)). However, taxpayers
should be aware that, under Notice 97–34
(1997–1 C.B. 422), the U.S. transferor
has a reporting obligation on Form 3520
with respect to such a transfer, unless the
foreign trust has received a ruling or de-
termination letter from the IRS recogniz-
ing the trust’s tax exempt status under
section 501(c)(3). Moreover, if the IRS
subsequently determines that the foreign
trust is not described in section 501(c)(3),
the exception will not apply and the U.S.
transferor will be required to recognize
gain as of the time of the original transfer,
and may be subject to interest and penal-
ties, if applicable.
Section 1.684–3(c) of the proposed reg-
ulations provides an exception for trans-
fers of property by reason of the death of
the U.S. transferor if both of the following
requirements are satisfied: (1) the property
is included in the U.S. transferor’s gross
estate for Federal estate tax purposes, and
(2) the basis of the property in the hands of
the foreign trust is determined under sec-
tion 1014(a). One commenter questioned
whether section 684 would apply in the
case of an individual who is a U.S. person
for income tax purposes, but a non-domi-
ciliary for estate tax purposes, with the re-
sult that the property of the individual
would be entitled to a step-up in basis, but
would not be included in the individual’s
gross estate. The final regulations elimi-
nate the requirement that the property be
included in the U.S. transferor’s gross es-
tate and allow the exception to apply as
long as the basis of the property in the
hands of the foreign trust is determined
under section 1014(a).
Another commenter requested that the
final regulations confirm that section
1032 applies to provide for nonrecogni-
tion of gain on issuer stock transferred to
a foreign trust. The commenter noted that
under former section 1491, no excise tax
was imposed on a transfer of stock by a
foreign corporation to a foreign trust if the
corporation was not required to recognize
gain on the transfer under section 1032.
See Notice 97–18 (1997–1 C.B. 389, Sec.
II.A.1). In response to this comment,
§1.684–3(e) of the final regulations pro-
vides a new exception for transfers of
stock (including treasury stock) by a do-
mestic corporation to a foreign trust if the
domestic corporation is not required to
recognize gain on the transfer under sec-
tion 1032.
Commenters also suggested that contri-
butions by U.S. persons to foreign com-
pensatory trusts described in sections
402(b), 404(a)(4), or 404A should be ex-
empt from gain recognition under section
684. Treasury and the IRS have consid-
ered the proposed exception but do not
believe it is consistent with the intended
purpose of section 684. Accordingly, the
final regulations do not include an excep-
tion for transfers to foreign compensatory
trusts. However, the exception for trans-
fers of stock to which section 1032 would
apply may be available in appropriate
cases for transfers of stock of a domestic
parent company to a foreign compen-
satory trust set up by a foreign subsidiary.
Another commenter requested an ex-
ception for transfers of life insurance con-
tracts to foreign trusts. The commenter
noted that the proceeds of life insurance
contracts do not generally give rise to any
taxable gain if held by a U.S. individual
or trust. Congress has recognized that life
insurance contracts might be used to ef-
fectuate inappropriate outbound transfers
of property. As part of the repeal of sec-
tion 1491 in 1997, Congress enacted sec-
tion 1035(c), which provides regulatory
authority to deny the nonrecognition
treatment given to exchanges of life insur-
ance contracts under section 1035(a)
where the exchange has the effect of
transferring property to any person other
than a U.S. person. Public Law 105–34,
§1131(b)[(c)](1). Because of the poten-
tial for abuse and the lack of a compelling
reason for creating an exception for off-
shore transfers of life insurance contracts,
Treasury and the IRS have concluded that
such an exception is not warranted.
IV. Comments and Changes to §1.684–4:
Outbound Migration of Domestic Trusts
Section 1.684–4 of the proposed regu-
lation provides that if a U.S. person trans-
August 6, 20011142001–32 I.R.B.

