A of Title V of the Hiring Incentives to Restore Employment Act, enacted in
2010, made significant changes to the Internal Revenue Code with the goal of
improving tax compliance with respect to foreign accounts and foreign assets.
These changes included new reporting requirements for United States owners and
United States grantors of foreign trusts. In this Analysis, Diane L. Mutolo
discusses the new requirements. She writes:
Reporting Requirements for U.S. Owners of Foreign Trusts
Foreign Trusts. As explained in How
to Save Time & Taxes Preparing Fiduciary Income Tax Returns, generally, a
foreign nonresident trust is treated for tax purposes in the same way as a
nonresident alien individual and is, therefore, required to file a U.S. income
tax return if the foreign nonresident trust has U.S.-sourced income or income
that is effectively connected with the conduct of a U.S. trade or business.
definition of a "foreign trust" is found in IRC
Section 7701, which states that a foreign trust is any trust other than a
trust described in IRC Section 7701(a)(30)(E). IRC Section 7701(a)(30)(E)
essentially provides the definition of a domestic trust and states that the
definition of a U.S. person includes any trust if: (1) a court within the U.S.
is able to exercise primary supervision over the administration of the trust,
and (2) one or more U.S. persons have the authority to control all substantial
decisions of the trust.
Reporting Requirements With Respect to
Foreign Trusts. The
Information reporting obligations with respect to foreign trusts are provided
for in IRC
Section 6048. Under IRC Section 6048(a), on or before the 90th day (or a
later day as the Service may prescribe) after any reportable event, the
responsible party is to provide written notice of the reportable event to the
Service. Information that must be provided in the notice is information as
prescribed by the Service, including:
(1) the amount of money or other property (if
any) transferred to the foreign trust in connection with the reportable event,
(2) the identity of the trust and of each
trustee and beneficiary or class of beneficiaries of the trust.
term "reportable event" is defined in IRC
Section 6038(a)(3) as:
(1) the creation of any foreign trust by a
(2) the transfer of any money or property,
directly or indirectly, to a foreign trust by a U.S. person, including a
transfer by reason of death; and
(3) the death of a citizen or resident of the
U.S., if the decedent was treated as the owner of any portion of a foreign
trust under the grantor trust rules, or if any portion of a foreign trust was
included in the decedent's gross estate.
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