Par. 2. Sections 1.643(i)-1, 1.643(i)-2, 1.643(i)-3, 1.643(i)-4, and 1.643(i)-5 are added to read as follows:
(a) Amount treated as section 643(i) distribution —(1) Loan of cash. Except as provided otherwise, in the case of a loan of cash treated as a section 643(i) distribution, the amount of the section 643(i) distribution is the issue price of the loan, as determined under § 1.446-2(d)(1), § 1.1273-2 or § 1.1274-2 (whichever is applicable), as of the date (described in § 1.643(i)-2(b)(6)) the loan is treated as a section 643(i) distribution.
(2) Loan of marketable securities. In the case of a loan of marketable securities treated as a section 643(i) distribution, the amount of the section 643(i) distribution is the fair market value of the securities as of the date the loan is treated as a section 643(i) distribution.
(3) Uncompensated use of trust property. In the case of the use of trust property treated as a section 643(i) distribution, the amount of the section 643(i) distribution is the fair market value of the use of the property less the amount of any payments made within a reasonable period (described in § 1.643(i)-2(a)(2)) for the use of such property. The fair market value of the use of the property is based on all the facts and circumstances, including the type of property used and the period of use.
(b) Allocation of section 643(i) distribution among multiple U.S. grantors and beneficiaries. If a U.S. person who is not a U.S. grantor or beneficiary of a foreign trust but who is related to more than one U.S. grantor or beneficiary of the trust receives a loan of cash or marketable securities, or uses trust property, that is treated as a section 643(i) distribution, then each U.S. grantor and beneficiary who is related to the U.S. person receiving the loan or using trust property is treated as receiving an equal share of the section 643(i) distribution. For purposes of this allocation, the term U.S. beneficiary includes only those beneficiaries who must or may receive a current distribution from the foreign trust.
(c) Tax consequences of a section 643(i) distribution —(1) In general. A U.S. grantor or beneficiary who is treated as receiving a section 643(i) distribution must determine the tax consequences of the distribution under either the actual calculation method (as defined in § 1.6048-4(d)(2)) or the default calculation method (as defined in § 1.6048-4(d)(3)). A U.S. grantor or beneficiary may not use the actual calculation method to determine the tax consequences of a section 643(i) distribution in a tax year in which the U.S. grantor or beneficiary has not received a Foreign Nongrantor Trust Beneficiary Statement (see § 1.6048-4(d)(2)) from the foreign trust before completing the U.S. grantor's or beneficiary's return, knows or has reason to know that the information in the Foreign Nongrantor Trust Beneficiary Statement is incorrect, or previously has used the default calculation method for the same trust. A U.S. grantor or beneficiary who previously has used the default calculation method must consistently use the default calculation method to determine the tax consequences of any subsequent distribution (within the meaning of § 1.6048-4(b)) from the same trust in all future years, except in the year in which the trust terminates. See § 1.6048-4(d)(3)(iii).
(2) Consequences to foreign trust —(i) Treatment of amount under section 661(a)(2). In the case of a section 643(i) distribution, regardless of whether a U.S. grantor or beneficiary uses the default calculation method or the actual calculation method of computing the tax consequences of a distribution, the foreign trust must treat the section 643(i) distribution as an amount properly paid, credited, or required to be distributed by the trust as described in section 661(a)(2).
(ii) Distribution of marketable securities. If the section 643(i) distribution is of marketable securities, the trust will be deemed to have made an election to have section 643(e)(3) apply with respect to all section 643(i) distributions of marketable securities made by the trust during the taxable year, and any resulting capital gain is included in the trust's distributable net income pursuant to section 643(a)(6)(C).
(iii) Foreign Nongrantor Trust Beneficiary Statement. The foreign trust may issue a Foreign Nongrantor Trust Beneficiary Statement (as described in § 1.6048-4(c)(2)) to each U.S. person who receives a loan of cash or marketable securities, or uses trust property other than a loan of cash or marketable securities, during the taxable year of the trust, without regard to whether a U.S. person would be required to take the amount of the loan or use of trust property into account as a section 643(i) distribution. If a U.S. person to whom a statement is issued is not a U.S. grantor or beneficiary but is related to a U.S. grantor or beneficiary, the foreign trust may issue a duplicate statement to the U.S. grantor or beneficiary.
(3) Consequences to U.S. grantor or beneficiary —(i) Actual calculation method. If a U.S. grantor or beneficiary is eligible to use, and uses, the actual calculation method, the U.S. grantor or beneficiary must treat a section 643(i) distribution as an amount properly paid, credited, or required to be distributed by the trust as described in section 662(a)(2) using information about the foreign trust as provided in the Foreign Nongrantor Trust Beneficiary Statement and applying the rules of subparts C and D of part I of subchapter J of chapter 1 of the Internal Revenue Code.
(ii) Default calculation method. Under the default calculation method, a U.S. grantor or beneficiary must apply the rules provided in § 1.6048-4(d)(3).
(d) Subsequent transactions for loans or use of trust property —(1) In general. Any subsequent transaction regarding the principal of any loan of cash or marketable securities treated as a section 643(i) distribution (including complete or partial repayment, satisfaction, cancellation, discharge, or otherwise, but not including the payment of interest) or the return of trust property the use of which was treated as a section 643(i) distribution has the consequences described in paragraphs (d)(2) and (3) of this section.
(2) Consequences to foreign trust. Any subsequent transaction regarding the principal of any loan of cash or marketable securities or the return of trust property treated as a section 643(i) distribution has no tax consequences to the trust. However, any payment to the trust other than the repayment of principal of any loan treated as a section 643(i) distribution, including the payment of interest, is treated as income to the trust.
(3) Consequences to obligor —(i) In general. Any subsequent transaction regarding the principal of any loan of cash or marketable securities or the return of trust property treated as a section 643(i) distribution is treated as a transfer that is not a gratuitous transfer by a U.S. person for purposes of § 1.671-2(e)(2)(i) and chapter 1 of the Internal Revenue Code.
(ii) Satisfaction of loan with property. Any transfer of property to a foreign trust in satisfaction of any amount due under a loan of cash or marketable securities treated as a section 643(i) distribution causes the obligor to recognize as gain or loss the difference between the fair market value of the property transferred and the adjusted basis of such property in the hands of the obligor in accordance with the rules of section 1001 and the regulations under section 1001 in this part.