Par. 2. Section 1.671-4 is revised to read as follows:
(a) Portion of trust treated as owned by the grantor or another person. Except as otherwise provided in paragraph (b) of this section, items of income, deduction, and credit attributable to any portion of a trust which, under the provisions of subpart E (section 671 and following), part I, subchapter J, chapter 1 of the Internal Revenue Code, is treated as owned by the grantor or another person are not reported by the trust on Form 1041, but are shown on a separate statement to be attached to that form.
(b) A trust all of which is treated as owned by one or more grantors or other persons. In the case of a trust all of which is treated as owned by one or more grantors or other persons, the trustee has the option of reporting by one of the methods described in this paragraph (b) rather than by the method described in paragraph (a) of this section. However, if the trustee reports by one of the methods described in this paragraph (b) for a taxable year of the trust, the trustee must continue to report by that method until the first taxable year that the trust is no longer a trust described in this paragraph (b).
(1) A trust all of which is treated as owned by one grantor or by one other person--(i) In general. In the case of a trust all of which is treated as owned by one grantor or one other person, the trustee reporting under this paragraph must--
(A) Furnish the name and taxpayer identification number (TIN) of the grantor or other person treated as the owner of the trust, and the address of the trust, to all payors of income and proceeds during the taxable year, and comply with the additional requirements described in paragraph (b)(1)(ii) of this section; or
(B) Furnish the name, TIN, and address of the trust to all payors of income and proceeds during the taxable year, and comply with the additional requirements described in paragraph (b)(1)(iii) of this section.
(ii) Additional obligations of the trustee when name and TIN of the grantor or other person and the address of the trust are furnished to payors. (A) Unless the grantor or other person treated as the owner of the trust is the trustee or a co-trustee of the trust, the trustee must furnish the grantor or other person with a statement that--
(1) Shows all items of income, deduction, and credit of the trust for the taxable year;
(2) Identifies the payor of each item of income;
(3) Provides the grantor or other person with the information necessary to take the items into account in computing the grantor's or other person's taxable income; and
(4) States that all items of income or gross proceeds that the payors reported to the Internal Revenue Service on Form 1099 have been included on the statement.
(B) The trustee, however, is not required to file any type of return with the Internal Revenue Service reporting those payments.
(iii) Additional obligations of the trustee when name, TIN, and address of the trust are furnished to payors--(A) Obligation to file Forms 1099. The trustee reporting under this paragraph must file with the Internal Revenue Service the appropriate Forms 1099, reporting the income or gross proceeds paid to the trust during the taxable year, and showing the trust as the payor and the grantor or other person as the payee. The trustee has the same obligations for filing the appropriate Forms 1099 as would a payor making reportable payments directly to the grantor or other person, except that the trustee must report each type of income in the aggregate, and each item of gross proceeds separately.
(B) Obligation to furnish statement. (1) Unless the grantor or other person treated as the owner of the trust is the trustee or a co- trustee of the trust, the trustee reporting under this paragraph must also furnish the grantor or other person with a statement that--
(i) shows all items of income, deduction, and credit of the trust for the taxable year;
(ii) provides the grantor or other person with the information necessary to take the items into account in computing the grantor's or other person's taxable income; and
(iii) states that all items of income or gross proceeds that the trustee is required to report to the Internal Revenue Service on Form 1099 have been included on the statement.
(2) By furnishing the statement, the trustee is treated as having satisfied any obligation to furnish statements to recipients with respect to the Forms 1099 filed by the trustee.
(iv) Examples. The following examples illustrate the provisions of this paragraph (b)(1).
Example 1. G creates an irrevocable trust which provides that the ordinary income is to be payable to him for life and that on his death the corpus shall be distributed to B, an unrelated person. Except for the right to receive income, G retains no right or power which would cause him to be treated as an owner under sections 671 through 677. Under the applicable local law, capital gains must be added to corpus. Since G has a right to receive income, he is treated as an owner of a portion of the trust under section 677. The tax consequences of any items of capital gain of the trust are governed by the provisions of subparts A, B, C, and D (section 641 and following), part I, subchapter J, chapter 1 of the Internal Revenue Code. Because not all of the trust is treated as owned by the grantor, the trustee may not report by the methods described in paragraph (b)(1) of this section.
Example 2. (i)(A) On January 1, 1995, G, a United States citizen, creates a revocable trust all of which is treated as owned by G. The trustee of the trust is T. During the 1995 taxable year the trust has the following items of income and gross proceeds:
Interest $2,500 Dividends 3,205 Proceeds from sale of B stock 2,000
(B) The trust has no items of deduction or credit.
(ii)(A)(1) The payors of the interest paid to the trust are X ($2,000), Y ($300), and Z ($200). The payors of the dividends paid to the trust are A ($3,200) and B ($5). The payor of the gross proceeds from the sale of B stock is S ($2,000). The B stock was purchased by T for $1,500 on January 2, 1995, and sold by T on November 30, 1995. T furnishes the name, TIN, and address of the trust to X, Y, Z, A, B, and S. T timely files a Form 1099-INT with the Internal Revenue Service on which T reports interest attributable to G, as the owner of the trust, of $2,500; a Form 1099-DIV on which T reports dividends attributable to G, as the owner of the trust, of $3,205; and a Form 1099-B on which T reports proceeds from the sale of B stock attributable to G, as the owner of the trust, of $2,000. On or before the date specified in section 6034A(a), T furnishes a statement to G which lists the following items of income and information necessary for G to take the items into account in computing G's taxable income:
Interest. $2,500 Dividends. 3,205 Gain from sale of B stock 500
Information regarding sale of B stock:
Proceeds $2,000 Basis 1,500 Date acquired 1/02/95 Date sold 11/30/95
(2) In addition, the statement furnished to G states that all items of income or gross proceeds that T is required to report to the Internal Revenue Service are included on the statement.