fers property to a domestic trust and, for
any reason, the domestic trust becomes a
foreign trust, the domestic trust will be
deemed to have transferred all of its assets
to a foreign trust and the domestic trust
must immediately recognize gain. The
proposed regulations do, however, incor-
porate the relief for inadvertent migra-
tions that is set forth in §301.7701–
7(d)(2).
One commenter suggested that the final
regulations should extend the inadvertent
migration rules of §301.7701–7(d)(2) to
apply to §301.7701–7(f), which deals
with the election by certain trusts to re-
main domestic trusts. Under §301.7701–
7(d)(2), in the event of an inadvertent
change in any person that has the power
to make a substantial decision of the trust
that would cause the domestic or foreign
residency of the trust to change (e.g., an
inadvertent change from a U.S. trustee to
a foreign trustee by reason of the U.S.
trustee’s death), the trust is allowed 12
months to make necessary changes to
avoid a change in the trust’s residency
(e.g., the replacement of the foreign suc-
cessor trustee with a U.S. successor
trustee). The commenter suggests that a
trust with an election in force under
§301.7701–7(d)(2) should be allowed a
similar amount of time to make necessary
changes if a U.S. trustee is inadvertently
replaced by a foreign trustee.
The final regulations do not include
such a rule. Under §301.7701–7(f), a
trust generally can elect to remain a do-
mestic trust if it was in existence on Au-
gust 20, 1996, and it was treated as a do-
mestic trust on August 19, 1996. Section
301.7701–7(f)(4)(ii) provides that such an
election terminates if subsequent changes
are made to the trust that result in the trust
no longer having any reasonable basis for
being treated as a domestic trust under
section 7701(a)(30) prior to its amend-
ment by the Small Business Job Protec-
tion Act of 1996 (SBJP Act), Pub. L.
104–188, 110 Stat. 1755. Whereas the
“control test” of section 7701(a)(30)
(E)(ii), as enacted by the SBJP Act, con-
tains a relatively bright-line test for pur-
poses of determining a trust’s status,
thereby necessitating the inadvertent mi-
gration rule of §301.7701–7(d)(2), the de-
termination of domestic or foreign status
prior to the SBJP Act was governed by
less objective criteria.
Under pre-SBJP Act law, an inadver-
tent short-term replacement of a domestic
trustee by a foreign trustee would not nec-
essarily cause a change in the trust’s sta-
tus. Accordingly, a specific inadvertent
migration rule for §301.7701–7(f) is not
appropriate. Instead, as set forth in
§301.7701–7(f)(4)(ii), an election under
§301.7701–7(f) will not be terminated un-
less the trust has no reasonable basis for
being treated as a domestic trust under
pre-SBJP Act law.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions and, because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small busi-
nesses.
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.
* * * * *
Adoption of Amendments to the Regu-
lations
Accordingly, 26 CFR part 1 is 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 trans-
fers 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.
transferormeans 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. See also
§301.7701–7 of this chapter.
(4) Foreign estate. Section 7701(a)
(31)(A) defines foreign estate.
(c) Reporting requirements. A U.S.
person who transfers property to a foreign
2001–32 I.R.B.115August 6, 2001

trust or foreign estate must comply with
the reporting requirements under section
6048.
(d) Examples. The following examples
illustrate the rules of this section. In all ex-
amples, Ais a U.S. person and FTis a for-
eign trust. The examples are as follows:
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. FT
has 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 sec-
tion, Arecognizes 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 sec-
tion, Arecognizes 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.
A’s adjusted 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 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.
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 Aduring the next four years. FT
is related to Aas defined in §1.679–1(c)(5). The
obligation 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 rec-
ognize gain equal to 900X immediately upon trans-
fer 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 Revenue Code. Section 1.684–3(d)
provides rules relating 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 examples
illustrate the rules of this paragraph (b).
In all examples, Ais a U.S. citizen, FTis
a foreign trust, and Iis 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 person
is treated as owning any portion of FT. In 2004, A
decides 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. Isubsequently 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, Itransfers the prop-
erty to FT. Ais unable to demonstrate to the satis-
faction of the Commissioner, under §1.679–3
(c)(2)(ii), that Iacted independently of Ain making
the transfer to FT. Under paragraph (b) of this sec-
tion and §1.679–3(c), Ais treated as having trans-
ferred the property to FT. Under paragraph (b) of
this section and §1.679–3(c)(3), Iis treated as an
agent of A, and the transfer is deemed to have been
made on January 1, 2007. Under §1.684–1(a), A
recognizes 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. Aretains 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) Deemed 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 (other than by reason of an
actual transfer of property from the trust
to which §1.684–2(d) applies), the U.S.
person shall be treated as having trans-
ferred, immediately before (but on the
same date that) 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 examples
illustrate the rules of this paragraph (e).
In all examples, Ais a U.S. citizen and FT
is 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 Ato
recognize gain at the time of the transfer.
(ii) On July 1, 2003, FTceases to have a U.S.
beneficiary as defined in §1.679–2(c) and as of that
date neither Anor any other person is treated as
owning any portion of FT. Pursuant to
§1.679–2(c)(2), if FTceases to be treated as having
a U.S. beneficiary, Awill cease to be treated as
August 6, 20011162001–32 I.R.B.

owner of FTbeginning on the first day of the first
taxable year following the last taxable year in which
there was a U.S. beneficiary. Thus, on January 1,
2004, Aceases to be treated as owner of FT. On that
date, the fair market value of the property is 1200X
and the adjusted basis is 350X. Under paragraph
(e)(1) of this section, Ais treated as having trans-
ferred the property to FTon January 1, 2004, 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, FT does 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 is de-
scribed in section 501(c)(3) (without re-
gard to the requirements of section
508(a)).
(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 the basis of the property in
the hands of the foreign trust is deter-
mined 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) Transfers to which section 1032 ap-
plies. The general rule of gain recogni-
tion under §1.684–1 shall not apply to any
transfer of stock (including treasury
stock) by a domestic corporation to a for-
eign trust if the domestic corporation is
not required to recognize gain on the
transfer under section 1032.
(f) 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.
(g) 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. Transfer of property at death: Basis
determined under section 1014(a).(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 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 because the
basis of the property in the hands of the foreign trust
is determined under section 1014(a).
Example 3. Transfer of property at death: Basis
not determined under section 1014(a).(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. Aretains
no power over FT, and FT’s basis in the property
transferred is not determined under section 1014(a).
Under §1.684–2(e)(1), Ais treated as having trans-
ferred the property to FTimmediately 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
FTas defined in §1.679–1(c)(5). 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 do-
mestic trusts.
(a) In general. If a U.S. person trans-
fers property to a domestic trust, and such
trust becomes a foreign trust, and neither
trust is treated as owned by any person
under subpart E of part I of subchapter J,
chapter 1 of the Internal Revenue Code,
the trust shall be treated for purposes of
this section as having transferred all of its
assets to a foreign trust and the trust is re-
quired 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 §301.7701–7(d)(2) of this chap-
ter, a trust may avoid the application of
this section by complying with the proce-
dures 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, and 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 U.S. citizens. Bis the trustee
of T. On January 1, 2001, while Ais still alive, Bre-
signs 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
2001–32 I.R.B.117August 6, 2001

