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under the grantor trust rules of sections 671 through 679,

general power of appointment over the transferor trust

and without regard to whether the recipient is designated

exercises that power in favor of another trust, such person

as a beneficiary by the terms of the trust. A distribution

is treated as the grantor of the transferee trust, even if the

includes the receipt of trust corpus and the receipt of a gift

grantor of the transferor trust is treated as the owner of the

or bequest described in section 663(a).

transferor trust.

A distribution also includes constructive transfers from

Grantor Trust

a trust. For example, if charges you make on a credit card

A grantor trust is any trust to the extent that the assets of

are paid by a foreign trust or guaranteed or secured by the

the trust are treated as owned by a person other than the

assets of a foreign trust, the amount charged will be

trust. See the grantor trust rules in sections 671 through

treated as a distribution to you by the foreign trust.

679. A part of the trust may be treated as a grantor trust to

Similarly, if you write checks on a foreign trust's bank

the extent that only a portion of the trust assets are owned

account, the amount will be treated as a distribution. Also,

by a person other than the trust.

if you receive a payment from a foreign trust in exchange

for property transferred to the trust or services rendered to

Note. Under the HIRE Act, effective after March 18,

the trust, and the FMV of the payment you received

2010, if a foreign trust directly or indirectly loans cash or

exceeds the FMV of the property transferred or services

marketable securities to a U.S. person who does not

rendered, the excess will be treated as a distribution to

repay the loan at a market rate of interest, or allows a U.S.

you. See section V of Notice 97-34, 1997-25 I.R.B. 22.

person to use trust property without paying FMV within a

Examples:

reasonable period of time, the trust will be treated as

1. If you sell stock with an FMV of $100 to a foreign

having a U.S. beneficiary, and is therefore treated as a

trust and receive $150 in exchange, you have received a

grantor trust under the grantor trust rules.

distribution of $50.

Gratuitous Transfer

2. If you receive $100 from the trust for services

A gratuitous transfer to a foreign trust is any transfer to the

performed by you for the trust, and the services have an

trust other than (a) a transfer for FMV; or (b) a distribution

FMV of $20, you have received a distribution of $80.

to the trust with respect to an interest held by the trust (i)

If you are a grantor or beneficiary of a foreign trust and

in an entity other than a trust (e.g., a corporation or a

you (or a U.S. person related to you) directly or indirectly

partnership), or (ii) in an investment trust described in

received a loan of cash or marketable securities from a

Regulations section 301.7701-4(c), a liquidating trust

foreign trust, or you (or a U.S. person related to you) used

described in Regulations section 301.7701-4(d), or an

any property owned by a foreign trust without paying FMV

environmental remediation trust described in Regulations

within a reasonable amount of time, the amount of such

section 301.7701-4(e).

loan or the FMV of the use of trust property will be treated

A transfer of property to a trust may be considered a

as a distribution for reporting purposes. For this purpose,

gratuitous transfer without regard to whether the transfer

a loan by an unrelated third party that is guaranteed by a

is a gift for gift tax purposes. See chapter 12 of Subtitle B

foreign trust is generally treated as a loan from the trust.

of the Code (i.e., sections 2501 through 2524).

See section V(A) of Notice 97-34, 1997-25 I.R.B. 22.

For purposes of this determination, if a U.S. person

Foreign Trust and Domestic Trust

contributes property to a trust in exchange for any type of

A foreign trust is any trust other than a domestic trust.

interest in the trust, such interest in the trust will be

disregarded in determining whether FMV has been

A domestic trust is any trust if:

received. In addition, a U.S. person will not be treated as

1. A court within the United States is able to exercise

making a transfer for FMV merely because the transferor

primary supervision over the administration of the trust,

is deemed to recognize gain on the transaction.

and

2. One or more U.S. persons have the authority to

If you transfer property to a foreign trust in exchange for

control all substantial decisions of the trust.

an obligation of the trust (or an obligation of a person

related to the trust), it will be a gratuitous transfer unless

Grantor

the obligation is a qualified obligation. Obligation and

A grantor includes any person who creates a trust or

qualified obligation are defined later.

directly or indirectly makes a gratuitous transfer of cash or

Gross Reportable Amount

other property to a trust. A grantor includes any person

treated as the owner of any part of a foreign trust's assets

Gross reportable amount is:

under sections 671 through 679, excluding section 678.

The gross value of property involved in the creation of a

foreign trust or the transfer of property to a foreign trust

Note. If a partnership or corporation makes a gratuitous

(including a transfer by reason of death);

transfer to a trust, the partners or shareholders are

The gross value of any portion of a foreign trust treated

generally treated as the grantors of the trust, unless the

as owned by a U.S. person under the rules of sections

partnership or corporation made the transfer for a

671 through 679 or any part of a foreign trust that is

business purpose of the partnership or corporation.

included in the gross estate of a U.S. citizen or resident;

If a trust makes a gratuitous transfer to another trust,

The gross value of the assets in a trust at the time the

the grantor of the transferor trust is treated as the grantor

trust becomes a foreign trust, if the trust was a domestic

of the transferee trust, except that if a person with a

trust to which a U.S. citizen or resident had previously

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts - 2016 Page 3

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