Instructions For Form 3520-A - Annual Information Return Of Foreign Trust With A U.s. Owner - 2016 Page 2

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foreign fiduciary or provisions in the trust instrument that
general power of appointment over the transferor trust
prevent the disclosure of required information is not
exercises that power in favor of another trust, such person
reasonable cause.
is treated as the grantor of the transferee trust, even if the
grantor of the transferor trust is treated as the owner of the
Definitions
transferor trust.
Distribution
Grantor Trust
A distribution for section 6048(c) reporting purposes is
A grantor trust is any trust to the extent that the assets of
any gratuitous transfer of money or other property from a
the trust are treated as owned by a person other than the
trust, whether or not the trust is treated as a grantor trust
trust. See the grantor trust rules in sections 671 through
under the grantor trust rules (sections 671 through 679),
679. A part of the trust may be treated as a grantor trust to
and without regard to whether the recipient is designated
the extent that only a portion of the trust assets are owned
as a beneficiary by the terms of the trust. A distribution
by a person other than the trust.
includes the receipt of trust corpus and the receipt of a gift
Note. Due to changes to section 679(c) made by the
or bequest described in section 663(a).
HIRE Act, effective after March 18, 2010, a loan of cash or
A distribution also includes constructive transfers from
marketable securities from a foreign trust with a U.S.
a trust. For example, if charges you make on a credit card
transferor, directly or indirectly, to a U.S. person, or the
are paid by a foreign trust or guaranteed or secured by the
use of any other trust property directly or indirectly by any
assets of a foreign trust, the amount charged will be
U.S. person (whether or not a beneficiary under the terms
treated as a distribution to you by the foreign trust.
of the trust) will cause a foreign trust to be treated as
Similarly, if you write checks on a foreign trust's bank
having a U.S. beneficiary, unless the U.S. person repays
account, the amount will be treated as a distribution. See
the loan at a market rate of interest or pays the FMV of the
section V of Notice 97-34, 1997-25 I.R.B. 22. Also, if you
use of such property within a reasonable period of time.
receive a payment from a foreign trust in exchange for
Thus, in the case of a foreign trust with a U.S. transferor
property transferred to the trust or services rendered to
that is treated as having a U.S. beneficiary, the foreign
the trust, and the fair market value (FMV) of the payment
trust is treated as a grantor trust under the grantor trust
you received exceeds the FMV of the property transferred
rules.
or services rendered, the excess will be treated as a
distribution to you. See section V of Notice 97-34,
Gross Value
1997-25 I.R.B. 22.
Gross value is the value of property as determined under
Examples
section 2512 and its regulations, without regard to any
1. If you sell stock with an FMV of $100 to a foreign
prohibitions or restrictions on a person's interest in the
trust and receive $150 in exchange, you have received a
property. See section VII of Notice 97-34. Although formal
distribution of $50.
appraisals are not generally required, you should keep
contemporaneous records of how you arrived at your
2. If you receive $100 from the trust for services
good faith estimate.
performed by you for the trust, and the services have an
FMV of $20, you have received a distribution of $80.
Nongrantor Trust
Foreign Trust and Domestic Trust
A nongrantor trust is any trust to the extent that the assets
of the trust are not treated as owned by a person other
A foreign trust is any trust other than a domestic trust. A
than the trust. Thus, a nongrantor trust is treated as a
domestic trust is any trust if:
taxable entity. A trust may be treated as a nongrantor trust
1. A court within the United States is able to exercise
with respect to only a portion of the trust assets. See
primary supervision over the administration of the trust,
Grantor Trust above.
and
Owner
2. One or more U.S. persons have the authority to
control all substantial decisions of the trust.
An owner of a foreign trust is the person that is treated as
owning any of the assets of a foreign trust under the
Grantor
grantor trust rules.
A grantor includes any person who creates a trust or
Property
directly or indirectly makes a gratuitous transfer of cash or
other property to a trust. A grantor includes any person
Property means any property, whether tangible or
treated as the owner of any part of a foreign trust's assets
intangible, including cash.
under sections 671 through 679, excluding section 678.
U.S. Agent
Note. If a partnership or corporation makes a gratuitous
A U.S. agent is a U.S. person (defined later) that has a
transfer to a trust, the partners or shareholders are
binding contract with a foreign trust that allows the U.S.
generally treated as the grantors of the trust, unless the
person to act as the trust's authorized U.S. agent (see the
partnership or corporation made the transfer for a
instructions for Part I, Lines 3a through 3g, later) in
business purpose of the partnership or corporation.
applying sections 7602, 7603, and 7604 with respect to:
If a trust makes a gratuitous transfer to another trust,
Any request by the IRS to examine records or produce
the grantor of the transferor trust is treated as the grantor
testimony related to the proper U.S. tax treatment of
of the transferee trust, except that if a person with a
-2-
Instructions for Form 3520-A (2016)

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