# Transactions With Foreign Trusts and Information Reporting on Transactions With Foreign Trusts and Large Foreign Gifts

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-09434

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** May 8, 2024
- **Citation:** 89 FR 39440

## Text

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-124850-08]
RIN 1545-BI04
Transactions With Foreign Trusts and Information Reporting on Transactions With Foreign Trusts and Large Foreign Gifts

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking and notice of public hearing.

SUMMARY:

This document contains proposed regulations that provide guidance regarding information reporting of transactions with foreign trusts and receipt of large foreign gifts and regarding loans from, and uses of property of, foreign trusts. This document also contains proposed amendments to the regulations relating to foreign trusts having one or more United States beneficiaries. The proposed regulations affect United States persons who engage in transactions with, or are treated as the owners of, foreign trusts, and United States persons who receive large gifts or bequests from foreign persons. This document also provides notice of a public hearing on the proposed regulations.

DATES:

Comments:
Electronic or written public comments must be received by July 8, 2024.

Public Hearing:
A public hearing on these proposed regulations has been scheduled for August 21, 2024, at 10 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by July 8, 2024. If no outlines are received by July 8, 2024, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5:00 p.m. ET on August 19, 2024.

ADDRESSES:

Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at
www.regulations.gov
(indicate IRS and REG-124850-08) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted to the IRS's public docket.

Send paper submissions to: CC:PA:01:PR (REG-124850-08), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations, Lara A. Banjanin at (202) 317-6933 or S. Eva Wolf at (202) 317-3893 (not toll-free numbers); concerning submissions of comments, the hearing, or to be placed on the building access list to attend the hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by email at
publichearings@irs.gov
(preferred).

SUPPLEMENTARY INFORMATION:

Background

I. In General

This document contains proposed amendments to 26 CFR part 1 under sections 643(i), 679, 6039F, 6048, and 6677 of the Internal Revenue Code (Code) (the
proposed regulations
). Section 6048, as significantly modified by the Small Business Job Protection Act of 1996 (
1996 Act
), Public Law 104-188 (110 Stat. 1755), and further amended by the Taxpayer Relief Act of 1997 (
1997 Act
), Public Law 105-34 (111 Stat. 788), and the Hiring Incentives to Restore Employment Act (
HIRE Act
), Public Law 111-147 (124 Stat. 71), generally requires U.S. persons to report transactions that involve foreign trusts. Section 6677, as significantly modified by the 1996 Act and further amended by the HIRE Act, imposes penalties on U.S. persons for failing to comply with section 6048. Section 6039F, which was added to the Code by the 1996 Act, and modified by the Tax Cuts and Jobs Act, Public Law 115-97 (131 Stat. 2054), requires U.S. persons to report the receipt of large gifts or bequests from foreign persons, and in the event of a failure to provide this information, section 6039F(c) imposes penalties and allows the IRS to recharacterize the purported gift or bequest as income. Section 643(i), which was added to the Code by the 1996 Act and amended by the HIRE Act, and section 679, as amended by the 1996 Act and the HIRE Act, provide additional rules intended to prevent taxpayers from avoiding U.S. income tax consequences through the use of foreign trusts.

On June 2, 1997, the Treasury Department and the IRS issued Notice 97-34, 1997-1 CB 422, which provides guidance on sections 643(i), 679, 6039F, 6048 and 6677 (the
foreign trust and gift provisions
) as enacted or modified by the 1996 Act. On August 7, 2000, the Treasury Department and the IRS published a notice of proposed rulemaking and a notice of public hearing (REG-209038-89) under section 679 in the
Federal Register
(65 FR 48185). On July 20, 2001, the Treasury Department and the IRS published final regulations under section 679. TD 8955 (66 FR 37866).

U.S. persons currently provide information required by the foreign trust and gift provisions on Form 3520,
Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,
and Form 3520-A,
Annual Information Return of Foreign Trust With a U.S. Owner (Under section 6048(b)).
In 2015, section 2006(b)(9) and (10) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (
Surface Transportation Act
), Public Law 114-41 (129 Stat. 443), modified the due dates for Forms 3520 and 3520-A for taxable years beginning after December 31, 2015. On March 16, 2020, the Treasury Department and the IRS issued Revenue Procedure 2020-17, 2020-12 IRB 539, which exempts from section 6048 information reporting requirements certain U.S. individuals' transactions with, and ownership of, certain tax-favored foreign trusts that are established and operated exclusively or almost exclusively to provide pension or retirement benefits, or to provide medical, disability, or educational benefits.

II. Purpose of Foreign Trust and Gift Provisions

During the mid- to late-1990s, abusive tax schemes, including offshore schemes involving foreign trusts, reemerged in the United States after last peaking in the 1980s. GAO,
Efforts to Identify and Combat Abusive Tax Schemes Have Increased, But Challenges Remain,
GAO-02-733 (Washington, DC: May 22, 2002). In these schemes, foreign trusts were used to transfer large amounts of assets offshore, where it was much more difficult for the IRS to identify whether U.S. persons owned an interest in such trusts, and whether such persons were reporting and paying the required taxes on their income from such trusts. Many of the foreign trusts were established in tax haven jurisdictions with bank secrecy laws. Before the 1996 Act amended sections 6048 and 6677, there was no requirement for U.S. persons to report distributions from foreign trusts, and the penalty for failing to report transfers to a foreign trust, or an annual foreign trust information return (on

Form 3520-A), was limited to five percent of the transfer or trust corpus, as applicable, not to exceed $1,000. Given that, it was difficult for the IRS to obtain information about income earned by U.S.-owned foreign trusts and distributions to U.S. beneficiaries of foreign trusts, and sections 6048 and 6677 were generally ineffective at ensuring that U.S. persons provided this information. The result was “rampant tax avoidance.” 141 Cong. Rec. S13859 (daily ed. Sept. 19, 1995) (remarks of Senator Moynihan).

The foreign trust and gift provisions in the 1996 Act were designed to accommodate changes in the use of foreign trusts and to limit avoidance and evasion of U.S. tax. The most significant changes were made to sections 6048 and 6677 to enhance the IRS's ability to obtain the information necessary to enforce the tax laws that apply to U.S. persons' transactions with, and ownership of, foreign trusts. Other changes included enactment of new section 643(i) and amendments to section 679, each of which is designed to prevent tax avoidance through the use of foreign trusts. In addition, the legislation included new section 6039F, which enables the IRS to obtain information about large foreign gifts or bequests received by U.S. persons.

III. Overview

A. Section 643(i)

Section 643(i), as originally enacted in 1996, generally provides that, if a foreign trust makes a loan of cash or marketable securities directly or indirectly to any grantor or beneficiary of the foreign trust who is a U.S. person (other than an entity that is exempt from tax under Chapter 1 of the Code), or to a U.S. person related (under sections 267 and 707(b)) to such a grantor or beneficiary, the amount of the loan is treated as a distribution by the trust to the grantor or beneficiary. Section 643(i) also authorizes the Secretary to issue regulations providing exceptions, under which a loan by a foreign trust would not be treated as a distribution to the grantor or beneficiary of the trust. The 1996 Act's legislative history explains that these regulations are expected to provide an exception under section 643(i) for loans with arm's-length terms, and in applying this exception, the regulations should consider whether there is a reasonable expectation that the grantor, beneficiary, or related person would repay the loan. H.R. Conf. Rep. No. 737, 104th Cong., 2d Sess., at 334 (1996).

Section V.A of Notice 97-34 provides that a loan of cash or marketable securities by a foreign trust to a U.S. grantor or U.S. beneficiary of the trust, or to a U.S. person who is related to a U.S. grantor or U.S. beneficiary of the trust, is treated as a distribution under section 643(i) unless the loan is made in consideration for a “qualified obligation” that satisfies certain specified requirements. Notice 97-34 states that what constitutes a qualified obligation will be provided in regulations. (Section III.C of Notice 97-34 provides similar qualified obligation rules for transfers to foreign trusts. See section III.B of this Background.)

In 2010, Congress expanded the scope of section 643(i) in response to concerns that U.S. persons were avoiding the application of section 643(i) by using trust property other than cash or marketable securities without compensating the foreign trust for the use of the property. Section 533 of the HIRE Act amended section 643(i) to provide that any uncompensated use of trust property by a U.S. grantor or U.S. beneficiary of the foreign trust, or any U.S. person related to such U.S. grantor or U.S. beneficiary, generally is treated as a distribution of the fair market value of the use of such property to the U.S. grantor or U.S. beneficiary. This rule does not apply if the foreign trust is paid fair market value for the use of the trust property within a reasonable timeframe.

Loans and use of trust property are reported on Part III of Form 3520. Taxpayers provide this information based on guidance in section V.A of Notice 97-34, as well as the instructions for Form 3520. This information allows the IRS to determine whether the loan or use of trust property should be treated as a distribution pursuant to section 643(i).

B. Section 679

1. 1976 Act

Section 679 was enacted by the Tax Reform Act of 1976 (
1976 Act
), Public Law 94-455 (90 Stat. 1520). Section 679 treats a U.S. person who directly or indirectly transfers property to a foreign trust as the owner of the portion of the foreign trust attributable to the transferred property to the extent that, under the terms of the trust, the income or corpus of the trust may be paid to or accumulated for the benefit of a U.S. person during the taxable year, including if the trust were to be terminated during the taxable year.

2. 1996 Act Amendments

Section 1903 of the 1996 Act made several important changes to section 679. For example, Congress was concerned that taxpayers were attempting to avoid the application of section 679(a)(1) by transferring property to a foreign trust in exchange for obligations from the foreign trust that might not be repaid and arguing that such obligations satisfied the fair market value exception in section 679(a)(2). H.R. Conf. Rep. No. 737, 104th Cong., 2d Sess., at 334-35 (1996). The fair market value exception provides that section 679(a)(1) does not apply to any transfer of property to a foreign trust in exchange for consideration of at least the fair market value of the transferred property. Accordingly, Congress added new section 679(a)(3), which generally provides that obligations issued by the foreign trust, by any grantor or beneficiary of the trust, or by any person related to any grantor or beneficiary, are not taken into account in applying the fair market value exception except as provided in regulations.

