Par. 9. Sections 1.6048-1 through 1.6048-7 are added to read as follows:
(a) In general —(1) Filing requirement. Unless an exception in § 1.6048-5 applies, a responsible party (as defined in paragraph (c) of this section) must provide written notice of any reportable event (as defined in paragraph (b) of this section) that occurs during the taxable year of the U.S. person described in paragraph (b) of this section on Part I of Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. If a responsible party must report a reportable event with regard to more than one foreign trust during the taxable year, the responsible party must file a separate Form 3520 for each such foreign trust. See §§ 1.679-1 and 1.684-1 for additional rules regarding transfers to foreign trusts by U.S. persons. See § 1.6048-6(d) for information reporting by married U.S. persons who file a joint income tax return.
(2) Due dates —(i) General rule. Subject to paragraph (a)(2)(ii) and (iii) of this section, the responsible party must file Form 3520 by the fifteenth day of the fourth month after the close of the responsible party's taxable year. If the responsible party has been granted an extension of time to file the responsible party's income tax return pursuant to section 6081, an extension of time for filing Form 3520 is granted to the fifteenth day of the tenth month following the close of the responsible party's taxable year. No additional extension of time to file Form 3520 is allowed beyond the fifteenth day of the tenth month following the close of the responsible party's taxable year.
(ii) Filing by U.S. persons residing outside the United States. In the case of a grantor or transferor (described in paragraph (c)(1) or (c)(2) of this section, respectively) who qualifies for an automatic extension to file the grantor's or transferor's income tax return under section 6081 and § 1.6081-5(a)(5) because the grantor or transferor resides outside of the United States and Puerto Rico and the grantor's or transferor's main place of business or post of duty is outside of the United States and Puerto Rico, the grantor or transferor must file Form 3520 by the fifteenth day of the sixth month after the close of the grantor's or transferor's taxable year. If the grantor or transferor has been granted an extension of time to file the grantor's or transferor's income tax return pursuant to section 6081, an extension of time for filing Form 3520 is granted to the fifteenth day of the tenth month following the close of the grantor's or transferor's taxable year. No additional extension of time to file Form 3520 is allowed.
(iii) Filing by executor of grantor's or transferor's estate. In the case of a deceased grantor or transferor, the executor of the grantor's or transferor's estate (within the meaning of paragraph (c)(3) of this section) must file Form 3520 by the fifteenth day of the fourth month following the close of the 12-month period which began with the first day of the grantor's or transferor's final taxable year. If the executor of the grantor's or transferor's estate has been granted an extension of time to file the grantor's or transferor's final income tax return pursuant to section 6081, an extension of time for filing Form 3520 is granted to the fifteenth day of the tenth month following the close of the 12-month period which began with the first day of the grantor's or transferor's final taxable year. No additional extension of time to file Form 3520 is allowed.
(b) Reportable event. Subject to § 1.6048-5, for purposes of this section, the term reportable event means any of the events described in paragraphs (b)(1) through (3):
(1) The creation of any foreign trust by any U.S. person.
(2) Any direct, indirect, or constructive transfer, within the meaning of § 1.679-3 or § 1.684-2, of property (including cash) to a foreign trust by a U.S. person, including a transfer by reason of death. In addition, a reportable event includes an outbound migration of a domestic trust, as described in § 1.684-4, without regard to whether any gain is taxable under § 1.684-1, and a U.S. person's transfer of property in exchange for any obligation of the foreign trust or of a person related to the trust, as described in § 1.679-4, without regard to whether the obligation is a qualified obligation.
(3) The death of a citizen or resident of the United States if—
(i) The decedent was treated as the owner of any portion of a foreign trust under subpart E of part I of subchapter J of chapter 1 of the Internal Revenue Code, or
(ii) Any portion of a foreign trust was included in the gross estate of the decedent for Federal estate tax purposes.
(c) Responsible party. For purposes of this section, the term responsible party means each of the following:
(1) The grantor (within the meaning of § 1.671-2(e)) in the case of the creation of an inter vivos trust.
(2) The transferor in the case of a reportable event described in paragraph (b)(2) of this section other than a transfer by reason of death.
(3) The executor of the deceased grantor's or transferor's estate in any other case (whether or not the executor is a U.S. person).
(d) Examples. The following examples illustrate the rules of this section.