§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. Tis not treated as owned by another
person. Bis the trustee of T. On January 1, 2001,
while Ais still alive, B resigns as trustee and Cbe-
comes successor trustee under the terms of the trust.
Pursuant to §301.7701–7(d) of this chapter, Tbe-
comes a foreign trust, FT. FThas no U.S. beneficia-
ries within the meaning of §1.679–2 and no person
is treated as owning any portion of FT. Tis required
to recognize gain of 600X on January 1, 2001. Para-
graph (c) of this section provides rules with respect
to an inadvertent migration of a domestic trust.
§1.684–5 Effective date
Sections 1.684–1 through 1.684–4
apply to transfers of property to foreign
trusts and foreign estates after August 7,
2000.
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved July 9, 2001.
Mark Weinberger,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on July
19, 2001, 8:45 a.m., and published in the issue of the
Federal Register for July 20, 2001, 66 F.R. 37897)
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 809.—Reduction in
Certain Deductions of Mutual
Life Insurance Companies
26 CFR 1.809–9: Computation of the differential
earnings rate and the recomputed differential
earnings rate.
Mutual life insurance companies;
differential earnings rate.The differen-
tial earnings rate for 2000 and the recom-
puted differential earnings rate for 1999
are set forth for use by mutual life insur-
ance companies to compute their income
tax liabilities for 2000.
Rev. Rul. 2001–33
This revenue ruling contains the differ-
ential earnings rate for 2000 and the re-
computed differential earnings rate for
1999. Under § 809 of the Internal Rev-
enue Code, mutual life insurance compa-
nies use these rates in computing their fed-
eral income tax liability for taxable years
beginning in 2000. This revenue ruling
also contains the figures on which the de-
terminations of these rates are based. No-
tice 2001–24, 2001–12 I.R.B. 912, con-
tained tentative determinations of these
rates.
Section 809(a) provides that, in the case
of any mutual life insurance company, the
amount of the deduction allowable under
§ 808 for policyholder dividends is re-
duced (but not below zero) by the “differ-
ential earnings amount.” Any excess of the
differential earnings amount over the
amount of the deduction allowable under
§ 808 is taken into account as a reduction
in the closing balance of reserves under
subsections (a) and (b) of § 807. The “dif-
ferential earnings amount” for any taxable
year is the amount equal to the product of
(a) the life insurance company’s average
equity base for the taxable year multiplied
by (b) the “differential earnings rate” for
that taxable year. The “differential earn-
ings rate” for the taxable year is the excess
of (a) the “imputed earnings rate” for the
taxable year over (b) the “average mutual
earnings rate” for the second calendar year
preceding the calendar year in which the
taxable year begins. The “imputed earn-
ings rate” for any taxable year is the
amount that bears the same ratio to 16.5
percent as the “current stock earnings rate”
for the taxable year bears to the “base pe-
riod stock earnings rate.”
Section 809(f) provides that, in the case
of any mutual life insurance company, if
the “recomputed differential earnings
amount” for any taxable year exceeds the
differential earnings amount for that tax-
able year, the excess is included in life in-
surance gross income for the succeeding
taxable year. If the differential earnings
amount for any taxable year exceeds the
recomputed differential earnings amount
for that taxable year, the excess is allowed
as a life insurance deduction for the suc-
ceeding taxable year. The “recomputed
differential earnings amount” for any tax-
able year is an amount calculated in the
same manner as the differential earnings
amount for that taxable year, except that
the average mutual earnings rate for the
calendar year in which the taxable year be-
gins is substituted for the average mutual
earnings rate for the second calendar year
preceding the calendar year in which the
taxable year begins.
The stock earnings rates and mutual
earnings rates taken into account under
§ 809 generally are determined by dividing
statement gain from operations by the av-
erage equity base. For this purpose, the
term “statement gain from operations”
means “the net gain or loss from opera-
tions required to be set forth in the annual
statement, determined without regard to
federal income taxes, and ... properly ad-
justed for realized capital gains and
losses....” See§ 809(g)(1). The term “eq-
uity base” is defined as an amount deter-
mined in the manner prescribed by regula-
tions equal to surplus and capital increased
by the amount of nonadmitted financial as-
sets, the excess of the amount of statutory
reserves over the amount of tax reserves,
the sum of certain other reserves, and 50
percent of any policyholder dividends (or
other similar liability) payable in the fol-
lowing taxable year. See§ 809(b)(2), (3),
(4), (5), and (6). Section 1.809–10 of the
Income Tax Regulations provides that the
equity base includes both the asset valua-
tion reserve and the interest maintenance
reserve for taxable years ending after De-
cember 31, 1991.
Section 1.809–9(a) of the regulations
provides that neither the differential earn-
ings rate under § 809(c) nor the recom-
puted differential earnings rate that is used
in computing the recomputed differential
earnings amount under § 809(f)(3) may be
less than zero.
Rev. Rul. 99–3, 1999–1 C.B. 313, pro-
vides that a life insurance subsidiary of a
mutual holding company is not a mutual
life insurance company for which the de-
duction for policyholder dividends is re-
duced pursuant to §§ 808(c)(2) and 809.
For purposes of § 809, the differential
earnings rate for 2000 and the rate used to
calculate the recomputed differential earn-
ings amount for 1999 (the recomputed dif-
ferential earnings rate for 1999), and the
figures on which these two rates are based
are set forth in Table 1.
August 6, 20011182001–32 I.R.B.