Section III.C of Notice 97-34 implemented the fair market value exception of section 679(a)(2)(B) and (a)(3) by providing that, if a U.S. person transfers money or other property to a related foreign trust in exchange for an obligation issued by the trust or by a person related to the trust, the obligation is taken into account for purposes of determining whether the U.S. person received fair market value from the foreign trust only if the obligation is a
qualified obligation
that satisfies certain specified requirements. (Section V.A of Notice 97-34 provides similar qualified obligation rules that apply with respect to loans from foreign trusts under section 643(i). See section III.A of this Background.) In 2001, the Treasury Department and the IRS issued final regulations under section 679 in TD 8955 (66 FR 37886) that included the section 679 qualified obligation rules described in Notice 97-34. See § 1.679-4(d).

A U.S. person's transfers to a foreign trust are reported on Part I of Form 3520, together with information about any qualified obligations received from the trust. Taxpayers provide this information based on the final regulations under section 679, as well as the instructions for Form 3520. This information allows the IRS to determine whether the U.S. person should be treated as an owner of the foreign trust under section 679.

3. HIRE Act Amendments

In 2010, the HIRE Act made five amendments to section 679, three of which are consistent with the final regulations under section 679, and two of which set forth new rules not reflected in the final regulations.

First, section 531(a) of the HIRE Act added new language to section 679(c)(1) to clarify that an amount is treated as accumulated for the benefit of a U.S. person even if the U.S. person's interest in the foreign trust is contingent on a future event. This statutory amendment is consistent with § 1.679-2(a)(2)(i), which states that the determination as to whether income or corpus may be paid to or accumulated for the benefit of a U.S. person is made without regard to whether the income or corpus actually is distributed to the U.S. person during the year, or whether the U.S. person's interest in the income or corpus of the trust is contingent on a future event.

Second, section 531(b) of the HIRE Act added a new paragraph (4) to section 679(c) to clarify that, if any person has the discretion to make a distribution from the foreign trust to or for the benefit of any person, the trust shall be treated as having a U.S. beneficiary unless the terms of the trust specifically identify the class of persons to whom such distributions may be made, and none of those persons are U.S. persons during the taxable year. This statutory amendment is consistent with § 1.679-2(a)(1), which provides that a foreign trust is treated as having a U.S. beneficiary unless no part of the trust's income or corpus may be paid or accumulated to or for the benefit of a U.S. person, and if the trust is terminated at any time during the taxable year, no part of the trust's income or corpus could be paid to or for the benefit of a U.S. person.

Third, section 531(c) of the HIRE Act added a new paragraph (5) to section 679(c) to clarify that, if any U.S. person who directly or indirectly transfers property to a foreign trust is directly or indirectly involved in any agreement or understanding that may result in the income or corpus of the trust being paid to or accumulated for the benefit of a U.S. person, then such an agreement or understanding shall be treated as constituting a term of the trust. This statutory amendment is consistent with § 1.679-2(a)(4)(i), which, assuming that a transferor of property to a trust is generally directly or indirectly involved with any agreements regarding the accumulation or disposition of the income and corpus of the trust, allows the IRS to treat a foreign trust as having a U.S. beneficiary by looking beyond the language of the trust instrument to all written and oral agreements and understandings related to the trust, memoranda or letters of wishes, all records that relate to the actual distribution of income and corpus, and all other documents relating to the trust, whether or not of any purported legal effect.

Fourth, section 532 of the HIRE Act added a new paragraph (d) to section 679, which provides a presumption that a foreign trust has a U.S. beneficiary in certain circumstances. If a U.S. person directly or indirectly transfers property to a foreign trust (other than certain compensatory and charitable trusts), the IRS may treat the trust as having a U.S. beneficiary for purposes of applying section 679 to the transfer unless the U.S. person submits such information to the IRS as the IRS may require and demonstrates to the satisfaction of the IRS that the trust satisfies the requirements of section 679(c)(1).

Finally, section 533(c) of the HIRE Act added a new paragraph (6) to section 679(c), which generally treats a loan of cash or marketable securities to, or the use of any other trust property by, any U.S. person, whether or not a beneficiary under the terms of the trust, as paid to or accumulated for the benefit of a U.S. person. Section 679(c)(6) does not apply to the extent that the U.S. person repays the loan at a market rate of interest or pays the fair market value of the use of the property within a reasonable period of time. The effect of section 679(c)(6) is that, if a foreign trust is not already treated as having a U.S. beneficiary, a loan by the trust of cash or marketable securities to a U.S. person or the uncompensated use of trust property by a U.S. person may cause the foreign trust to be treated as having a U.S. beneficiary, with the result that a U.S. person who transferred property to the trust may be treated as the owner of the trust under section 679(a).

Final regulations were issued under section 679 in 2001, and although instructions for Form 3520 and Form 3520-A have been updated to take into account the HIRE Act amendments to section 679, regulations implementing these amendments have not been issued.

C. Section 6039F

Section 1905 of the 1996 Act created new reporting requirements under section 6039F for U.S. persons (other than certain exempt organizations) that receive large gifts (including bequests) from foreign persons. The new information reporting provisions require U.S. persons to provide information concerning the receipt of large amounts that they treat as foreign gifts or bequests, giving the IRS an opportunity to review the characterization of these payments and determine whether they are properly treated as gifts.

Section 6039F(b) generally defines the term
foreign gift
as any amount received from a person other than a U.S. person that the recipient treats as a gift or bequest. However, a foreign gift does not include a qualified transfer (within the meaning of section 2503(e)(2)) or a distribution from a foreign trust. A distribution from a foreign trust must be reported as a distribution under section 6048(c) (discussed in section III.E of this Background) rather than as a gift under section 6039F.

Section 6039F(c) provides that, if a U.S. person fails, without reasonable cause, to report a foreign gift as required by section 6039F, then (i) the tax consequences of the receipt of the gift will be determined by the Secretary and (ii) the U.S. person will be subject to a penalty equal to 5 percent of the amount of the gift for each month the failure to report the foreign gift continues, with the total penalty not to exceed 25 percent of the value of the gift. Under sections 6039F(a) and (d), reporting is required if the value of the aggregate foreign gifts received by a U.S. person during any taxable year exceeds $10,000, as modified by cost-of-living adjustments. Under section VI.B.1 of Notice 97-34, however, a U.S. person is required to report gifts from a foreign individual or foreign estate only if the aggregate amount of gifts from that foreign individual or foreign estate exceeds $100,000 during the U.S. person's taxable year. Section VI.B.3 of Notice 97-34 provides guidance on when a U.S. person must aggregate foreign gifts received from foreign persons that the U.S. person knows or has reason to know are related to each other. Once the $100,000 threshold has been met, the U.S. person must identify each foreign gift in excess of $5,000 but is not required to identify the transferor.

A U.S. person who receives foreign gifts that exceed the threshold amounts must report the foreign gifts on Part IV of Form 3520. Taxpayers provide this information based on guidance in section VI of Notice 97-34, as well as the instructions for Form 3520.

D. Section 6048

Section 6048(a) through (c) contains three distinct reporting obligations with respect to a U.S. person's transactions with, and ownership of, foreign trusts.

1. Section 6048(a)

Section 6048(a) generally requires a responsible party to file information returns upon the occurrence of certain reportable events. A responsible party is the U.S. grantor of an inter vivos foreign trust, the U.S. transferor, or the executor of a U.S. decedent's estate. A reportable event is (a) the creation of any foreign trust by a U.S. person; (b) the direct or

indirect transfer of any money or property to a foreign trust by a U.S. person, including a transfer by reason of death; or (c) the death of a U.S. citizen or resident if the decedent was treated as the owner of any portion of a foreign trust or if any portion of a foreign trust was included in the gross estate of the decedent. Section 6048(a)(3)(B)(i) provides an exception for transfers for fair market value (the fair market value exception), and section 6048(a)(3)(B)(ii) provides an exception for transfers to certain deferred compensation and charitable trusts. (These exceptions correspond to the current substantive exemptions to the scope of section 679. See section 679(a)(1) and (2)(B).)

A reportable event is reported on Part I of Form 3520. Section III of Notice 97-34 and the instructions for Form 3520 provide information to taxpayers regarding this reporting. Section 6048(a) enables the IRS to obtain the information necessary to enforce sections 679 (discussed in section III.B of this Background) and 684 (added by section 1131(b) of the 1997 Act to provide for recognition of gain on certain transfers to foreign trusts).

2. Section 6048(b)

Section 6048(b)(1) generally requires a U.S. person who is treated as the owner of any portion of a foreign trust under the grantor trust rules (
U.S. owner
) to ensure that the trust (i) files an annual information return to provide a full accounting of all the trust activities for the trust's taxable year and (ii) furnishes an annual information statement to each U.S. owner and to any other U.S. person who receives (directly or indirectly) any distribution from the trust during the year (
U.S. beneficiary
). In addition, the U.S. owner must submit such information as the IRS may prescribe with respect to the foreign trust.

Section 6048(b)(2) provides that, unless a foreign trust with a U.S. owner appoints a U.S. agent, the Secretary may determine the amounts required to be taken into account with respect to such trust by the U.S. owner under the grantor trust rules. The U.S. agent will be required to act as the foreign trust's limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to any request or summons by the Secretary in connection with the tax treatment of any items related to the trust. Certain rules (similar to the rules of section 6038A(e)(2) and (4)) relating to the enforcement of requests for certain records with respect to foreign-owned corporations will apply. Information about the U.S. agent must be reported on both the U.S. owner's Form 3520 and the foreign trust's Form 3520-A.

The foreign trust's annual information return is Form 3520-A, and any additional information required to be submitted by the U.S. owner is provided on Part II of Form 3520. The information statements that the foreign trust must furnish to each U.S. owner and to each U.S. beneficiary who receives a distribution are the Foreign Grantor Trust Owner Statement and the Foreign Grantor Trust Beneficiary Statement, as applicable. Taxpayers provide this information based on guidance in section IV of Notice 97-34, as well as the instructions for Form 3520 and Form 3520-A. If the foreign trust fails to file Form 3520-A, section 6677 imposes a penalty on the U.S. owner. In order to avoid penalties under section 6677, the U.S. owner must complete a substitute Form 3520-A for the foreign trust and attach it to the U.S. owner's Form 3520. See instructions for Part II of Form 3520.