(1) Example 1: Creation and funding of foreign trust. A, an attorney, creates a foreign trust, FT, on behalf of B, A's client. A and B are both U.S. persons. Shortly thereafter, B transfers $100x to FT. A and B are both grantors of FT under § 1.671-2(e), even though only B transferred property to FT. Under paragraph (b)(1) of this section, the creation of FT is a reportable event, and under paragraph (c)(1) of this section, A and B are responsible parties. Under paragraph (b)(2) of this section, the funding of FT is a reportable event, and under paragraph (c)(2) of this section, B is the responsible party. Accordingly, under paragraph (a) of this section, A must report the creation of FT and B must report the creation and the transfer to FT, respectively, on Part I of Form 3520.
(2) Example 2: Transfers to two foreign trusts. The facts are the same as in paragraph (d)(1) of this section ( Example 1 ). B also transfers $100x to a second foreign trust, FT2, during the same taxable year. Under paragraph (a)(1) of this section, B must file two Forms 3520, one for the creation and funding of FT and one for the funding of FT2.
(3) Example 3: Transfer by domestic trust to foreign trust. Under the grantor trust rules, B is treated as the owner of a domestic trust, DT. B is a U.S. person and funds DT with $1,000x. Subsequently, B causes DT to transfer $600x to FT, an existing foreign trust. Under § 1.679-3(b), B is treated as transferring $600x to FT. Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, B is a responsible party. Accordingly, under paragraph (a) of this section, B is required to report the transfer to FT on Part I of Form 3520.
(4) Example 4: Transfer by reason of death. C, a U.S. person who files on a calendar year basis, is treated as the owner of a domestic trust, DT, under the grantor trust rules. The trust instrument provides that, upon C's death, DT will terminate and the trustee must distribute the trust corpus to a foreign trust, FT, for the benefit of C's children. C dies in Year 1. The trustee of DT distributes the trust corpus to FT in Year 1. The transfer to FT is a reportable event under paragraph (b)(2) of this section as a transfer by reason of C's death. Under paragraph (c)(3) of this section, the executor of C's estate is the responsible party. Accordingly, under paragraph (a) of this section, the executor of C's estate is required to report the transfer on Part I of Form 3520 by April 15, Year 2, the fifteenth day of the fourth month after the close of the 12-month period which began with the first day of C's final taxable year, as described in paragraph (a)(2)(ii) of this section. If C's executor is granted an extension of time to file C's final income tax return, then C's Form 3520 will have a 6-month extension and be due by October 15, Year 2.
(5) Example 5: Death of U.S. citizen who was the owner of a foreign trust. The facts are the same as in paragraph (d)(4) of this section ( Example 4 ), except that C dies in Year 1 while C is treated as the owner of FT. Under paragraph (b)(3)(i) of this section, C's death is a reportable event. Under paragraph (c)(3) of this section, the executor of C's estate is a responsible party. Accordingly, under paragraph (a) of this section, the executor of C's estate is required to report C's death on Form 3520 by April 15, Year 2, the fifteenth day of the fourth month after the close of the 12-month period which began with the first day of C's final taxable year, as described in paragraph (a)(2)(ii) of this section. If C's executor is granted an extension of time to file C's final income tax return for the year of decedent's death, then C's Form 3520 will also have an extension and be due by October 15, Year 2.
(6) Example 6: Transfer in exchange for less than fair market value. X, a U.S. person, sells property worth $1,000x to a foreign trust, FT, in exchange for $100x in cash. Under § 1.671-2(e)(2)(ii), the $900x excess amount is a gratuitous transfer by X to FT. Under § 1.679-3(a), X is treated as making a transfer of $900x to FT. Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, X is a responsible party. Accordingly, under paragraph (a) of this section, X is required to report the $900x transfer to FT on Part I of Form 3520.
(7) Example 7: Creation and funding of trust in Puerto Rico by U.S. citizen. X is a U.S. citizen and a bona fide resident of Puerto Rico. X creates and funds a trust, T, in Puerto Rico. T is subject to the primary jurisdiction of the Puerto Rican courts. Because T fails the court test of § 301.7701-7(a)(i), it is classified as a foreign trust under § 301.7701-7. Under paragraph (b)(1) and (2) of this section, the creation and funding of T are reportable events. Under paragraph (c)(1) and (2) of this section, X is a responsible party. Accordingly, under paragraph (a) of this section, X is required to report the creation and funding of T on Part I of Form 3520.