Rev. Rul. 2001–33 Table 1
Determination of Rates To Be Used For Taxable Years
Beginning in 2000
Differential earnings rate for 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0
Recomputed differential earnings rate for 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0
Imputed earnings rate for 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.815
Imputed earnings rate for 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.358
Base period stock earnings rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18.221
Current stock earnings rate for 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16.960
Stock earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19.321
Stock earnings rate for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.836
Stock earnings rate for 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15.724
Average mutual earnings rate for 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16.011
Average mutual earnings rate for 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16.164
2001–32 I.R.B.119August 6, 2001
DRAFTING INFORMATION
The principal author of this revenue
ruling is Katherine A. Hossofsky of the
Office of the Associate Chief Counsel (Fi-
nancial Institutions and Products). For
further information regarding this revenue
ruling, contact Ms. Hossofsky at (202)
622-3477 (not a toll-free number).
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate. For purposes of
sections 382, 1274, 1288, and other sec-
tions of the Code, tables set forth the rates
for August 2001.
Rev. Rul. 2001–36
This revenue ruling provides various
prescribed rates for federal income tax
purposes for August 2001 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or a
remainder or a reversionary interest for
purposes of section 7520.

REV. RUL. 2001–36 TABLE 1
Applicable Federal Rates (AFR) for August 2001
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR3.94%3.90%3.88%3.87%
110% AFR4.34%4.29%4.27%4.25%
120% AFR4.73%4.68%4.65%4.64%
130% AFR5.13%5.07%5.04%5.02%
Mid-Term
AFR4.99%4.93%4.90%4.88%
110% AFR 5.49%5.42%5.38%5.36%
120% AFR6.01%5.92%5.88%5.85%
130% AFR 6.51%6.41%6.36%6.33%
150% AFR7.54%7.40%7.33%7.29%
175% AFR8.82%8.63%8.54%8.48%
Long-Term
AFR5.72% 5.64%5.60% 5.57%
110% AFR6.30%6.20%6.15%6.12%
120% AFR6.88%6.77%6.71%6.68%
130% AFR7.46%7.33%7.26%7.22%
August 6, 20011202001–32 I.R.B.
REV. RUL. 2001–36 TABLE 2
Adjusted AFR for August 2001
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR3.01% 2.99%2.98%2.97%
Mid-term
adjusted AFR3.83%3.79%3.77%3.76%
Long-term
adjusted AFR4.94%4.88%4.85%4.83%
REV. RUL. 2001–36 TABLE 3
Rates Under Section 382 for August 2001
Adjusted federal long-term rate for the current month4.94%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)5.01%
REV. RUL. 2001–36 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for August 2001
Appropriate percentage for the 70% present value low-income housing credit8.25%
Appropriate percentage for the 30% present value low-income housing credit3.54%

REV. RUL. 2001–36 TABLE 5
Rate Under Section 7520 for August 2001
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest6.0%
2001–32 I.R.B.121August 6, 2001
Section 1288.—Treatment of
Original Issue Discounts on Tax-
Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 7520.—Valuation Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.
Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2001. See Rev. Rul. 2001–36, page 119.

