Par. 9. Sections 1.6048-1 through 1.6048-7 are added to read as follows:
(a) U.S. owner requirement to ensure foreign trust information is provided —(1) In general. Unless an exception in § 1.6048-5 applies, any U.S. person who is treated as an owner ( U.S. owner ) of a foreign trust or of any portion of a foreign trust under subpart E of part I of subchapter J of chapter 1 of the Internal Revenue Code during any taxable year is responsible for ensuring that, by the fifteenth day of the third month after the end of the foreign trust's taxable year, with a maximum extension of a 6-month period pursuant to section 6081, the foreign trust—
(i) Files Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner (under section 6048(b)), under an identification number assigned to the trust (or portion of the trust) with the Commissioner in accordance with the instructions for Form 3520-A, and attaches copies of the statements required by paragraphs (a)(1)(ii) and (iii) of this section,
(ii) Furnishes a Foreign Grantor Trust Owner Statement in accordance with the instructions for Form 3520-A for the taxable year to each U.S. owner; and
(iii) Furnishes a Foreign Grantor Trust Beneficiary Statement in accordance with the instructions for Form 3520-A for the taxable year to each U.S. person, other than the U.S. owner, to whom the trust has made a distribution (within the meaning of § 1.6048-4(b)), either directly or indirectly, during the trust's taxable year (each a U.S. beneficiary ).
(2) Substitute Form 3520-A filed by the U.S. owner. If the foreign trust does not comply with the requirements of paragraph (a)(1) of this section, the U.S. owner must—
(i) Complete and file Part II of Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, in accordance with the instructions for Form 3520 by the due date of the U.S. owner's Form 3520, as described in § 1.6048-2(a)(2) but as if “U.S. owner” replaces “responsible party” in § 1.6048-2(a)(2)(i) and as if “U.S. owner” replaces “grantor or transferor” in § 1.6048-2(a)(2)(ii) and (iii), as applicable; and
(ii) Complete Form 3520-A and related statements for each U.S. owner and U.S. beneficiary on behalf of the foreign trust and file them with the U.S. owner's Part II of Form 3520 by the due date of the U.S. owner's Form 3520 as provided in paragraph (a)(2)(i) of this section. Further, unless paragraph (a)(3) of this section applies, the U.S. owner must furnish the Foreign Grantor Trust Beneficiary Statement in accordance with the instructions for Form 3520-A to each U.S. beneficiary by the due date of the U.S. owner's Form 3520.
(3) Certain fixed investment trusts. A U.S. owner who is subject to the rules of this section is not required to provide information about the other persons who are treated as owners of the foreign trust if the foreign trust meets all requirements to qualify as a widely held fixed investment trust within the meaning of § 1.671-5(b)(22) other than the requirement that it be a U.S. person under section 7701(a)(30)(E).
(b) Consistency rule —(1) In general. Subject to paragraph (b)(2) of this section, U.S. owners or U.S. beneficiaries who receive a Foreign Grantor Trust Owner Statement or Foreign Grantor Trust Beneficiary Statement from a foreign trust must treat any item reported by the trust to such U.S. person in a manner that is consistent with the trust's treatment of such item on the Foreign Grantor Trust Owner Statement or Foreign Grantor Trust Beneficiary Statement.
(2) Notification of inconsistent treatment. If a U.S. owner's or U.S. beneficiary's treatment on such U.S. owner's or U.S. beneficiary's return is (or may be) inconsistent with the treatment of the item reported on a Foreign Grantor Trust Owner Statement or Foreign Grantor Trust Beneficiary Statement, then the U.S. owner or U.S. beneficiary must notify the Commissioner about the inconsistent treatment. The notification of inconsistent treatment must be made on a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR). Rules similar to the rules of section 6034A(c) (generally requiring beneficiaries of estates or trusts to file their returns in a manner that is consistent with information received from the estate or trust) will apply, including the rules for any adjustments required to make the treatment of reported items consistent in the case of a U.S. owner's or U.S. beneficiary's failure to notify the Commissioner about the inconsistent treatment.