3. Section 6048(c)

Section 6048(c)(1) provides that any U.S. person who directly or indirectly receives any distribution from a foreign trust is required to file an information return to report the name of the trust, the aggregate amount of the distributions received, and any other information that the Secretary may prescribe. Section 6048(c)(2) generally provides that, if adequate records are not provided to the Secretary to determine the proper treatment of a distribution from a foreign trust, the distribution is treated as an accumulation distribution. However, to the extent provided in regulations, this rule does not apply if the foreign trust authorizes a U.S. person to act as its limited agent under rules similar to the rules of section 6048(b)(2)(B) (discussed in section III.D.2 of this Background). Section 6048(d)(5) (discussed in section III.D.4 of this Background) provides that a U.S. person's treatment of a distribution from a foreign trust must be consistent with the trust's treatment of such item or the Secretary must be notified of the inconsistency.

Distributions from a foreign trust are reported on Part III of Form 3520. Taxpayers provide this information based on guidance in section V of Notice 97-34, as well as the instructions for Form 3520. Section 6048(c) enables the IRS to obtain the information it needs to enforce the rules relating to the taxation of accumulation distributions (sections 665 through 669), as well as sections 672(f), 643(h), and 643(i). Section 6048(c) requires any U.S. person, including a U.S. owner and U.S. beneficiary of a foreign trust, who receives a distribution from a foreign trust to report information about the distribution. See
Wilson
v.
United States,
6 F.4th 432 (2d Cir. 2021), rev'g, No. 19-CV-5037 (BMC), 2019 WL 6118013 (E.D.N.Y. Nov. 18, 2019) (holding that when an individual is both the sole owner and beneficiary of a foreign trust and fails to timely report distributions received from the trust, the IRS may impose a penalty under section 6677 equal to 35 percent of the gross reportable amount).

4. Section 6048(d)

Section 6048(d)(1) provides that, for purposes of section 6048, in determining whether a U.S. person makes a transfer to, or receives a distribution from, a foreign trust, the fact that a portion of the trust is treated as owned by another person under the grantor trust rules is disregarded.

Section 6048(d)(2) provides that, to the extent provided in regulations, a domestic trust will be treated as a foreign trust for purposes of sections 6048 and 6677 if the trust has substantial activities, or holds substantial property, outside the United States. The legislative history includes the statement “that in exercising its regulatory authority to treat a U.S. trust as a foreign trust for purposes of information reporting purposes, the Secretary of the Treasury will take into account the information that such a trust reported under the domestic trust reporting rules.” H.R. Conf. Rep. 737, 104th Cong., 2d Sess. at 338 (1996). Section VIII.C of Notice 97-34 states that the Treasury Department and the IRS are studying the appropriate scope of section 6048(d)(2) and that, until further guidance is issued, a domestic trust is not treated as a foreign trust pursuant to section 6048(d)(2).

Section 6048(d)(3) provides that any notice or return required under section 6048 is to be made at such time and in such manner as the Secretary prescribes.

Section 6048(d)(4) authorizes the IRS to suspend or modify any requirement of section 6048 if the IRS determines that the United States has no significant tax interest in obtaining the required information. The Treasury Department and the IRS previously have issued guidance providing that information reporting under section 6048(c) is not required with respect to distributions from certain foreign compensatory trusts, provided that the U.S. person who receives the distribution reports the distribution as compensation income on an applicable Federal income tax return, and that information reporting under section 6048(a) through (c) is not required with respect to certain

Canadian retirement plans. See Section V of Notice 97-34; Rev. Proc. 2014-55, 2014-44 I.R.B. 753. In addition, on March 16, 2020, the Treasury Department and the IRS issued Revenue Procedure 2020-17, which exempts from section 6048 information reporting requirements certain U.S. individuals' transactions with, and ownership of, certain tax-favored foreign trusts that are established and operated exclusively or almost exclusively to provide pension or retirement benefits or to provide medical, disability, or educational benefits.

Section 6048(d)(5) (added by section 1027(b) of the 1997 Act) provides that a U.S. person who either is treated as an owner of any portion of a foreign trust or receives (directly or indirectly) any distribution from a foreign trust must treat any portion owned or any item distributed in a manner that is consistent with the trust's treatment of such ownership or item; otherwise, the U.S. person must notify the Secretary of the inconsistency. A similar rule in section 6034A(c) (added by section 1027(a) of the 1997 Act) generally provides that a beneficiary of an estate or trust is required to file a return in a manner that is consistent with the information received from the estate or trust, unless the beneficiary files with the return a notification of inconsistent treatment identifying the inconsistency. The Treasury Department and the IRS are of the view that the rules in sections 6034A(c) and 6048(d)(5) are to be interpreted as comparable to the consistency rules that already apply to S corporation shareholders and partners in partnerships. H.R. Conf. Rep. 220, 105th Cong., 1st Sess. at 551 (1997). Taxpayers may use Form 8082,
Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR),
to report an inconsistency.

Although regulations were issued under section 6048, these regulations now are obsolete because they were issued under an earlier version of section 6048. These regulations were removed as a result of regulations issued pursuant to Executive Order 13789. See TD 9849 (84 FR 9231).

E. Section 6677

Under section 6677, as amended by section 1901(b) of the 1996 Act, a U.S. person who fails to file a required information return under section 6048(a) or (c) is subject to an initial penalty of 35 percent of the gross reportable amount (generally, the value of the property transferred or received). If an information return required under section 6048(b) is not filed, the U.S. person who is treated as the owner of the foreign trust is subject to an initial penalty of five percent of the gross reportable amount (the trust corpus at the end of the year). See also
Wilson
v.
United States,
6 F.4th 432 (2d Cir. 2021) (holding that
gross reportable amount
has multiple meanings under section 6677(c) that differ depending on the part of section 6048 that is violated), rev'g, No. 19-CV-5037 (BMC), 2019 WL 6118013 (E.D.N.Y. 2019). In all cases, if the failure to file an information return continues for more than 90 days after the day on which the IRS mails notification of the failure, an additional $10,000 penalty is imposed for each 30-day period (or fraction thereof) during which the failure continues. The total amount of the penalties with respect to any failure cannot exceed the gross reportable amount with respect to that failure. If the gross reportable amount is partially reported, then the penalties are applied based on the amount that is unreported. Section VII of Notice 97-34.

Section 535 of the HIRE Act strengthened the penalty structure by further amending section 6677 to allow the IRS to impose penalties when it does not have enough information to determine the gross reportable amount. Section 6677, as amended, provides that the initial penalty is the greater of $10,000 or 35 percent (five percent in the case of a failure to comply with section 6048(b)) of the gross reportable amount. Thus, the IRS may impose an initial penalty of $10,000 on a U.S. person who fails to report information without having any information about the foreign trust's gross reportable amount. The amendment did not change the rules for the additional penalties of $10,000 for each 30-day period (or fraction thereof) during which the failure to report continues.

Section 6677, as amended, also provides that, if the IRS, after having assessed penalties, obtains sufficient information to determine the gross reportable amount, any subsequent penalty imposed will be reduced as necessary to ensure that the aggregate amount of the penalties does not exceed the gross reportable amount. To the extent that the amount already paid exceeds the gross reportable amount, the IRS will refund the excess to the U.S. person pursuant to section 6402.

Section 6677(d) provides that no penalty will be imposed on any failure that is shown to be due to reasonable cause and not due to willful neglect. It further provides that the fact that a foreign jurisdiction would impose a civil or criminal penalty on the U.S. person (or any other person) for disclosing the required information is not reasonable cause.

Section 6677(e) provides that subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) does not apply in respect of the assessment or collection of any penalty imposed under section 6677.

F. Section 643(a)(7)

Section 643(a)(7), which was added to the Code by section 1906(b) of the 1996 Act, provides that the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of part I of subchapter J of chapter 1 of the Code (sections 641 through 685), including regulations to prevent avoidance of such purposes.

G. Information Return Due Dates

Section 2006(b) of the Surface Transportation Act provides that, in the case of returns for taxable years beginning after December 31, 2015, the Secretary, or the Secretary's designee, shall modify the appropriate regulations addressing certain due dates. Section 2006(b)(9) provides that the due date of Form 3520-A shall be the 15th day of the third month after the close of the trust's taxable year, and the maximum extension shall be a 6-month period beginning on such day. Section 2006(b)(10) states that the due date of Form 3520 for calendar year filers shall be April 15 with a maximum extension for a 6-month period ending on October 15.

Explanation of Provisions

I. Section 643(i)—Loans to and Uses of Foreign Trust Property by U.S. Persons

These proposed regulations provide rules relating to loans from foreign trusts to U.S. persons and uses of foreign trust property by U.S. persons. They generally incorporate the section 643(i) guidance that was provided in Notice 97-34 (discussed in section III.A of the Background), with certain modifications to provide procedural rules, such as how to determine a loan's yield to maturity and how to extend the period of assessment for any income tax associated with the loan, and anti-abuse rules, such as requiring payments and information reporting to be timely. In addition, the proposed regulations provide guidance implementing the HIRE Act amendments to section 643(i).

A. Application of Section 643(i) to Loans by or Uses of Property of a Foreign Trust

Proposed § 1.643(i)-1 provides rules for determining when a loan of cash or marketable securities from a foreign nongrantor trust, made to a U.S. person who is either a grantor or beneficiary of

the foreign trust or is related to a U.S. person who is a grantor or beneficiary of the foreign trust, will be treated as a distribution under subchapter J of chapter 1 of the Code (a
section 643(i) distribution
) to the U.S. grantor or beneficiary of the foreign trust. These rules also apply to determine whether a distribution is made when any such U.S. persons use the property of the foreign trust.