Extension of Relief Relating to
Application of Nondiscrimination
Rules for Certain Church Plans
and Governmental Plans
Notice 2001–46
I. PURPOSE
This notice provides relief from the appli-
cation of the nondiscrimination require-
ments of the Internal Revenue Code for cer-
tain church and governmental plans.
In particular, this notice extends the effec-
tive date of regulations under §§ 401(a)(4),
401(a)(5), 401(l), and 414(s) of the Internal
Revenue Code for nonelecting church plans
until further notice, but in no case earlier
than the first plan year beginning on or after
January 1, 2003.
In addition, this notice provides that cer-
tain governmental plans shall be deemed to
satisfy §§ 401(a)(4), 401(a)(26), 401(k)(3),
and 401(m) of the Code until the first day
of the first plan year beginning on or after
January 1, 2003. In accordance with this
relief, the regulations relating to these pro-
visions do not apply until plan years begin-
ning on or after that date. This relief is
available with respect to governmental
plans within the meaning of § 414(d) other
than plans of State and local governments
or political subdivisions, agencies or instru-
mentalities thereof.
II. BACKGROUND
A. Church Plans
Section 414(e)(1) of the Code provides
in general that the term “church plan”
means a plan established and maintained
for its employees (and their beneficiaries)
by a church or by a convention or associa-
tion of churches which is exempt from tax
under § 501. Pursuant to § 410(d), a
church or convention or association of
churches that maintains any church plan
may make an election under § 410(d) to
have certain Code provisions relating to
participation, vesting, and funding, etc.,
apply to such church plan as if such provi-
sions did not contain an exclusion for
church plans. A church plan for which
such an election has not been made (a
“nonelecting church plan”) is not subject
to these provisions.
Notice 2001–9, 2001–4 I.R.B. 375, pro-
vided that the regulations under
§§ 401(a)(4), 401(a)(5), 401(l) and 414(s)
would apply for nonelecting church plans in
plan years beginning on or after January 1,
2002. For plan years beginning before that
effective date, nonelecting church plans
must be operated in accordance with a rea-
sonable, good faith interpretation of these
statutory provisions.
B. Governmental Plans
Section 414(d) of the Code provides that
the term “governmental plan” means a plan
established and maintained for its employees
by the government of the United States, by
the government of any State or political sub-
division thereof, or by any agency or instru-
mentality of any of the foregoing. The term
“governmental plan” also includes any plan
to which the Railroad Retirement Act of
1935 or 1937 (the “Act”) applies and which
is financed by contributions under that Act
and any plan of an international organization
which is exempt from taxation by reason of
the International Organizations Immunities
Act (59 Stat. 669).
Section 1505 of the Taxpayer Relief Act
of 1997 (“TRA ’97”) generally provides that
the nondiscrimination rules do not apply to
State and local governmental plans. In par-
ticular, § 1505 amended the Code to provide
that §§ 401(a)(3), 401(a)(4), and 401(a)(26)
shall not apply to such plans. Section 1505
of TRA ’97 amended § 401(k) of the Code
to provide that State and local governmental
plans shall be treated as meeting the require-
ments of § 401(k)(3). In addition, § 1505(a)
(3) of TRA ’97 amended § 410(c) of the
Code to provide that governmental plans
shall be treated as meeting the requirements
of § 410 for purposes of § 401(a). This
amendment to § 410(c), by its terms, is not
limited to State and local governmental
plans but applies to all governmental plans
within the meaning of § 414(d).
Notice 2001–9 provided that governmen-
tal plans, other than plans maintained by
State or local governments or political subdi-
visions or instrumentalities thereof, would
be deemed to satisfy §§ 401(a)(4),
401(a)(26), 401(k)(3), and 401(m) of the In-
ternal Revenue Code until the first day of the
first plan year beginning on or after January
1, 2002. The notice also provided that the
regulations relating to these provisions
would not apply until plan years beginning
on or after that date.
III. EXTENSION OF EFFECTIVE
DATE OF NONDISCRIMINATION
REGULATIONS FOR NON-
ELECTING CHURCH PLANS
The regulations under §§ 401(a)(4),
401(a)(5), 401(l), and 414(s) shall not apply
to nonelecting church plans until further no-
tice, but in no case earlier than the first plan
year beginning on or after January 1, 2003.
Nonelecting church plans must be operated
in accordance with a reasonable, good faith
interpretation of these statutory provisions
until the time such notice is provided.
IV. EXTENSION OF RELIEF RELAT-
ING TO APPLICATION OF
NONDISCRIMINATION RULES
FOR CERTAIN GOVERNMENTAL
PLANS
Under the relief provided by this notice,
governmental plans within the meaning of
§ 414(d), other than those maintained by
State or local governments or political subdi-
visions, agencies or instrumentalities thereof,
shall be treated as satisfying the requirements
of §§ 401(a)(4), 401(a)(26), 401(k)(3), and
401(m) until the first plan year beginning on
or after January 1, 2003. In accordance with
this relief, the regulations under §§ 401(a)(4),
401(a)(26), 401(m), 410(b) and 414(s), and
the regulations implementing § 401(k)(3),
shall apply to governmental plans described
in this section IV only for plan years begin-
ning on or after January 1, 2003.
V. EFFECT ON OTHER DOCUMENTS
Notice 2001–9 is modified.
DRAFTING INFORMATION
The principal author of this notice is
Diane S. Bloom of the Employee Plans, Tax
Exempt and Government Entities Division.
For further information regarding this notice,
please contact the Employee Plans’ taxpayer
assistance telephone service at (202) 283-
9516 or (202) 283-9517, between the hours
of 1:30 p.m. and 3:30 p.m. Eastern Time,
Monday through Thursday. Ms. Bloom may
be reached at (202) 283-9888. These tele-
phone numbers are not toll-free.
August 6, 20011222001–32 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous

2001–32 I.R.B.123August 6, 2001
Additional Model Amendment for
Retirement Plans for Proposed
Regulations under Section
401(a)(9)
Announcement 2001–82
Proposed regulations under section
401(a)(9) of the Internal Revenue Code,
relating to required minimum distribu-
tions from retirement plans, were pub-
lished in the Federal Register on January
17, 2001 (the 2001 Proposed Regulations)
and in the Internal Revenue Bulletin at
2001–11 I.R.B. 865. The preamble to the
2001 Proposed Regulations states that
taxpayers may rely on regulations under
§ 401(a)(9) that were proposed in 1987
(the 1987 Proposed Regulations) or the
2001 Proposed Regulations for determin-
ing required minimum distributions for
calendar year 2001 and subsequent calen-
dar years prior to the effective date of the
final regulations.
The preamble to the 2001 Proposed
Regulations contains a model amendment
that qualified plan sponsors can adopt if
they wish to apply the 2001 Proposed
Regulations in making all required mini-
mum distributions for 2001 and subse-
quent calendar years prior to the effective
date of the final regulations. After publi-
cation in the Federal Register, the model
amendment was republished in An-
nouncement 2001–18, 2001–10 I.R.B.
791, with minor corrections, and appeared
(as corrected) in the preamble to the 2001
Proposed Regulations (REG–130477–
00; REG–130481–00, 2001–11 I.R.B.
865).
This announcement responds to con-
cerns by qualified plan sponsors that in-
tended to use the 2001 Proposed Regula-
tions for distributions for 2001 but made
required minimum distributions for 2001
under the 1987 Proposed Regulations
prior to the date on which the plan began
operating under the 2001 Proposed Regu-
lations. Qualified plan sponsors may
adopt the alternative model amendment
provided below in order to allow required
minimum distributions made for 2001
prior to the date on which the plan began
operating under the 2001 Proposed Regu-
lations to be made under the 1987 Pro-
posed Regulations. Required minimum
distributions made on or after the effec-
tive date of the amendment for 2001 will
be made under the 2001 Proposed Regu-
lations. The alternative model amend-
ment also provides that, if the total
amount of 2001 required minimum distri-
butions made to a participant prior to the
date on which the plan began operating in
accordance with the 2001 Proposed Regu-
lations are equal to or greater than the re-
quired minimum distributions determined
under the 2001 Proposed Regulations,
then no additional distributions are re-
quired for that participant for 2001 on or
after such date. If the total amount of re-
quired minimum distributions made to a
participant for 2001 prior to the date on
which the plan began operating under the
2001 Proposed Regulations are less than
the amount determined under the 2001
Proposed Regulations, then required min-
imum distributions for 2001 following
such date will be determined so that the
total amount of required minimum distri-
butions for 2001 for that participant is the
amount determined under the 2001 Pro-
posed Regulations.
The model amendment described
above is as follows:
With respect to distributions under the
Plan made on or after [SPECIFY
DATE ON WHICH THE PLAN
BEGAN OPERATING IN ACCOR-
DANCE WITH THE 2001 PRO-
POSED REGULATIONS] for calendar
years beginning on or after January 1,
2001, the Plan will apply the minimum
distribution requirements of section
401(a)(9) of the Internal Revenue Code
in accordance with the regulations
under section 401(a)(9) that were pro-
posed on January 17, 2001 (the 2001
Proposed Regulations), notwithstand-
ing any provision of the Plan to the con-
trary. If the total amount of required
minimum distributions made to a par-
ticipant for 2001 prior to [SPECIFY
DATE ON WHICH THE PLAN
BEGAN OPERATING IN ACCOR-
DANCE WITH THE 2001 PRO-
POSED REGULATIONS]are equal to
or greater than the amount of required
minimum distributions determined
under the 2001 Proposed Regulations,
then no additional distributions are
required for such participant for 2001
on or after such date. If the total amount
of required minimum distributions
made to a participant for 2001 prior to
[SPECIFY DATE ON WHICH THE
PLAN BEGAN OPERATING IN
ACCORDANCE WITH THE 2001
PROPOSED REGULATIONS]are
less than the amount determined under
the 2001 Proposed Regulations, then
the amount of required minimum distri-
butions for 2001 on or after such date
will be determined so that the total
amount of required minimum distribu-
tions for 2001 is the amount determined
under the 2001 Proposed Regulations.
This amendment shall continue in
effect until the last calendar year begin-
ning before the effective date of the
final regulations under section
401(a)(9) or such other date as may be
published by the Internal Revenue
Service.
A plan sponsor that made required min-
imum distributions for 2001 under the
1987 Proposed Regulations prior to the
date during 2001 that it began operating
under the 2001 Proposed Regulations
must amend its plan in accordance with
the model amendment set forth above.
The above model amendment may be
used only if it is effective on a date in
2001 when the plan begins to operate in
accordance with the 2001 Proposed Regu-
lations. The original model amendment
contained in Announcement 2001–18 is
available for plans that follow the 2001
Proposed Regulations for determining re-
quired minimum distributions for 2001
for the entire calendar year 2001 or, if
first effective after 2001, for later calen-
dar years prior to the effective date of the
final regulations.
In order for a qualified plan sponsor to
use either model amendment, it must
adopt the amendment prior to the end of
the plan’s GUST remedial amendment pe-
riod. Revenue Procedure 2000–27,
2000–26 I.R.B. 1272, extends the GUST
remedial amendment period for most
plans until the end of the first plan year
beginning on or after January 1, 2001.
Part IV. Items of General Interest

August 6, 2001i2001–32 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 de-
scribe 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 Contributions 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