(B) T has complied fully with T's obligations under paragraph (b)(1)(iii)(B) of this section.
(iii)(A)(1) Same facts as paragraph (ii) of this Example 2, except that G owned the B stock and contributed it to the trust on January 1, 1995. On or before the date specified in section 6034A(a), T furnishes a statement to G which lists the following items of income and information necessary for G to take the items into account in computing G's taxable income:
Interest $2,500 Dividends 3,205
Information regarding sale of B stock:
Proceeds $2,000 Date sold 11/30/95
(2) In addition, the statement furnished to G states that all items of income or gross proceeds that T is required to report to the Internal Revenue Service are included on the statement.
(B) T has complied fully with T's obligations under paragraph (b)(1)(iii)(B) of this section.
(2) A trust all of which is treated as owned by two or more grantors or other persons--(i) In general. In the case of a trust all of which is treated as owned by two or more grantors or other persons, the trustee reporting under this paragraph must furnish the name, TIN, and address of the trust to all payors of income and proceeds during the taxable year, and comply with the additional requirements described in paragraph (b)(2)(ii) of this section.
(ii) Additional obligations of trustee--(A) Obligation to file Forms 1099. The trustee must file with the Internal Revenue Service the appropriate Forms 1099, reporting the income or gross proceeds paid to the trust during the taxable year attributable to the portion of the trust treated as owned by each grantor or other person, and showing the trust as the payor and each grantor or other person as a payee. The trustee has the same obligations for filing the appropriate Forms 1099 as would a payor making reportable payments directly to the grantor or other person, except that the trustee must report each type of income in the aggregate, and each item of gross proceeds separately.
(B) Obligation to furnish statement. (1) The trustee must also furnish to each grantor or other person a statement that--
(i) Shows all items of income, deduction, and credit of the trust for the taxable year attributable to the portion of the trust treated as owned by the grantor or other person;
(ii) Provides the grantor or other person with the information necessary to take the items into account in computing the grantor's or other person's taxable income; and
(iii) States that all items of income or gross proceeds that the trustee is required to report to the Internal Revenue Service on Form 1099 have been included on the statement.
(2) By furnishing the statement, the trustee is treated as having satisfied any obligation to furnish statements to recipients with respect to the Forms 1099 filed by the trustee.
(3) Common Trust Funds. This paragraph (b) does not apply to a common trust fund as defined in section 584.
(4) Trusts with foreign situs or assets. This paragraph (b) does not apply to a trust if its situs or any of its assets are located outside the United States.
(c) Due date for Forms 1099 required to be filed by trustee. The due date otherwise in effect for filing Forms 1099 applies in the case of any Forms 1099 required to be filed with the Internal Revenue Service by a trustee pursuant to paragraph (b) of this section.
(d) Due date and other requirements with respect to statement required to be furnished by trustee. The due date for the statement required to be furnished by a trustee to the grantor or other person pursuant to paragraph (b) of this section is the date specified in section 6034A(a). The trustee must maintain in its records a copy of the statement furnished to the grantor or other person for a period of three years from the due date for furnishing such statement specified in this paragraph.
(e) Application to brokers and customers. For purposes of this section, a broker within the meaning of section 6045 is considered a payor, and a customer within the meaning of section 6045 is considered a payee.
(f) Effective date and transition rule--(1) In general. The trustee of a trust any portion of which is treated as owned by the grantor or another person must report pursuant to this section for taxable years beginning on or after the first day of the first calendar year after the date of publication of the final regulations in the Federal Register. However, if the trustee has filed a Form 1041 for any taxable year ending before that date (and has not filed a final Form 1041 pursuant to Sec. 1.671-4(b)(3) in the 26 CFR part 1 edition revised as of April 1, 1994), or files a Form 1041 for any taxable year thereafter, the trustee must file a final Form 1041 for the taxable year which ends after the date of publication of the final regulations in the Federal Register and which immediately precedes the first taxable year for which the trustee reports pursuant to paragraph (b) (1) or (2) of this section, on the front of which form the trustee must write: ``Pursuant to Sec. 1.671-4(f), this is the final Form 1041 for this grantor trust.''.
(2) Transition rule. For taxable years beginning prior to the first day of the first calendar year following the date of publication of the final regulations in the Federal Register, the Internal Revenue Service will not challenge the manner of reporting of--
(i) A trustee of a trust all of which is treated as owned by one or more grantors or other persons who did not report in accordance with Sec. 1.671-4(a) (26 CFR part 1 revised as of April 1, 1994) as in effect for taxable years beginning prior to the first day of the first calendar year following the date of publication of the final regulations in the Federal Register, but did report in a manner substantially similar to one of the reporting methods described in paragraph (b) of this section; or
(ii) A trustee of two or more trusts all of which are treated as owned by grantors or other persons who filed a single Form 1041 for all of the trusts, rather than a separate Form 1041 for each trust, provided that the items of income, deduction, and credit of each trust were shown on a statement attached to the single Form 1041.
(g) Cross-references. For special rules relating to backup withholding requirements, see section 3406 and the regulations thereunder. For rules relating to employer identification numbers, and to the obligation of a payor of income or proceeds to the trust to furnish to the payee a statement to recipients with respect to the information return filed by the payor, see Sec. 301.6109-1(a)(2) of this chapter.