These rules apply solely for purposes of subparts B, C, and D (sections 651-652, 661-664, and 665-668) of part I of subchapter J of chapter 1 of the Code, and thus section 643(i) does not apply to a foreign trust to the extent that it is a grantor trust described in subpart E (sections 671 through 679) of part I of subchapter J. Although section 643(i) applies to loans of cash or marketable securities from a foreign trust to a U.S. grantor or a U.S. person related to a U.S. grantor, these provisions of section 643(i) predate the HIRE Act, which enacted section 679(c)(6). Under section 679, a U.S. person who transfers property to a foreign trust is treated as the owner of the portion of the trust attributable to the property transferred to the trust if there is a U.S. beneficiary of any portion of the trust, unless an exception applies. Section 679(c)(6) provides that any direct or indirect loan of cash or marketable securities to a U.S. person, or direct or indirect use of any other trust property by a U.S. person, whether or not the U.S. person is a beneficiary under the terms of the trust, will be treated as paid to or accumulated for the benefit of a U.S. person, unless an exception applies (see proposed § 1.679-2(a)(5)(iii)). That is, the U.S. person will be treated as a beneficiary of the foreign trust for purposes of section 679. In most circumstances, this causes the foreign trust to be a grantor trust under section 679, removing it from the purview of section 643(i). Section 643(i), therefore, will rarely apply to a U.S. grantor or a U.S. person related to a U.S. grantor. It might apply, however, if the U.S. grantor created but did not make a transfer to the foreign trust.

Proposed § 1.643(i)-1(b)(1) provides that, unless an exception applies, any loan of cash or marketable securities made from a foreign trust (whether from trust corpus or income) directly or indirectly to a U.S. grantor or beneficiary of the trust or to any U.S. person related to a U.S. grantor or beneficiary of the trust is treated as a section 643(i) distribution to such U.S. grantor or beneficiary as of the date on which the loan is made. For these purposes, a loan to a grantor trust or to a disregarded entity is treated as a loan to the owner of the grantor trust or of the disregarded entity. For example, a loan to a single member LLC treated as a disregarded entity is treated as a loan to the owner of the LLC.

Proposed § 1.643(i)-1(b)(2)(i) describes indirect loans for purposes of section 643(i) to include loans made through an intermediary, agent, or nominee. Proposed § 1.643(i)-1(b)(2)(i) also provides three examples of indirect loans: (1) a loan made by any person to a U.S. grantor or beneficiary of a foreign trust or any U.S. person related to a U.S. grantor or beneficiary if the foreign trust guarantees (within the meaning of § 1.679-3(e)(4)) the loan; (2) a loan made by any person related (within the meaning of proposed § 1.643(i)-1(d)(9)) to the foreign trust to a U.S. grantor or beneficiary of the foreign trust or to a U.S. person related to a U.S. grantor or beneficiary; and (3) a loan made by a foreign trust to a foreign person, other than to a nonresident alien individual who is a grantor or beneficiary of the trust, if the foreign person is related (within the meaning of proposed § 1.643(i)-1(d)(9)) to a U.S. grantor or beneficiary of the trust. See proposed § 1.643(i)-1(b)(2)(i)(A) through (C). However, the loans described in examples (2) and (3) above are excepted from section 643(i) treatment if the U.S. grantor or beneficiary of the foreign trust satisfies the information reporting requirements of proposed § 1.6048-4 with respect to the loan and attaches to a Federal income tax return an explanatory statement that demonstrates to the satisfaction of the IRS that the loan would have been made without regard to the U.S. grantor's or beneficiary's relationship to the foreign trust. See proposed § 1.643(i)-1(b)(2)(ii). There is no such exception for a loan made by any person that is guaranteed (within the meaning of § 1.679-3(e)(4)) by a foreign trust because a foreign trust is unlikely to guarantee such a loan absent its relationship with the U.S. grantor or beneficiary.

Proposed § 1.643(i)-1(b)(2)(iii) provides that loans from a foreign trust to a U.S. grantor or beneficiary or U.S. person related to a U.S. grantor or beneficiary through an intermediary are treated as made directly from the foreign trust to the U.S. grantor or beneficiary or U.S. person related to a U.S. grantor or beneficiary.

In order to discourage grantors and beneficiaries of a foreign trust from changing their U.S. residence in a particular year to avoid the application of section 643(i), proposed § 1.643(i)-1(b)(3) provides an anti-abuse rule. If a nonresident alien who is a grantor or beneficiary of a foreign trust receives a loan from the foreign trust and becomes a U.S. person within two years, that grantor or beneficiary will be subject to section 643(i) with respect to the outstanding amount of the loan as of the date the grantor or beneficiary acquires U.S. residence or citizenship if the loan was not a qualified obligation as of the date that it was made.

Proposed § 1.643(i)-1(c) provides that any direct or indirect use of other property of a foreign trust by a U.S. grantor or beneficiary or any U.S. person related to a U.S. grantor or beneficiary is treated as a section 643(i) distribution to the U.S. grantor or beneficiary in the taxable year in which the use occurs. Use of property of a foreign trust by a grantor trust or a disregarded entity is treated as use by the owner of the grantor trust or of the disregarded entity. For example, use of trust property by a single member LLC treated as a disregarded entity would be treated as use by the owner of the LLC.

Proposed § 1.643(i)-1(c)(2)(i) describes indirect use of trust property to include use by an agent or nominee. Indirect use of trust property also includes use by a foreign person, other than a nonresident alien individual who is a beneficiary of the foreign trust, if the foreign person is related to a U.S. grantor or beneficiary of the trust, unless the U.S. grantor or beneficiary reports the use of trust property on Part III of Form 3520, as required by proposed § 1.6048-4, and attaches to the U.S. grantor's or beneficiary's Federal income tax return an explanatory statement that demonstrates to the satisfaction of the IRS that the use of trust property would have been made without regard to the U.S. grantor's or beneficiary's relationship to the foreign trust. See proposed § 1.643(i)-1(c)(2).

B. Exceptions

Proposed § 1.643(i)-2(a) provides four exceptions to the general rule of proposed § 1.643(i)-1(b)(1):

First, the general rule will not apply to any loan of cash in exchange for a qualified obligation within the meaning of proposed § 1.643(i)-2(b)(2)(iii). The proposed regulations do not provide an exception from the general rule for loans of marketable securities as such a rule would be more difficult to apply, and it is less likely that a foreign trust would make a loan of marketable securities. The Treasury Department and the IRS request comments on whether qualified obligation rules are needed for loans of marketable securities.

Second, in the case of a use of trust property other than a loan of cash or marketable securities, the general rule will not apply to the extent that the

foreign trust receives the fair market value of such use within a reasonable period (described in proposed § 1.643(i)-2(a)(2)(ii) as 60 days or less) from the start of the use of the trust property. The fair market value of the use will be based on all the facts and circumstances, including the type of property used and the period of use.

Third, the general rule will not apply to any de minimis use of trust property (described in proposed § 1.643(i)-2(a)(3) as aggregate use by members of a group consisting of the U.S. grantors and beneficiaries and the U.S. persons related to them for a total of 14 days or less during the taxable year), other than a loan of cash or marketable securities, by a U.S. grantor or beneficiary or a U.S. person related to a U.S. grantor or beneficiary.

Fourth, the general rule will not apply to a loan of cash that is made by a foreign corporation to a U.S. beneficiary of the foreign trust to the extent the aggregate amount of all such loans to the beneficiary does not exceed undistributed earnings and profits of the foreign corporation attributable to amounts that are, or have been, included in the beneficiary's gross income under section 951, 951A, or 1293. This exception is intended to prevent double taxation that could result by reason of the application of section 643(i) to an amount that has already been included in the U.S. beneficiary's gross income as a subpart F income inclusion, a global intangible low-taxed income inclusion, an inclusion by reason of a controlled foreign corporation's investment of earnings in United States property, or a qualified electing fund inclusion. The Treasury Department and the IRS request comments on whether the scope of the exception is appropriate, and whether ordering rules to determine the sourcing of loan amounts, for example, rules based on the principles of section 959 or similar to the provisions of § 1.672(f)-4(c)(3), or other clarifications on the exception's application, are necessary.

C. Qualified Obligations

Proposed § 1.643(i)-2(b) provides rules for determining whether a loan of cash is made in exchange for a qualified obligation. Proposed § 1.643(i)-2(b)(2) defines the terms
obligor, obligation,
and
qualified obligation.
The definitions of obligation and qualified obligation are consistent with the amended definitions of obligation and qualified obligation in proposed § 1.679-1(c)(6) and § 1.679-4(d), respectively. The term
obligor
means a person who issues an obligation (within the meaning of proposed § 1.643(i)-2(b)(2)(i)) to a foreign trust in exchange for a loan of cash. The term
obligation
means any instrument or contractual arrangement that constitutes indebtedness under general principles of Federal income tax law (for example, a bond, note, debenture, certificate, bill receivable, account receivable, note receivable, open account, or other evidence of indebtedness), and an annuity contract that would not otherwise be classified as indebtedness under general principles of Federal income tax law. Under proposed § 1.643(i)-2(b)(2)(iii)(A), the term
qualified obligation
means an obligation that satisfies all of the following requirements:

First, the obligation must be in writing.

Second, the term of the obligation must not exceed five years.

Third, all payments on the obligation must be made in cash in U.S. dollars. The Treasury Department and the IRS stress this requirement to make all payments in cash in U.S. dollars, in light of abusive transactions in which taxpayers have used an inflated valuation of in-kind property to purportedly repay an obligation.

Fourth, the obligation must be issued at par and must provide for stated interest at a fixed rate or a qualified floating rate within the meaning of § 1.1275-5(b).

Fifth, the yield to maturity must be not less than 100 percent and not greater than 130 percent of the applicable Federal rate in effect under section 1274(d) on the day on which the obligation is issued. The yield to maturity and the applicable Federal rate must be based on the same compounding period. If an obligation is a variable rate debt instrument that provides for stated interest at a qualified floating rate, the rules in §§ 1.1274-2(f)(1) and 1.1275-5(e) apply to determine the obligation's yield to maturity.

Sixth, all stated interest on the obligation must be qualified stated interest within the meaning of § 1.1273-1(c).

