# Prop. Treas. Reg. § 1.6048-5: Exceptions. Proposed regulation, not in force. REG-124850-08, 89 FR 39440, published 2024-05-08 . Interprets 26 U.S.C. § 6048. Par. 9. Sections 1.6048-1 through 1.6048-7 are added to read as follows: (a) Exceptions under section 6048(a)(3)(B). For purposes of § 1.6048-2, a reportable event does not include any of the following: (1) Any transfer of property to a foreign trust to the extent the transfer is a transfer for fair market value within the meaning of § 1.679-4(b), provided that the transfer is not one made by a U.S. person that is a related person (as defined in § 1.679-1(c)(5)) with respect to the foreign trust in exchange for an obligation of the trust or of a related person (without regard to whether such obligation is a qualified obligation described in § 1.679-4(d)); (2) Any transfer of property to a foreign trust described in section 402(b), 404(a)(4), or 404A; and (3) Any transfer of property to a foreign trust, provided that the trust has received a determination letter from the Commissioner that has not been revoked recognizing that the foreign trust is exempt from Federal income tax under section 501(a) as an organization described in section 501(c)(3). (b) Exceptions for certain tax-favored foreign trusts —(1) In general. Sections 6048(a) through 6048(c) and §§ 1.6048-2 through 1.6048-4 do not apply to any eligible individual's transactions with, or ownership of, a tax-favored foreign retirement trust as defined under paragraph (b)(2) of this section or a tax-favored foreign non-retirement savings trust as defined under paragraph (b)(3) of this section. For purposes of this paragraph (b)(1), an eligible individual means an individual who is, or at any time was, a U.S. person and who, for any period during which an amount of tax may be assessed under section 6501 (without regard to section 6501(c)(8)), is compliant (or comes into compliance) with all requirements for filing a Federal income tax return (or returns) covering the period such individual was a U.S. person, and to the extent required under U.S. tax law, has reported as income any contributions to, earnings of, or distributions from an applicable tax-favored foreign trust on the applicable return (including on an amended return). (2) Tax-favored foreign retirement trust. For purposes of this section, a tax-favored foreign retirement trust means a foreign trust that is created, organized, or otherwise established under the laws of a foreign jurisdiction ( the trust's jurisdiction ) as a trust, plan, fund, scheme, or other arrangement (collectively, a trust ) to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits, and that meets the following requirements established by the laws of the jurisdiction governing the trust: (i) The trust generally is exempt from income tax or otherwise is tax-favored under the laws of the trust's jurisdiction. For purposes of this section, a trust is tax-favored under the laws of the trust's jurisdiction if it meets any one or more of the following conditions: (A) Contributions to the trust that otherwise would be subject to tax are deductible or excluded from income, are taxed at a reduced rate, give rise to a tax credit, or otherwise are eligible for another tax benefit (such as a government subsidy or contribution); or (B) Taxation of investment income earned by the trust is deferred until distribution or the investment income is taxed at a reduced rate (including exempt from tax). (ii) Annual information reporting with respect to the trust (or of its participants or beneficiaries) is provided, or otherwise is available, to the relevant tax authorities in the trust's jurisdiction. (iii) Generally, only contributions with respect to income earned from the performance of personal services are permitted (with allowances made for limited contributions made by unemployed individuals). (iv) The trust meets either the value threshold in paragraph (b)(2)(iv)( 1 ) or any one of the contribution limitations in paragraph (b)(2)(iv)( 2 ) of this section: ( 1 ) Value threshold. The aggregate value of the trust(s) in the trust's jurisdiction is limited to no more than $600,000 at any point during the taxable year (as adjusted under paragraph (b)(2)(iv)( 3 ) of this section) regardless of the number of trusts established. ( 2 ) Contribution limitations. The contributions to the trust(s) in the trust's jurisdiction are limited to any one of the following: ( i ) A percentage of earned income of the participant, ( ii ) An annual limit of $75,000 (as adjusted under paragraph (b)(2)(iv)( 3 ) of this section) or less, or ( iii ) A lifetime limit of $1,000,000 (as adjusted under paragraph (b)(2)(iv)( 3 ) of this section) or less. ( 3 ) Dollar limitations subject to adjustments —( i ) The value threshold in paragraph (b)(2)(iv)( 1 ) and contribution limits in paragraph (b)(2)(iv)( 2 ) of this section are determined using the U.S. Treasury Bureau of Fiscal Service foreign currency conversion rate on July 1 of the tax year (available at https://fiscaldata.treasury.gov/datasets/ treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange ). ( ii ) In the case of calendar years beginning on or after January 1, 2025, the amounts under paragraph (b)(2)(iv)( 1 ) and paragraph (b)(2)(iv)( 2 ) of this section will be adjusted at the same time and in the same manner as the amounts are adjusted under section 415(d), except that the base period will be the calendar quarter beginning July 1, 2024. (v) Withdrawals, distributions, or payments from the trust are conditioned upon reaching a specified retirement age, disability, or death, or penalties apply to withdrawals, distributions, or payments made before such conditions are met. A trust that otherwise meets the requirements of this paragraph (b)(2)(v), but that allows withdrawals, distributions, or payments for in-service loans or for reasons such as hardship, educational purposes, or the purchase of a primary residence, will be treated as meeting the requirements of this paragraph. (vi) In the case of an employer-maintained trust: (A) The trust is nondiscriminatory insofar as a wide range of employees, including rank and file employees, must be eligible to make or receive contributions or accrue benefits under the terms of the trust (alone or in combination with other comparable plans); (B) The trust (alone or in combination with other comparable plans) actually provides significant benefits for a substantial majority of eligible employees; and (C) The benefits actually provided under the