(8) Example 8: Indirect transfer. X, a U.S. person, creates FT, a foreign trust, for the benefit of X's children, who are U.S. citizens. On July 1, Year 1, X transfers ABC stock to X's brother, Y, a nonresident alien, for no consideration. Y immediately sells the ABC stock and uses the proceeds to purchase DEF stock. On January 5, Year 2, Y transfers the DEF stock to FT. X is related to Y within the meaning of § 1.679-3(c)(4). X cannot demonstrate to the satisfaction of the Commissioner that Y, as the intermediary, has a relationship with the beneficiaries of the trust that establishes a reasonable basis for concluding that the intermediary would make a transfer to FT, that Y acted independently of X, or that Y is not an agent of X. Thus, the transfer is deemed to be for the principal purpose of tax avoidance under § 1.679-3(c)(2). Under § 1.679-3(c)(1), X is treated as having made an indirect transfer of the DEF stock to FT on January 5, Year 2. Under § 1.679-3(c)(3), Y is treated as an agent of X, and the DEF stock is treated as transferred to FT by X. Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, X is a responsible party. Accordingly, under paragraph (a) of this section, X is required to report the transfer on Part I of Form 3520.
(9) Example 9: Constructive transfer. FT, a foreign trust, owes $100x to F Corp, an unrelated foreign corporation, for the performance of services by F Corp for the benefit of FT. In satisfaction of FT's liability to F Corp, X, a U.S. person, transfers to F Corp property with a fair market value of $100x. By satisfying FT's obligation, under § 1.679-3(d)(1), X is treated as having made a constructive transfer of property to FT. Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, X is a responsible party. Accordingly, under paragraph (a) of this section, X is required to report the transfer on Part I of Form 3520.
(10) Example 10: Partial guarantee of foreign trust obligations. F Corp, a foreign corporation, lends $100x to FT, a foreign trust, in exchange for FT's obligation to repay the loan. Knowing that F Corp would not have made the loan without a guarantee, X, a U.S. person related to FT under § 1.679-1(c)(5), gratuitously guarantees the repayment of $60x of FT's obligation. Under § 1.679-3(e), X is treated as having transferred $60x to FT. Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, X is a responsible party. Accordingly, under paragraph (a) of this section, X is required to report the transfer on Part I of Form 3520.
(11) Example 11: Dual resident taxpayer. The facts are the same as in paragraph (d)(10) of this section ( Example 10 ) except that X is a dual resident taxpayer (within the meaning of § 301.7701(b)-7(a)(1)) who computes his U.S. tax liability as a nonresident alien for the taxable year during which he is treated as making the transfer. Pursuant to § 1.6048-6(a)(1), X is not treated as a U.S. person for that taxable year and is not required to report the transfer on Part I of Form 3520.
(12) Example 12: Outbound migration of domestic nongrantor trust. X, a U.S. person, transfers property to an irrevocable domestic trust, DT, for the sole benefit of X's daughter. DT is not treated as owned by X or any other person under the grantor trust rules. DB, a domestic bank, resigns as trustee when X dies, and FB, a foreign bank, becomes the replacement trustee under the terms of the trust. Pursuant to § 301.7701-7(d), DT becomes a foreign trust, FT. Under § 1.684-4(a), DT is treated as having transferred all of its assets to FT and is required to recognize gain on the transfer under § 1.684-1(a). Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, DT is the responsible party. Accordingly, under paragraph (a) of this section, DT is required to report the transfer on Part I of a Form 3520.
(13) Example 13: Outbound migration of domestic grantor trust. On January 2, Year 1, X, a U.S. person, transfers property with a fair market value of $100x and an adjusted basis of $40x to a revocable domestic trust, DT, for the benefit of A, a U.S. person. X is treated as the owner of DT under section 676. On January 15, Year 2, when the fair market value of all property transferred to DT by X is $150x, DT acquires a foreign trustee who has the power to determine whether and when distributions will be made to A. Under sections 7701(a)(30)(E) and 7701(a)(31)(B) and § 301.7701-7(d)(1)(ii)(A) and (d)(2)(i), DT becomes a foreign trust, FT, on January 15, Year 2. Under § 1.684-2(d), X is treated as transferring property with a fair market value of $150x to FT on January 15, Year 2, without regard to whether FT is a foreign grantor trust. Under paragraph (b)(2) of this section, the transfer is a reportable event. Under paragraph (c)(2) of this section, X is the responsible party. Under paragraph (a) of this section, X is required to report the transfer on Part I of Form 3520.