In addition to these six initial requirements, for both the first year and each succeeding year in which the obligation remains outstanding, the three requirements of proposed § 1.643(i)-2(b)(2)(iii)(B) must be satisfied in order for the obligation to remain a qualified obligation. First, the U.S. grantor or beneficiary (as the person who would be subject to income tax if an obligation either is not a qualified obligation or ceases to be a qualified obligation) must extend the period for assessment on Part III of Form 3520 (under rules described in proposed § 1.643(i)-2(b)(2)(iii)(B)(
1
)) of any income tax attributable to the loan and any consequent income tax changes for each year that the obligation is outstanding to a date not earlier than three years after the maturity date of the obligation issued in consideration for the loan. Second, the U.S. grantor or beneficiary must report the status of the obligation, including any payments made, on Part III of Form 3520. Third, the obligor must make all payments of principal and interest on the obligation according to the terms of the obligation.

Proposed § 1.643(i)-2(b)(3) provides that, if the terms of the obligation are modified and the modification is treated as an exchange under § 1.1001-3, the new obligation that is deemed issued in the exchange under § 1.1001-3 must satisfy the requirements in proposed § 1.643(i)-2(b)(2)(iii) to be a qualified obligation using the original obligation's issue date. If the modification is not treated as an exchange under § 1.1001-3, then the obligation is retested as of the date of the modification to determine whether the obligation, as modified, continues to satisfy the requirements to be a qualified obligation.

Proposed § 1.643(i)-2(b)(4) provides that if, while the obligation is outstanding, the U.S. obligor directly or indirectly issues another obligation to the foreign trust in exchange for cash, the outstanding obligation is deemed to have the maturity date of the new obligation for purposes of determining whether the term of the outstanding obligation exceeds five years. The outstanding obligation must be retested as of the issue date of the new obligation to determine whether the outstanding obligation continues to be a qualified obligation. The new obligation also must be separately tested to see if it satisfies the requirements to be a qualified obligation.

Proposed § 1.643(i)-2(b)(5) provides that the IRS may treat two or more obligations issued by a U.S. obligor as a single obligation that is not a qualified obligation if they are structured with a principal purpose to avoid the application of section 643(i).

Proposed § 1.643(i)-2(b)(6) provides that, if a qualified obligation ceases to be a qualified obligation (for example, because a modification causes the term of the obligation to exceed five years), the U.S. grantor or beneficiary is treated as receiving a section 643(i) distribution from the foreign trust. In general, the amount of the section 643(i) distribution is the obligation's outstanding stated principal amount plus any accrued but

unpaid qualified stated interest (within the meaning of § 1.1273-1(c)) as of the date of the event that causes the obligation to no longer be a qualified obligation. If the IRS treats two or more obligations as a single obligation that is not a qualified obligation under proposed § 1.643(i)-2(b)(5), then the amount of the section 643(i) distribution will not exceed the sum of the outstanding stated principal amounts of the obligations plus any accrued but unpaid qualified stated interest as of the date determined by the IRS.

D. Trust Property Attributable to Nongrantor Trust Portion

Proposed § 1.643(i)-2(c) provides rules for determining the extent to which a loan or use of trust property from a partial nongrantor trust will be attributable to the nongrantor trust portion. Generally, a loan or use of trust property from a partial nongrantor trust must be apportioned in a manner that is reasonable based on all the facts and circumstances, including the terms of the governing instrument, local law, and the practice of the trustee, if it is reasonable and consistent. However, if a loan or use of trust property can be made from only one portion of the foreign trust because the type of property loaned or used is held only by that portion, then the loan or use of property is attributable to that portion.

E. Reporting

The Treasury Department and the IRS are of the view that it is appropriate to require reporting, pursuant to the authority granted to the Treasury Department and the IRS by section 643(a)(7), of all loans and uses of trust property that are potentially subject to section 643(i), in order to ensure that the IRS has the information necessary to enforce taxpayer compliance with these rules. Thus, proposed § 1.643(i)-2(d) provides that any loan of cash or marketable securities by a foreign trust to a U.S. person and any use by a U.S. person of property belonging to a foreign trust, without regard to whether such loan or use of property is treated as a section 643(i) distribution, also is a distribution within the meaning of proposed § 1.6048-4(b) and subject to the information reporting described under proposed § 1.6048-4(a). See proposed § 1.6048-4(b)(3)(ii) and (iii) and (b)(4)(ii) and (iii).

F. Amount Treated as Section 643(i) Distribution

Proposed § 1.643(i)-3(a) provides rules for determining the amount that is treated as a section 643(i) distribution if an exception does not apply. In the case of a loan of cash, the amount of the section 643(i) distribution is the issue price of the loan as of the date the loan is treated as a distribution from the foreign trust. In the case of a loan of marketable securities, 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 distribution from the foreign trust. In the case of the use of trust property without fair market value compensation, the amount of the section 643(i) distribution is the fair market value of the use of the property less any payments made for the use of the property within a reasonable period of time.

G. Allocation of Section 643(i) Distribution Among Multiple U.S. Grantors and Beneficiaries

Proposed § 1.643(i)-3(b) provides a rule for allocating a 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 foreign trust receives a loan of cash or marketable securities from the trust, or uses trust property, and the loan or use is treated as a section 643(i) distribution, then each U.S. grantor or 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.

H. Tax Consequences of a Section 643(i) Distribution

Proposed § 1.643(i)-3(c) provides rules to determine the tax consequences of a section 643(i) distribution to a foreign trust treated as making a section 643(i) distribution and to a U.S. grantor or beneficiary treated as receiving the distribution. Proposed § 1.643(i)-3(c)(2) provides that a foreign trust generally 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) for which the trust may be allowed a distribution deduction in computing its taxable income. In addition, a section 643(i) distribution of marketable securities would cause a foreign trust to be deemed to have elected to have section 643(e)(3) apply to such distribution, which would cause the trust to recognize gain or loss as if the marketable securities had been sold at fair market value. Any capital gain recognized by the foreign trust would be included in the trust's distributable net income (
DNI
) pursuant to section 643(a)(6)(C). As a result of the deemed election, a U.S. grantor or beneficiary would be treated as including in gross income under section 662(a)(2) the fair market value of the marketable securities, and in computing its taxable income, the foreign trust would be allowed to deduct the fair market value of the marketable securities to the extent allowed under section 661(a)(2).

Proposed 1.643(i)-3(c)(2)(iii) provides that the foreign trust may issue a Foreign Nongrantor Trust Beneficiary Statement (described in proposed § 1.6048-4(c)(2)) to each U.S. grantor or beneficiary who receives any loan of cash or marketable securities or uses other trust property during the taxable year of the trust or is related to a U.S. person who receives any loan of cash or marketable securities or uses other trust property during the taxable year of the trust, whether or not such U.S. grantor or beneficiary would be required to take the amount into account as a section 643(i) distribution. A U.S. grantor or beneficiary who does not receive a Foreign Nongrantor Trust Beneficiary Statement with respect to a section 643(i) distribution is required to determine the tax consequences of the distribution under the default calculation method in proposed § 1.643(i)-3(c)(3)(ii).

Proposed § 1.643(i)-3(c)(3) provides that a U.S. grantor or beneficiary who is treated as receiving a section 643(i) distribution must determine the tax consequences of the distribution using either the actual calculation method or the default calculation method. Under the actual calculation method, set out under proposed § 1.643(i)-3(c)(3)(i), a 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 foreign trust as described in section 662(a)(2) (relating to inclusions in gross income by beneficiaries of trusts accumulating income or distributing corpus). The tax consequences of the section 643(i) distribution to a U.S. grantor or beneficiary are determined by using information 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 Code.

Under the default calculation method, as provided in proposed § 1.643(i)-3(c)(3)(ii), a U.S. grantor or beneficiary must determine the tax consequences of the section 643(i) distribution under the rules provided in proposed § 1.6048-4(d)(3). For an explanation of the default calculation method, see section IV.C of this Explanation of Provisions.

A U.S. grantor or beneficiary may not use the actual calculation method unless the U.S. grantor or beneficiary

has received a Foreign Nongrantor Trust Beneficiary Statement (described in proposed § 1.6048-4(c)(2)) from the foreign 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 all subsequent distributions from the same foreign trust (including distributions other than section 643(i) distributions), except in the year in which the foreign trust terminates. See proposed § 1.6048-4(b) for the definition of the term
distribution,
and see proposed § 1.6048-4(d)(3)(iii) for rules relating to the tax consequences to a U.S. grantor or beneficiary in the year in which a foreign trust terminates.

I. Subsequent Transactions

Proposed § 1.643(i)-3(d)(1) provides rules regarding the treatment of any subsequent transaction between a foreign trust and an obligor regarding the principal of any loan of cash or marketable securities (or use of trust property) that is treated as a section 643(i) distribution, including complete or partial repayment, satisfaction, cancellation, discharge, return of trust property, or otherwise, but not including payments of interest. Proposed § 1.643(i)-3(d)(2) provides that any subsequent transaction with respect to the principal of any loan of cash or marketable securities or return of trust property treated as a section 643(i) distribution has no tax consequences to a foreign trust. However, payment to a foreign trust other than the repayment of principal of any loan treated as a section 643(i) distribution, such as the payment of interest, is treated as income to the trust.

Proposed § 1.643(i)-3(d)(3) provides the consequences to an obligor of subsequent transactions between a foreign trust and the obligor related to a section 643(i) distribution. Generally, any subsequent transaction regarding the principal of any loan of cash or marketable securities or 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 Code. Thus, the repayment of principal would not cause an obligor to be treated as the owner of the foreign trust. However, if an obligor satisfies the principal of any loan of cash or marketable securities treated as a section 643(i) distribution through a transfer of property to the foreign trust, the obligor will recognize as gain or loss the difference between the fair market value of the property transferred and its adjusted basis in the hands of the obligor under the rules of section 1001 and the regulations issued under section 1001.

II. Section 679—Foreign Trusts Treated as Having a U.S. Beneficiary

The proposed regulations amend the definition of
U.S. person
in § 1.679-1(c)(2), the definition of
obligation
in § 1.679-1(c)(6), and the definition of
qualified obligation
in § 1.679-4(d). The amended definitions generally are consistent with the definitions of the same terms in proposed §§ 1.643(i)-1(d)(12) and 1.643(i)-2(b)(2), except that the definition of a
U.S. person
in proposed § 1.679-1(c)(2) does not exclude tax-exempt entities.