(c) Income tax determinations for foreign grantor trusts without U.S. agents. If a foreign trust with a U.S. owner does not have a U.S. agent as described in paragraph (d) of this section, or if otherwise provided pursuant to paragraph (d)(5) of this section, then the amounts required to be taken into account with respect to the trust by the U.S. owner under the grantor trust rules are determined by the Commissioner based on all the facts and circumstances.
(d) Authorization of a U.S. agent —(1) In general. Paragraph (c) does not apply if a U.S. owner of a foreign trust ensures that the foreign trust authorizes a U.S. person to act as the trust's limited agent as described in paragraph (d)(2) of this section solely for purposes of applying sections 7602, 7603, and 7604 with respect to—
(i) Any request by the Commissioner to examine records or produce testimony related to the proper treatment of amounts required to be taken into account under the grantor trust rules, or
(ii) Any summons by the Commissioner for such records or testimony.
(2) Requirements. In order to authorize a U.S. person to act as an agent under paragraph (d)(1) of this section, a U.S. owner of a foreign trust must ensure that the trust and the agent enter into a binding authorization agreement that is executed by the foreign trust and the U.S. agent before the due date of Form 3520-A or substitute Form 3520-A (as described in § 1.6048-3(a)(1) and (2), respectively) for the taxable year that the U.S. owner is considered the owner of the trust. The authorization must remain in effect for as long as the statute of limitations remains open for the U.S. owner's relevant taxable year. If the agent resigns or liquidates or if the agent's responsibility is terminated, the U.S. owner of the foreign trust must ensure that the foreign trust notifies the Commissioner within 90 days, by filing an amended Form 3520-A. This notification must contain the name, address and Taxpayer Identification Number of the new U.S. agent.
(3) Limitations. The appearance of persons or production of records by reason of a U.S. person being an agent described in paragraph (d)(1) of this section will not subject such persons or records to legal process for any purpose other than determining the correct treatment of the amounts to be taken into account by the U.S. owner under paragraph (c) of this section.
(4) No office, permanent establishment, or trade or business. A foreign trust that appoints a U.S. agent described in paragraph (d)(1) of this section will not be considered to have an office or a permanent establishment in the United States, or to be engaged in a trade or business in the United States, solely because of the agent's activities as an agent pursuant to this section.
(5) Summons issued to a U.S. agent —(i) In general. Paragraph (c) of this section applies if a summons is issued to a U.S. person (either directly or as a limited agent of a foreign trust who is appointed pursuant to paragraph (d)(1) of this section) or to a foreign trust (where service of the summons can be effectuated) to produce any records or testimony in order to determine the amounts required to be taken into account under the grantor trust rules, and if—
(A) The summons is not quashed in a proceeding, if any, begun not later than the 90th day after the summons was issued and is not determined to be invalid in a proceeding, if any, begun under section 7604 to enforce the summons; and
(B) The Commissioner has sent by certified or registered mail a notice to the U.S. person or foreign trust of its determination that the U.S. person or foreign trust has not substantially and timely complied with the summons, and a proceeding to review the determination is not begun any later than 90 days after the notice is mailed. If such a proceeding is not begun on or before such 90th day, the determination by the Commissioner will be binding.
(ii) Enforcement proceeding not required. The Commissioner is not required to begin an enforcement proceeding to enforce the summons in order to apply the rules of paragraph (d)(5) of this section.
(iii) Suspension of statute of limitations. If the U.S. person or foreign trust to which a summons is issued brings a proceeding to quash the summons not later than the 90th day after the summons was issued, or begins a proceeding to review a determination under paragraph (d)(5)(i)(B) of this section not later than the 90th day after the day on which the notice referred to in paragraph (d)(5)(i)(B) of this section was mailed, the running of any period of limitation under section 6501 (relating to assessment and collection of tax) or under section 6531 (relating to criminal prosecutions) for the taxable year or years to which the summons that is the subject of such proceeding relates will be suspended for the period during which the proceeding, and appeals therein, are pending. In no event will any such period expire before the 90th day after the day on which there is a final determination in the proceeding.
(e) Examples. The following examples illustrate the rules of this section.