trust to eligible employees are nondiscriminatory. (3) Tax-favored foreign non-retirement savings trust. For purposes of this section, a tax-favored foreign non-retirement savings trust means a foreign trust that is created, organized, or otherwise established under the laws of a foreign jurisdiction ( the trust's jurisdiction ) as a trust, plan, fund, scheme, or other arrangement (collectively, a trust ) to operate exclusively or almost exclusively to provide, or to earn income for the provision of, medical, disability, or educational benefits, and that meets the following requirements established by the laws of the trust's jurisdiction: (i) The trust generally is exempt from income tax or otherwise is tax-favored under the laws of the trust's jurisdiction as defined in paragraph (b)(2)(i) of this section. (ii) Annual information reporting with respect to the trust (or of its participants or beneficiaries) is provided, or otherwise is available, to the relevant tax authorities in the trust's jurisdiction. (iii) Contributions to the trust are limited to $10,000 (multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year by substituting “calendar year 2020” for “calendar year 2016” in section 1(f)(3)(A)(ii) and rounding to the nearest multiple of $1,000) or less annually, or $200,000 (multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year by substituting “calendar year 2020” for “calendar year 2016” in section 1(f)(3)(A)(ii) and rounding to the nearest multiple of $1,000) or less on a lifetime basis, determined using the U.S. Treasury Bureau of Fiscal Service foreign currency conversion rate on the last day of the tax year (available at https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange ). (iv) Withdrawals, distributions, or payments from the trust are conditioned upon the provision of medical, disability, or educational benefits, or apply penalties to withdrawals, distributions, or payments made before such conditions are met. (4) Tax-favored foreign de minimis savings trusts. For purposes of this section, a tax-favored foreign de minimis savings trust means a foreign trust that is created, organized, or otherwise established under the laws of a foreign jurisdiction ( the trust's jurisdiction ) as a trust, plan, fund, scheme, or other arrangement (collectively, a trust ) to operate as a savings vehicle, that is not treated as a tax-favored foreign retirement trust, as described in paragraph (b)(2) or a tax-favored foreign non-retirement savings trust, as described in paragraph (b)(3), and that meets each of the following requirements: (i) The trust generally is exempt from income tax or otherwise is tax-favored under the laws of the trust's jurisdiction as defined in paragraph (b)(2)(i) of this section; (ii) Annual information reporting with respect to the trust (or of its participants or beneficiaries) is provided, or otherwise is available, to the relevant tax authorities in the trust's jurisdiction pursuant to the laws of the trust's jurisdiction; and (iii) The aggregate value of the trust(s) in the trust's jurisdiction is limited to no more than $50,000 at any point during the taxable year (multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year by substituting “[the year of the date of publication of the final regulations in the Federal Register ]” for “calendar year 2016” in section 1(f)(3)(A)(ii) and rounding to the nearest multiple of $1,000) regardless of the number of trusts established. The $50,000 is determined using the U.S. Treasury Bureau of Fiscal Service foreign currency conversion rate on the last day of the tax year (available at https://fiscaldata.treasury.gov/datasets/treasury-reporting-rates-exchange/treasury-reporting-rates-of-exchange ). (5) Certain rollovers and transfers. A trust that otherwise meets the requirements of paragraphs (b)(2) or (b)(3) of this section will not fail to be treated as a tax-favored foreign retirement or non-retirement savings trust within the meaning of this paragraph (b) solely because it may receive a rollover of assets or funds transferred from another tax-favored foreign retirement or non-retirement savings trust established and operated under the laws of the same jurisdiction, provided that the trust transferring assets or funds also meets the requirements of this paragraph (b)(2) or (b)(3), as applicable (but this paragraph does not apply to transfers between tax-favored retirement trusts and non-retirement savings trusts). (c) Exception for distributions from certain foreign compensatory trusts. Section 6048(c) does not apply to a distribution received by a U.S. person from a foreign trust described in § 1.672(f)-3(c)(1) provided that the U.S. person includes in income any amounts accumulated on behalf of, or distributed by the trust, to the U.S. person to the extent such amounts are required to be included in income (other than amounts that are exempt from Federal income tax under a bilateral income tax treaty or any other bilateral agreement to which the United States is a party) of the U.S. person, including pursuant to section 409A(b). (d) Exception for certain distributions received by domestic section 501(c)(3) organizations. Section 6048(c) does not apply to a distribution from a foreign trust received by a domestic organization, provided that the organization has received a determination letter from the Commissioner that has not been revoked recognizing that the domestic organization is exempt from Federal income tax under section 501(a) as an organization described in section 501(c)(3). (e) Exception for certain mirror code possession trusts. Sections 6048(a) through 6048(c) do not apply to a trust located in a mirror code possession to the extent the responsible party (within the meaning of section 6048(a)(4)), U.S. owner, or U.S. recipient is a bona fide resident (within the meaning of § 1.937-1(b)) of such mirror code possession. For purposes of this paragraph (e), a mirror code possession is a possession of the United States where, under the income tax system of the possession, the income tax liability of the residents of the possession is determined by reference to the income tax laws of the United States as if the possession were the United States, and a trust is located in a mirror code possession if a court within the mirror code possession is able to exercise primary supervision over the administration of the trust and one or more bona fide residents of the mirror code possession have the authority to control all substantial decisions of the trust.