2001–32 I.R.B.iiAugust 6, 2001
Numerical Finding List
1
Bulletins 2001–27 through 2001–31
Announcements:
2001–69, 2001–27 I.R.B. 23
2001–70, 2001–27 I.R.B. 23
2001–71, 2001–27 I.R.B. 26
2001–72, 2001–28 I.R.B. 39
2001–73, 2001–28 I.R.B. 40
2001–74, 2001–28 I.R.B. 40
2001–75, 2001–28 I.R.B. 42
2001–76, 2001–29 I.R.B. 67
2001–77, 2001–30 I.R.B. 83
2001–78, 2001–30 I.R.B. 87
2001–79, 2001–31 I.R.B. 97
2001–80, 2001–31 I.R.B. 98
Court Decisions:
2070, 2001–31 I.R.B. 90
Notices:
2001–39, 2001–27 I.R.B. 3
2001–41, 2001–27 I.R.B. 2
2001–42, 2001–30 I.R.B. 70
2001–43, 2001–30 I.R.B. 72
2001–44, 2001–30 I.R.B. 77
Proposed Regulations:
REG–106917–99, 2001–27 I.R.B. 4
REG–100548–01, 2001–29 I.R.B. 67
Railroad Retirement Quarterly Rates:
2001–27, I.R.B. 1
Revenue Procedures:
2001–30, 2001–29 I.R.B. 46
2001–39, 2001–28 I.R.B. 38
Revenue Rulings:
2001–34, 2001–28 I.R.B. 31
2001–35, 2001–29 I.R.B. 59
Treasury Decisions:
8947, 2001–28, I.R.B. 36
8948, 2001–28, I.R.B. 27
8949, 2001–28, I.R.B. 33
8950, 2001–28, I.R.B. 34
8951, 2001–29, I.R.B. 63
8952, 2001–29, I.R.B. 60
8953, 2001–29, I.R.B. 44
8954, 2001–29, I.R.B. 47
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–1 through 2001–26
is in Internal Revenue Bulletin 2001–27, dated July
2, 2001.

August 6, 2001iii2001–32 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2001–27 through 2001–31
Announcements:
2000–48
Modified by
Notice 2001–43, 2001–30 I.R.B. 72
Notices:
2001–4
Modified by
Notice 2001–43, 2001–30 I.R.B. 72
Proposed Regulations:
LR–97–79
Withdrawn by
REG–100548–01, 2001–29 I.R.B. 67
LR–107–84
Withdrawn by
REG–100548–01, 2001–29 I.R.B. 67
REG–107186–00
Corrected by
Ann. 2001–71, 2001–27 I.R.B. 26
Revenue Procedures:
97–13
Modified by
Rev. Proc. 2001–39, 2001–28 I.R.B. 38
2000–20
Modified by
Notice 2001–42, 2001–30 I.R.B. 70
2000–39
Corrected by
Ann. 2001–73, 2001–28 I.R.B. 40
2001–6
Modified by
Notice 2001–42, 2001–30 I.R.B. 70
Revenue Rulings:
57–589
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
65–316
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
68–125
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
69–563
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
74–326
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
78–179
Obsoleted by
REG–106917–99, 2001–27 I.R.B. 4
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2001–1 through 2001–26 is in Internal Revenue
Bulletin 2001–27, dated July 2, 2001.