(1) Example 1: Fixed investment trust. X, a U.S. person, is treated as an owner of a foreign trust, FT, that would be a widely held fixed investment trust within the meaning of § 1.671-5(b)(22) if it were a domestic trust. FT does not file a Form 3520-A for Year 1. Under paragraph (a)(2) of this section, X is required to complete and file Part II of Form 3520 by the due date for X's Year 1 Form 3520. In addition, under paragraph (a)(2) of this section, X is required to complete a substitute Form 3520-A and related statements and file them with X's Year 1 Form 3520. Under paragraph (a)(4) of this section, X is not required to provide information about the other owners of FT.
(2) Example 2: Substitute Form 3520-A. X, a U.S. person, is treated as the owner of a foreign trust, FT. FT's taxable year ends on December 31. On November 1, Year 1, FT makes a distribution to Y, a U.S. beneficiary of the trust. FT fails to comply with the requirements of paragraph (a)(1) of this section for its taxable year ending December 31, Year 1. Under paragraph (a)(2) of this section, X is required to complete and file Part II of Form 3520 by the due date for X's Year 1 Form 3520. In addition, under paragraph (a)(2) of this section, X is required to complete a substitute Form 3520-A and related statements and file them with X's Year 1 Form 3520. X must furnish a Foreign Grantor Trust Beneficiary Statement to Y by the due date for X's Year 1 Form 3520.
(3) Example 3: Failures to appoint U.S. agent and to respond to summons. X, a U.S. person, is treated as the owner of a foreign trust, FT. FT does not appoint a U.S. agent described in paragraph (d)(1) of this section. The Commissioner issues a summons to X for the production of records of FT related to the proper treatment of amounts required to be taken into account by X under the grantor trust rules. Neither X nor FT responds to the summons. Under paragraph (c) of this section, the Commissioner may determine the amount that X must take into account under the grantor trust rules based on all the facts and circumstances.
(4) Example 4: Multiple trusts and multiple transactions. X, a U.S. person, is treated as the owner of two foreign trusts, FT1 and FT2. During Year 1, X transfers cash to FT1 and receives a distribution from FT2. FT1 and FT2 fail to comply with the requirements of paragraph (a)(1) of this section for their taxable years ending in Year 1. Under § 1.6048-2 and paragraph (a)(2) of this section, X must report X's transfer to, and ownership of, FT1 on one Form 3520, and under § 1.6048-4 and paragraph (a)(2) of this section, X must report X's ownership of, and distribution from, FT2 on a second Form 3520. In addition, under paragraph (a)(2)(ii) of this section, X must complete a substitute Form 3520-A for each trust, FT1 and FT2, and file them with X's Year 1 Form 3520 for each trust.
(5) Example 5: Dual resident taxpayer. (i) X is a lawful permanent resident of the United States within the meaning of § 301.7701(b)-1(b) of this chapter and a tax resident of Country F under the domestic tax law of Country F. X is treated as a resident of Country F under the residence article of the U.S.-Country F income tax treaty (the treaty). Pursuant to § 301.7701(b)-7 of this chapter, X is treated as a nonresident alien for purposes of computing X's U.S. income tax liability for Year 1. During Year 1, X transfers $100x to a foreign trust, FT, for the benefit of X's children, who are U.S. citizens. Under § 1.6048-6(a), X is not treated as a U.S. person and is not required to report the transfer under § 1.6048-2 on a Form 3520 for Year 1.
(ii) In Year 2, X waives any benefits to which X would have been entitled under the treaty and computes X's U.S. income tax liability as a resident alien. Under § 1.679-5(a), X is treated as having made a transfer to FT on January 1, Year 2, in the amount of the fair market value of FT as of that date. Under § 1.679-1(a), X is treated as the owner of FT as of January 1, Year 2. Under § 1.6048-2(a), X is required to file a Form 3520 for Year 2 on which X reports the transfer to FT. If FT fails to comply with the requirements of paragraph (a)(1) of this section for FT's taxable year ending in Year 2, under paragraph (a)(2) of this section, X also must complete and file Part II of Form 3520, and complete and file a substitute Form 3520-A with the related statements attached to X's Year 2 Form 3520.