The proposed regulations also make two additions to § 1.679-2 that provide guidance on two statutory provisions added to section 679 by the HIRE Act. First, proposed § 1.679-2(a)(5) and proposed § 1.679-2(b)(3) provide guidance to determine when a loan from a foreign trust to a U.S. person or the use of foreign trust property by a U.S. person causes the foreign trust to be treated as having a U.S. beneficiary. Second, proposed § 1.679-2(d) implements section 679(d), which generally provides that, if a U.S. person directly or indirectly transfers property to a foreign trust, the trust is presumed to have a U.S. beneficiary in certain circumstances.

A. Definition of U.S. Person

Proposed § 1.679-1(c)(2) amends the current definition of
U.S. person
for purposes of §§ 1.679-1 through 1.679-6 to remove the explicit statement that a nonresident alien individual who elects under section 6013(g) to be treated as a resident of the United States is a U.S. person for purposes of section 679 without intending a substantive change from the existing regulation regarding the treatment of persons who make an election under section 6013(g). Additionally, a U.S. person for purposes of section 679 will include a nonresident alien individual who elects under section 6013(h) to be treated as a resident of the United States. An election under either section 6013(g) or (h) is effective for all purposes of chapter 1 of the Code, including section 679, and thus, no specific reference to either rule should be required.

Under the definition of
U.S. person
in the proposed regulations, however, a dual resident taxpayer (within the meaning of § 301.7701(b)-7(a)(1)) is not treated as a U.S. person with respect to any taxable year (or portion of a taxable year) for which such person computes U.S. tax liability as a nonresident alien pursuant to § 301.7701(b)-7. The Treasury Department and the IRS are of the view that it is not necessary to treat a dual resident taxpayer who has elected to compute such person's income tax liability as a nonresident alien as a U.S. person for purposes of §§ 1.679-1 through 1.679-6 in order to carry out the purposes of section 679. However, see § 1.679-5 for rules that may apply if a dual resident taxpayer who has been computing U.S. tax liability as a nonresident alien begins to compute tax liability as a U.S. resident.

B. Definition of Obligation

Proposed § 1.679-1(c)(6) amends the current definition of
obligation
for purposes of §§ 1.679-1 through 1.679-6 to conform to the definition of obligation in proposed § 1.643(i)-2(b)(2)(i).

C. Loans From Foreign Trusts and Uses of Trust Property

Proposed § 1.679-2(a)(5)(i) provides guidance under section 679(c)(6), which was added to the Code by the HIRE Act. As a general rule, any direct or indirect loan of cash or marketable securities (whether from trust income or corpus) by a foreign trust to, or the direct or indirect use of any other property of a foreign trust by, any U.S. person (whether or not a beneficiary under the terms of the trust) will be treated as causing trust income or corpus to be paid to or accumulated for the benefit of a U.S. person for purposes of § 1.679-2(a)(1). For these purposes, a loan to, or use of any other property of a foreign trust by, a grantor trust or a disregarded entity is treated as a loan to, or use of trust property by, the owner of the grantor trust or of the disregarded entity. (For example, a loan to a single member LLC treated as a disregarded entity would be treated as a loan to the owner of the LLC.) Consequently, a foreign trust that is not already treated as having a U.S. beneficiary under § 1.679-2 is treated as having a U.S. beneficiary for purposes of § 1.679-1, with the result that a U.S. grantor who has made a transfer to the foreign trust is treated as the owner of the trust (or a portion of the trust). See proposed § 1.6048-4 for rules relating to information reporting with respect to loans from foreign trusts and the use of property of a foreign trust.

Proposed § 1.679-2(a)(5)(ii) provides that an indirect loan from a foreign trust to a U.S. person includes a loan made by any person, whether U.S. or foreign, if the foreign trust provides a guarantee (within the meaning of § 1.679-3(e)(4)) for the loan. An indirect loan from a foreign trust to a U.S. person also

includes a loan made through an intermediary, such as an agent or nominee of the foreign trust or of the U.S. beneficiary, and a loan from a person related (within the meaning of proposed § 1.643(i)-1(d)(9)) to the foreign trust.

Proposed § 1.679-2(a)(5)(iii) provides three exceptions to the general rule of proposed § 1.679-2(a)(5)(i).

First, the general rule does not apply if the U.S. person who receives the loan of cash or marketable securities, or who uses trust property, is described in section 501(c)(3).

Second, the general rule does not apply to any loan of cash received by a U.S. person in exchange for a qualified obligation within the meaning of proposed § 1.643(i)-2(b)(2)(iii)(A), provided the obligor timely makes all payments within the meaning of proposed § 1.643(i)-2(b)(2)(iii)(B)(3).

Third, the general rule does not apply if the U.S. person who uses trust property (other than a loan of cash or marketable securities) pays the foreign trust the fair market value of the use of such property within a reasonable period from the date of the start of the use of the property. The fair market value is based on all the facts and circumstances, including the type of property used and the period of use. Proposed § 1.679-2(a)(5)(iv) provides two safe harbors in which this fair market value exception applies.

Proposed § 1.679-2(a)(5)(v) addresses the interaction of proposed § 1.679-2(a)(5) with section 643(i) and confirms that section 643(i) does not apply to the extent a foreign trust is treated as having acquired a U.S. beneficiary and is treated as owned by a U.S. person under section 679 (discussed in section I.A of this Explanation of Provisions).

Proposed § 1.679-2(b)(3) provides that a loan of cash or marketable securities or the use of trust property that does not qualify for the exceptions described in proposed § 1.679-2(a)(5)(iii) is treated as paid to or accumulated for the benefit of a U.S. person if the loan is made to, or the property is used by, a foreign entity described in § 1.679-2(b)(1), or if the loan is made through, or the property is used by, an intermediary or is made by any other means where a U.S. person may obtain an actual or constructive benefit, as described in § 1.679-2(b)(2).

D. Presumption That Foreign Trust Has U.S. Beneficiary

Proposed § 1.679-2(d)(1) provides guidance under section 679(d) regarding whether a foreign trust is deemed to have a U.S. beneficiary. As a general rule, if a U.S. person directly or indirectly transfers property to a foreign trust (other than a compensatory or charitable trust described in § 1.679-4(a)(2) or (3)), the IRS may treat the trust as having a U.S. beneficiary for purposes of applying § 1.679-1 unless the U.S. person, for the tax year in which the transfer is made, (i) satisfies the information reporting requirements of proposed § 1.6048-2 with respect to the transfer, and (ii) attaches an explanatory statement to the U.S. person's Federal income tax return demonstrating to the satisfaction of the IRS that the trust satisfies the requirements of § 1.679-2(a)(1) immediately after the transfer. Section 1.679-2(a)(1) provides that a foreign trust is treated as having a U.S. beneficiary unless, during the taxable year in which the U.S. person made the transfer, (i) no part of the income or corpus of the foreign trust may be paid to or accumulated for the benefit of, directly or indirectly, a U.S. person, and (ii) if the foreign trust is terminated at any time during the taxable year, no part of the income or corpus of the trust could be paid to or for the benefit of, directly or indirectly, a U.S. person.

Proposed § 1.679-2(d)(2) provides that the IRS may request additional information related to the foreign trust and its potential beneficiaries to determine whether the trust satisfies the requirements of § 1.679-2(a)(1). Unless the U.S. person provides such additional information within 60 days (90 days if the U.S. person is outside the United States) after the IRS's written notice and request, the trust will be presumed to have a U.S. beneficiary.

E. Definition of Qualified Obligation

Proposed § 1.679-4(d) amends the current definition of
qualified obligation
for purposes of § 1.679-4 to conform to the definition of qualified obligation in proposed § 1.643(i)-2(b)(2)(iii) and the additional rules in proposed §§ 1.643(i)-2(b)(3) through (6) (discussed in section I.C of this Explanation of Provisions).

III. Section 6039F—Information Reporting Rules for U.S. Recipients of Foreign Gifts

The proposed regulations provide information reporting rules for U.S. recipients of foreign gifts by generally incorporating the section 6039F guidance that was provided in Notice 97-34 (discussed in section III.C of the Background). They also provide additional guidance that is needed to implement all of section 6039F and to address certain abuses of which the IRS has become aware and relevant statutory developments since 1997, including the enactment of section 2801 dealing with gifts and bequests from certain expatriates.

A. In General

Proposed § 1.6039F-1(a)(1) provides that any U.S. person who treats an amount received from a foreign person as a foreign gift during a taxable year must report that amount on Part IV of Form 3520 by the fifteenth day of the fourth month after the close of the U.S. person's taxable year. Proposed § 1.6039F-1(a)(2) provides that, if the U.S. person qualifies for an automatic extension of time to file an income tax return under section 6081 and § 1.6081-5(a)(5) because the U.S. person resides outside of the United States and Puerto Rico, and the U.S. person's main place of business or post of duty is outside of the United States or Puerto Rico, Form 3520 must be filed by the fifteenth day of the sixth month after the close of the U.S. person's taxable year. In either case, if the U.S. person has been granted an extension of time to file an income tax return pursuant to section 6081, an extension of time for filing Form 3520 is automatically granted to the fifteenth day of the tenth month following the close of the U.S. person's taxable year. See proposed § 1.6039F-1(a)(1) and (2). Proposed § 1.6039F-1(a)(3) provides that, if the U.S. person dies, the executor of the U.S. person's estate must report the foreign gift on Part IV of Form 3520 by the fifteenth day of the fourth month following the close of the 12-month period which began with the first day of the U.S. person's final taxable year or, if the executor has been granted an extension of time to file the U.S. person's final income tax return pursuant to section 6081, by the fifteenth day of the tenth month following the close of the 12-month period which began with the first day of the U.S. person's final taxable year. No additional extension of time to file Form 3520 is allowed.

For purposes of proposed § 1.6039F-1, the term
U.S. person
means a United States person as defined under section 7701(a)(30). However, under proposed § 1.6039F-1(f), consistent with the approach in proposed §§ 1.643(i)-1(d)(12)(ii) and 1.679-1(c)(2)(ii), neither a dual resident taxpayer nor a dual status taxpayer is treated as a U.S. person for purposes of proposed § 1.6039F-1 for a taxable year or any portion of a taxable year that the taxpayer is treated as a nonresident alien for purposes of computing U.S. tax liability. See section III.F of this Explanation of Provisions.