INDEX
Internal Revenue Bulletins
2001–27 through 2001–31
The abbreviation and number in paren-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the paranthesis
refer to the Internal Revenue Bulletin in
which the item may be found and the
page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction
Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural
Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Defined benefit pension plan, transfer of
excess assets (TD 8948) 28, 27
Determination letters; qualified plans,
simplifying application procedures
(Ann 77) 30, 83
Full funding limitations:
Weighted average interest rate for:
June 2001 (Notice 39) 27, 3
Nondiscrimination requirements for:
A defined benefit replacement alloca-
tion, cross-testing (RR 30) 29, 46
Certain defined contribution retire-
ment plans (TD 8954) 29, 47
Qualified plans; remedial amendment pe-
riod under EGTRRA (Notice 42) 30,
70
Regulations:
26 CFR 1.401(a)(4)–0, –8, revised;
1.401(a)(4)–9, –12, amended;
nondiscrimination requirements for
certain defined contribution retire-
ment plans (TD 8954) 29, 47
26 CFR 1.420–1, added; minimum
cost requirement permitting the
transfer of excess assets of a defined
benefit pension plan to a retiree
health account (TD 8948) 28, 27
EMPLOYMENT TAX
Back wages subject to FICA and FUTA
taxes, year paid (CD 2070) 31, 90
Electronic furnishing of payee statements,
voluntary, hearing (Ann 71) 27, 26
Federal tax deposits, removal of Federal
Reserve banks as depositaries (TD
8952) 29, 60
Penalties for underpayments of deposits
and overstated deposit claims (TD
8947) 28, 36
Railroad retirement, rate determination,
quarterly:
July 1, 2001, 27, 1
Regulations:
26 CFR 31.6302–1, revised; 31.6302
(c)–4, revised; 301.6656–1, –2, re-
moved; 301.6656–3, redesignated as
301.6656–1; 602.101, amended;
penalties for underpayments of de-
posits and overstated deposit claims
(TD 8947) 28, 36
26 CFR 31.6302–1, amended; 31.6302
(c)–3, amended; 301.6302–1T, re-
moved; removal of Federal Reserve
banks as federal depositaries (TD
8952) 29, 60
26 CFR 301.6323(j)–1, added; withdrawal
of notice of federal tax lien in certain
circumstances (TD 8951) 29, 63
Tax liens, federal, circumstances for with-
drawal of notice (TD 8951) 29, 63
ESTATE TAX
Filing locations for estate, gift, and gener-
ation-skipping transfer tax returns, re-
vised (Ann 74) 28, 40
EXCISE TAX
Form 2290SP, Declaración del Impuesto
sobre el Uso de Vehículos Pesados en
las Carreteras, new (Ann 69) 27, 23
EXEMPT
ORGANIZATIONS
List of organizations classified as private
foundations (Ann 70) 27, 23; (Ann 72)
28, 39; (Ann 76) 29, 67; (Ann 78) 30,
87; (Ann 79) 31, 97
GIFT TAX
Filing locations for estate, gift, and gener-
ation-skipping transfer tax returns, re-
vised (Ann 74) 28, 40
INCOME TAX
Accounting periods, rules and procedures
for (REG–106917–99) 27, 4
Backup withholding rate for amounts paid
after August 6, 2001 (Ann 80) 31, 98
Business and traveling expenses, per
diemallowances (Ann 73) 28, 40
Collapsible corporations, withdrawal of
proposed regulations LR–107–84
(REG–100548–01) 29, 67
Corporations, consolidated groups:
Tentative carryback adjustments (TD
8950) 28, 34
Special aggregate stock ownership
rules (TD 8949) 28, 33
Corporations, consolidated income tax re-
turn filers, withdrawal of proposed reg-
ulations LR–97–79 (REG–100548–01)
29, 67
Earned income credit, eligibility after de-
nial (TD 8953) 29, 44
Electronic filing for partnerships, exemp-
tion from (Ann 75) 28, 42
Electronic furnishing of payee statements,
voluntary, hearing (Ann 71) 27, 26
Federal tax deposits, removal of Federal
Reserve banks as depositaries (TD
8952) 29, 60
Form 2290SP, Declaración del Impuesto
sobre el Uso de Vehículos Pesados en
las Carreteras, new (Ann 69) 27, 23
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for:
July 2001 (RR 34) 28, 31
Inventory:
LIFO:
Price indexes used by department
stores for:
May 2001 (RR 35) 29, 59
Notional principal contract (NPC), con-
tingent nonperiodic payments (Notice
44) 30, 77
Penalties for underpayments of deposits
and overstated deposit claims (TD
8947) 28, 36
Private foundations, organizations now
classified as (Ann 70) 27, 23; (Ann 72)
28, 39; (Ann 76) 29, 67; (Ann 78) 30,
87; (Ann 79) 31, 97
Proposed Regulations:
26 CFR 1.341–1(b), –2, –5, –4(a),
–4(c), withdrawn; withdrawal of
proposed regulations relating to col-
lapsible corporations (REG–
100548–01) 29, 67
2001–32 I.R.B.ivAugust 6, 2001

26 CFR 1.441–0 through –4, added;
1.441–1T through 4T, removed;
1.442–1, revised; 1.442–2T, –3T, re-
moved; 1.706–1, amended; 1.706
–1T, removed; 1.898–4, amended;
1.1378–1, added; 5c.442–1, re-
moved; 5f.442–1, removed;
18.1378–1, removed; changes in ac-
counting periods (REG–106917–99)
27, 4
26 CFR 1.1502–2, –3, –7, –8, –11, –21,
–22, –75, –78, –79, withdrawn; with-
drawal of proposed regulations relat-
ing to corporations filing consoli-
dated returns (REG–100548–01) 29,
67
Regulations:
26 CFR 1.32–3, added; 1.32–3T, re-
moved; 602.101(b), amended; eligi-
bility requirements after denial of the
earned income credit (TD 8953) 29,
44
26 CFR 1.732–3, added; 1.1502–34,
amended; special aggregate stock
ownership rules (TD 8949) 28, 33
26 CFR 1.1502–78, amended;
1.1502–78T, removed; guidance on
filing an application for a tentative
carryback adjustment in a consoli-
dated return context (TD 8950) 28, 34
26 CFR 1.6302–1, –2, revised;
301.6656–1, –2, removed;
301.6656–3, redesignated as
301.6656–1; 602.101, amended;
penalties for underpayments of de-
posits and overstated deposit claims
(TD 8947) 28, 36
26 CFR 1.6302–1, –2, amended;
1.1461–1, amended; 1.1502–5(a)(1),
amended; 1.6151–1(d)(1), amended;
removal of Federal Reserve banks as
federal depositaries (TD 8952) 29, 60
26 CFR 301.6323(j)–1, added; with-
drawal of notice of federal tax lien in
certain circumstances (TD 8951) 29,
63
Tax conventions:
French social security, tax treatment of
(Notice 41) 27, 2
Tax exempt bonds, private activity bonds
(RP 39) 28, 38
Tax liens, federal, circumstances for with-
drawal of notice (TD 8951) 29, 63
Withholdings; payments to nonqualified
intermediaries and foreign trusts, U. S.
withholding agents (Notice 43) 30, 72
August 6, 2001v2001–32 I.R.B.
INCOME TAX—Cont.
INCOME TAX—Cont.

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