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The Hiring Incentives to Restore Employment Act ("the HIRE Act"), signed into law by President Obama on March 18, 2010, amended and added provisions of the Internal Revenue Code with the aim of increasing foreign account tax compliance. The provisions of the Foreign Account Tax Compliance Act (FATCA), enacted as part of the HIRE Act, added Sections 6038D, 1471, 1472, 1473, and 1474 to the Internal Revenue Code, imposing additional information reporting requirements with respect to foreign assets with an aggregate value of over $50,000 (IRC Section 6038D) and imposing additional reporting, documentation, and withholding requirements on foreign financial institutions with respect to certain U.S. accounts (new Chapter 4, Taxes to Enforce Reporting on Certain Foreign Accounts, comprised of IRC Sections 1471, 1472, 1473, and 1474). FATCA also amended certain provisions of the Internal Revenue Code, including amendments that added new reporting requirements for United States owners and United States grantors of foreign trusts.
U.S. Owners of Foreign Trusts. IRC Section 6048(b) pertains to a U.S. person who is treated as the owner of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1 (the grantor trust provisions), and it is here where one of the new reporting obligations for U.S. owners of foreign trusts added by FATCA comes into play...
... Section 534(a) of FATCA amended IRC Section 6048(b) by adding language that requires a U.S. person who is treated as an owner of any portion of foreign trust under the grantor trust rules to submit such information as the Secretary may prescribe with respect to the foreign trust for such taxable year in addition to ensuring that the foreign trust complies with the foreign trust's reporting obligations.
... [I]n order to satisfy the requirements under IRC Section 6048(b) for any taxable year during which a U.S. person is treated as the owner of a foreign trust under the grantor trust provisions:(1) the foreign trust must file an information return with the Service for such taxable year;(2) the foreign trust must furnish such information prescribed by the Secretary to each U.S. person who (a) is treated as the owner of any portion of such trust or (b) who receives (directly or indirectly) any distribution from the trust;(3) the U.S. owner of a foreign trust must ensure that the foreign trust complies with the first two requirements; and(4) the U.S. owner of a foreign trust must file an information return with the Service.
New Reporting Requirements for U.S. Grantors of Foreign TrustsAmendment of IRC Section 679 and U.S. Grantors of Foreign Trusts. In addition to the amendment of IRC Section 6048, FATCA amended IRC Section 679, affecting the reporting obligations of U.S. grantors of foreign trusts...
Presumption of U.S. Beneficiary. Section 532 of FATCA added new subsection (d), which creates a presumption that a foreign trust has a U.S. beneficiary under certain circumstances. Under IRC Section 679(d), a foreign trust will be presumed to have a U.S. beneficiary whenever a U.S. person transfers property to the foreign trust, unless: (1) the U.S. person provides certain information to the Secretary, and (2) the U.S. person demonstrates to the Secretary that certain requirements under IRC Section 679(c) have been met.
Reporting Under IRC Section 679(d). The 2010 instructions for Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Foreign Gifts, does not provide explicit guidance as to whether that particular form can be used by a U.S. transferor of property to a foreign trust to meet the reporting obligations under new IRC Section 679(d)...
Looking ahead. Practitioners should carefully review the new reporting obligations added by Subtitle A of Title V of the HIRE Act for U.S. owners of a foreign trust and for U.S. grantors of foreign trusts, and as the Service and Treasury Department receive comments, practitioners should anticipate specific guidance on how the new obligations are to be met.
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RELATED LINKS: For additional insight on reporting requirements for U.S. owners and grantors of foreign trusts, see:
1-19 Save Time and Taxes: Fiduciary Income Tax Returns § 19.07 - Reporting Requirements
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