B. Definition of “Foreign Gift” and Coordination With Section 6048(c)

For purposes of proposed § 1.6039F-1, the term
foreign gift
is defined to include any amount received from a person other than a U.S. person that the recipient treats as a gift, bequest, devise, or inheritance for Federal income tax purposes. The term, however, does not include any qualified transfer within the meaning of section 2503(e)(2) (relating to certain transfers for educational or medical expenses) or any transfer from a foreign trust that is treated as a distribution (within the meaning of proposed § 1.6048-4(b)) and reported on a return under proposed § 1.6048-4. Proposed § 1.6039F-1(b)(1) also provides that a U.S. person who receives a transfer from a foreign trust must treat the transfer as a distribution from the trust that is reportable under proposed § 1.6048-4, rather than reportable as a foreign gift under proposed § 1.6039F-1(a), even if the U.S. person treats the transfer as a gift for another purpose, such as computing the U.S. person's Federal income tax liability.

Proposed § 1.6039F-1(b)(2) includes an anti-avoidance rule that provides that the term
foreign gift
includes transfers from a person other than a U.S. person that the recipient does not treat as a gift, bequest, devise, or inheritance for Federal income tax purposes, such as a purported loan, if based on all the facts and circumstances the IRS determines that the transfer is in substance a gift. The IRS has become aware of U.S. persons who are seeking to circumvent the section 6039F information reporting rules by claiming that the amounts they receive from foreign persons are not foreign gifts because they do not treat them as gifts but that they are otherwise not taxable (claiming instead that the transfers are loans). These amounts, however, objectively have all the indicia of being a gift. Under the existing principles of Federal tax law, the IRS therefore will recharacterize these amounts as foreign gifts that should have been reported under section 6039F.

C. Exceptions

Proposed § 1.6039F-1(c) provides a number of exceptions to the general rule in proposed § 1.6039F-1(a). Proposed § 1.6039F-1(c)(1) provides that the general rule does not apply if the recipient of the foreign gift is described in section 501(c) and is exempt from tax under section 501(a). Proposed § 1.6039F-1(c)(2)(i) through (iii) provides exceptions from information reporting under proposed § 1.6039F-1(a) for amounts below the reporting thresholds.

Under proposed § 1.6039F-1(c)(2)(i)(A), a U.S. person is not required to report foreign gifts from foreign individuals or foreign estates if, during the U.S. person's taxable year, the aggregate amount of foreign gifts received, directly or indirectly, from any one individual or estate (the
transferor
) does not exceed $100,000, as modified by cost of living adjustments under proposed § 1.6039F-1(c)(2)(v). For purposes of determining whether the $100,000 reporting threshold is met, all foreign gifts (including covered gifts and bequests) from the transferor and from any foreign persons related to the transferor are aggregated. See proposed § 1.6039F-1(c)(2)(i)(B).

If the aggregate amount of foreign gifts from a transferor exceeds the $100,000 reporting threshold, the proposed regulations require the U.S. person to separately identify each foreign gift in excess of $5,000 received from the transferor and from each foreign person related to the transferor, and to provide identifying information about the transferor and related foreign persons, including foreign individuals or foreign estates (for example, name and address). Specific identifying information about the transferor is not currently required to be provided on Form 3520. The Treasury Department and the IRS are of the view that the additional identifying information would assist the IRS in its determination of whether these amounts are properly treated as foreign gifts, and the burden imposed on the U.S. person should be minimal because the U.S. person would need to know the transferor's identity in order to know whether the transferor is foreign and in order to apply the aggregation rule.

Under proposed § 1.6039F-1(c)(2)(ii), notwithstanding the reporting threshold described above, beginning on the date on which final regulations under section 2801 (tax on gifts and bequests from expatriates) apply, a U.S. person who receives foreign gifts that are covered gifts or bequests will be required to report the covered gifts or bequests under proposed § 1.6039F-1(a) if the aggregate amount of all covered gifts and bequests received by the U.S. person during the calendar year exceeds the exclusion amount under section 2801(c). See proposed § 1.6039F-1(h)(2). This exclusion amount is the dollar amount of the per-donee gift tax exclusion in effect under section 2503(b) for the calendar year ($18,000 for 2024).

Under proposed § 1.6039F-1(c)(2)(iii), a U.S. person is not required to report foreign gifts from a foreign corporation or partnership if, during the U.S. person's taxable year, the aggregate amount of transfers received from any particular corporation or partnership does not exceed $10,000, as modified by cost-of-living adjustments under proposed § 1.6039F-1(c)(2)(v). The proposed regulations provide rules for aggregating and reporting foreign gifts from persons related to the transferor.

Proposed § 1.6039F-1(c)(2)(iv) provides that, with respect to spouses who file joint income tax returns under section 6013, the reporting threshold amounts apply separately to each spouse.

D. Valuation Principles

Proposed § 1.6039F-1(d) provides that the amount of a foreign gift is the value of the property at the time of the transfer. The value of the property is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts. The value is to be determined in accordance with the Federal gift tax valuation principles of section 2512 and sections 2701 through 2704 (chapter 14 of the Code) and the related regulations.

E. Penalty for Failure To File Information

Proposed § 1.6039F-1(e)(1) describes penalties for failure to furnish the information required by proposed § 1.6039F-1(a) by the due date (including extensions) of Form 3520. The tax consequences of the receipt of the foreign gift will be determined by the IRS based on all the facts and circumstances. A U.S. person who fails to furnish the required information is subject to a penalty equal to five percent of the amount of the foreign gift for each month (or portion thereof) for which the failure continues, but not to exceed 25 percent of the amount of the foreign gift.

For purposes of determining the tax consequences of the receipt of the foreign gift, the IRS may take into account the purported gift rules in § 1.672(f)-4 (which address the treatment of a purported gift, as defined in § 1.672(f)-4(d), from a partnership or foreign corporation). Unless an exception described in § 1.672(f)-4(b), (e) or (f) applies, § 1.672(f)-4 generally requires a U.S. person who receives a purported gift or bequest, directly or indirectly, from a partnership or foreign corporation to include the purported gift or bequest in gross income as ordinary income.

Proposed § 1.6039F-1(e)(2)(i) explains that no penalty is imposed if the U.S.

person shows that the failure to comply is due to reasonable cause and not due to willful neglect. The determination of whether a failure is due to reasonable cause and not due to willful neglect will be made under the principles set out in § 1.6664-4 and § 301.6651-1(c) and will be made on a case-by-case basis, taking into account all pertinent facts and circumstances.

F. Special Rules for Dual Resident and Dual Status Taxpayers

Proposed § 1.6039F-1(f)(1) provides a special rule for dual resident taxpayers (within the meaning of § 301.7701(b)-7(a)(1)). A dual resident taxpayer who, pursuant to a provision of an income tax treaty that provides for resolution of conflicting claims of residence by the United States and the treaty partner, claims to be treated as a resident of the treaty partner as provided in § 301.7701(b)-7 is taxed as a nonresident for U.S. tax purposes for the portion of the taxable year that the individual is treated as a nonresident. The Treasury Department and the IRS are of the view that, because the dual resident taxpayer's filing of relevant forms pursuant to § 301.7701(b)-7 provides adequate information for the IRS to identify residents in this category in order to ensure their tax compliance, reporting on Form 3520 by such a taxpayer is not essential to effective IRS tax enforcement efforts relating to this category of residents.

Similarly, proposed § 1.6039F-1(f)(2) provides a special rule for dual status taxpayers. As provided in § 1.6012-1(b)(2)(ii), a dual status taxpayer who, during the taxable year, abandons U.S. citizenship or U.S. residence or acquires U.S. citizenship or U.S. residence is not treated as a U.S. person for the part of the year that the taxpayer is treated as a nonresident alien for purposes of computing the taxpayer's income tax liability as reflected on the Form 1040NR or other similar schedule attached to such Form 1040NR.

These rules are relevant both for purposes of determining whether a dual resident taxpayer or dual status taxpayer who receives a foreign gift is a U.S. person required to report the foreign gift on Form 3520 and for purposes of determining whether a gift or bequest from a dual resident taxpayer or dual status taxpayer is a gift from a foreign person.

IV. Section 6048—Information With Respect to Certain Foreign Trusts

The proposed regulations provide information reporting rules with respect to a U.S. person's transfers to, creation of, ownership of, and receipt of distributions from foreign trusts. These proposed regulations generally implement the rules set forth in Notice 97-34, Revenue Procedure 2014-55, and Revenue Procedure 2020-17 (discussed in section III.D of the Background) but also provide additional exceptions to section 6048 reporting and include certain other modifications.

A. Section 6048(a)—Notice of Certain Events

The proposed regulations under section 6048(a) require a responsible party to provide notice of reportable events that occur during the taxable year on Part I of Form 3520. See proposed § 1.6048-2(a)(1).

Proposed § 1.6048-2(c) defines
responsible party
as the grantor in the case of the creation of an inter vivos foreign trust, the transferor in the case of a transfer of property to a foreign trust by a U.S. person other than a transfer by reason of death, or the executor of the estate of a deceased grantor or transferor in any other case, even if the executor is not a U.S. person.

Proposed § 1.6048-2(b) defines a
reportable event
as: (i) the creation of a foreign trust by a U.S. person, (ii) any direct, indirect, or constructive transfer, within the meaning of § 1.679-3 or § 1.684-2, of property (including cash) to a foreign trust by a U.S. person, including a transfer by reason of death, and (iii) the death of a citizen or resident of the United States 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 gross estate of the decedent. A reportable event also includes a U.S. person's transfer of property to a domestic trust that becomes a foreign trust, as described in § 1.684-4 (outbound migrations of domestic trusts), and a U.S. person's transfer of property in exchange for any obligation of the foreign trust or of a related person, as described in § 1.679-4, without regard to whether the obligation is a qualified obligation. A reportable event does not include transfers to certain foreign charitable trusts, foreign compensatory trusts, and tax-favored foreign retirement and non-retirement savings trusts, as discussed in section IV.D.2.i of this Explanation of Provisions. See proposed § 1.6048-5.

Form 3520 generally must be filed by the fifteenth day of the fourth month after the close of the responsible party's taxable year, but no later than the fifteenth day of the tenth month if the responsible party receives an extension of time to file the responsible party's income tax return under section 6081. See proposed § 1.6048-2(a)(2)(i). However, if the responsible party who is a grantor or transferor qualifies for an automatic extension of time to file an income tax return under section 6081 and § 1.6081-5(a)(5) because the responsible party resides outside of the United States and Puerto Rico, and the responsible party's main place of business or post of duty is outside of the United States or Puerto Rico, Form 3520 must be filed by the fifteenth day of the sixth month after the close of the responsible party's taxable year. See proposed § 1.6048-2(a)(2)(ii). If the responsible party who is a grantor or transferor dies, the executor of the responsible party's estate must file Form 3520 by the fifteenth day of the fourth month after the close of the 12-month period which began on the first day of the responsible party's final taxable year. See proposed § 1.6048-2(a)(2)(iii).

B. Section 6048(b)—U.S. Owners of Foreign Trusts

The proposed regulations under section 6048(b) generally require any U.S. person who is treated as the owner (
U.S. owner
) of any portion of a foreign trust under the grantor trust rules to ensure that the foreign trust: (i) files Form 3520-A with the IRS by the fifteenth day of the third month after the end of the trust's taxable year (March 15 if the trust's taxable year is a calendar year) with a maximum extension of a 6-month period beginning on such day, (ii) furnishes a Foreign Grantor Trust Owner Statement (described in proposed § 1.6048-4(c)(1)(i)) to each U.S. owner of the foreign trust, and (iii) furnishes a Foreign Grantor Trust Beneficiary Statement (described in proposed § 1.6048-4(c)(1)(ii)) to each U.S. person to whom the trust made distributions during the trust's taxable year. The foreign trust must attach copies of each Foreign Grantor Trust Owner Statement and each Foreign Grantor Trust Beneficiary Statement to the Form 3520-A. See proposed § 1.6048-3(a)(1). If the foreign trust does not comply with all these requirements, the U.S. owner is required to: (i) complete and file Part II of Form 3520 by the U.S. owner's Form 3520 due date, and (ii) complete the foreign trust's Form 3520-A and related statements and file them with Part II of the U.S. owner's Form 3520. Further, the U.S. owner must furnish the Foreign Grantor Trust Beneficiary Statement to each U.S. beneficiary by the due date of the U.S. owner's Form 3520. See proposed § 1.6048-3(a)(2). If neither the foreign trust nor the U.S. owner complies with these requirements, the penalty for failure to comply is imposed on the U.S.

owner. See proposed § 1.6677-1(b). As discussed in section IV.D.2.i of this Explanation of Provisions, the proposed regulations under section 6048(b) do not apply to tax-favored foreign retirement and non-retirement savings trusts. See proposed § 1.6048-5.

The proposed regulations require a U.S. person who receives a Foreign Grantor Trust Owner Statement or Foreign Grantor Trust Beneficiary Statement from a foreign trust to treat any item reported by the trust consistently with the trust's treatment of such item unless the U.S. person notifies the IRS about any inconsistency on Form 8082. See proposed § 1.6048-3(b). If the U.S. person fails to notify the IRS about the inconsistency, or if the U.S. person receives information believed to be incorrect from the foreign trust, then, similar to the rules of section 6034A(c) (addressing reporting in respect of income tax returns), any adjustment relating to an unreported item is treated as a mathematical or clerical error under section 6213(b), with the result that the adjustment would not be subject to the usual restrictions on assessment and the U.S. grantor or U.S. beneficiary would have no right to file a Tax Court petition based on the adjustment.

Proposed § 1.6048-3(c) provides that, unless a foreign trust with a U.S. owner appoints a limited U.S. agent, the determination of amounts required to be taken into account with respect to the trust by the U.S. owner under the grantor trust rules will be determined by the IRS based on all the facts and circumstances. Proposed § 1.6048-3(d) provides rules relating to the appointment and duties of the limited U.S. agent. Proposed § 1.6048-3(d) also provides rules concerning the issuance of a summons to a U.S. person (either directly or as the limited agent of the foreign trust) or to the foreign trust to produce records or testimony to determine the amounts required to be taken into account under the grantor trust rules.

C. Section 6048(c)—Reporting by U.S. Persons Receiving Distributions From Foreign Trusts

1. In General

Unless an exception described in proposed § 1.6048-5 applies, proposed regulations under section 6048(c) generally require a U.S. person to complete and file Part III of Form 3520 for each taxable year in which the U.S. person receives (directly or indirectly) any distribution from a foreign trust (including a foreign trust that the U.S. person is treated as owning under the grantor trust rules). Part III of Form 3520 must be filed by the due date of the U.S. person's Form 3520 for that taxable year. See proposed § 1.6048-4(a). The Treasury Department and the IRS interpret section 6048(c) as requiring any U.S. person, including a U.S. owner, to report the receipt of foreign trust distributions. This interpretation is consistent with both the plain language of section 6048(c) and its purpose—to address Congress's concerns that U.S. taxpayers were avoiding their U.S. tax obligations through the use of foreign trusts that are less visible to the IRS—and empowers the IRS to obtain information that would allow it to enforce U.S. tax laws.

2. Distributions

Proposed § 1.6048-4(b)(1) provides that, as a general rule, the term
distribution
for purposes of proposed § 1.6048-4 means any transfer of property from a foreign trust received directly or indirectly by a U.S. person to the extent such property exceeds the fair market value of any property or services received by the foreign trust in exchange, without regard to whether any portion of the trust is treated as owned by the grantor or another person under the grantor trust rules, whether the recipient is designated as a beneficiary under the terms of the trust, or whether the distribution has any income tax consequences. A distribution includes any amount actually or constructively received and includes the receipt of a gift or bequest described in section 663(a). For purposes of proposed § 1.6048-4(b)(1), a transfer of property from a foreign trust to a grantor trust or to a disregarded entity is treated as a transfer to the U.S. owner of the grantor trust or of the disregarded entity.

Proposed § 1.6048-4(b)(2)(i) provides that the term
distribution
also includes any transfer of property from a foreign trust received by a U.S. person through an intermediary, nominee, or agent. In such a case, the intermediary, nominee, or agent generally is treated as an agent of the foreign trust, and the property is treated as distributed to the U.S. person in the year the property is transferred or made available to the U.S. person. However, proposed § 1.6048-4(b)(2)(ii) provides that, if the IRS determines that the intermediary, nominee, or agent is an agent of the U.S. person, then the property is treated as being transferred from the foreign trust to the U.S. person on the date of the transfer from the foreign trust to the intermediary, nominee, or agent. Regardless of the income tax consequences of such a transfer, pursuant to proposed § 1.6048-4(b)(2)(iii), the U.S. person receiving an indirect transfer of property from a foreign trust must report it on Part III of Form 3520.

Proposed § 1.6048-4(b)(3) provides that a
distribution
includes any transfer of property from an entity owned by a foreign trust to a U.S. person who is related (within the meaning of § 1.679-1(c)(5)) to the foreign trust. It also explains that the transfer is treated as a distribution from the entity to the foreign trust followed by a distribution from the foreign trust to the U.S. person, unless the U.S. person demonstrates to the satisfaction of the IRS that the distribution from the entity is attributable to the U.S. person's ownership interest in the entity. This rule is the converse of the rule of § 1.679-3(f)(1), which provides that a transfer by a U.S. person to an entity owned by a foreign trust is treated as a transfer to the foreign trust followed by a transfer from the foreign trust to the entity, unless the U.S. person demonstrates to the satisfaction of the IRS that the transfer to the entity is attributable to the U.S. person's ownership interest in the entity.

Proposed § 1.6048-4(b)(4) provides that a
distribution
includes the migration of a foreign trust to a domestic trust. In such a case, the income and corpus of the foreign trust is treated as distributed to the domestic trust on the date the foreign trust becomes a domestic trust. See § 301.7701-7 for the rules that apply to determine whether a trust is a foreign trust or domestic trust.

Proposed § 1.6048-4(b)(5)(i) provides that a
distribution
includes any loan of cash or marketable securities made from a foreign trust (whether from corpus or income) directly or indirectly to a U.S. person. It also clarifies that a loan to a grantor trust or to an entity disregarded as an entity separate from its owner will be treated as a loan to the owner of the grantor trust or of the disregarded entity. Loans from a foreign trust also include a loan made by any foreign or U.S. person if the foreign trust guarantees the loan, as well as a loan made to a U.S. person through any intermediary, nominee or agent.

Proposed § 1.6048-4(b)(5)(ii) further provides that a
distribution
includes any loan of cash or marketable securities made directly or indirectly to a U.S. grantor or beneficiary (as defined in proposed § 1.643(i)-1(d)(1)) of a foreign nongrantor trust or to a U.S. person related (as defined in proposed § 1.643(i)-1(d)(9)) to a U.S. grantor or beneficiary of such foreign nongrantor trust without regard to whether the foreign trust receives an obligation (within the meaning of proposed

§ 1.643(i)-2(b)(2)(i)) in exchange for the loan.

Proposed § 1.6048-4(b)(5)(iii) provides that a loan of cash or marketable securities from a foreign trust must be reported by the U.S. person who receives the loan without regard to whether the loan would have any U.S. income tax consequences to a U.S. grantor or beneficiary of the foreign trust. If the U.S. person who receives the loan is related to a U.S. grantor or beneficiary of a foreign nongrantor trust, then the U.S. grantor or beneficiary also must report the distribution.

Proposed § 1.6048-4(b)(6)(i) provides that a
distribution
includes the fair market value of the direct or indirect use of trust property by a U.S. person without regard to whether the use of trust property would be treated as having any U.S. income tax consequences to a U.S. grantor or beneficiary of the foreign trust. For these purposes, the use of trust property by a grantor trust or a disregarded entity is treated as used by the owner of the grantor trust or of the disregarded entity, respectively. Proposed § 1.6048-4(b)(6)(ii) further provides that a
distribution
includes the fair market value of the direct or indirect use of trust property by a U.S. grantor or beneficiary of a foreign nongrantor trust or by a U.S. person related to such U.S. grantor or beneficiary whether or not the foreign trust is paid the fair market value for such use. Proposed § 1.6048-4(b)(6)(iii) provides that the use of trust property must be reported on Part III of Form 3520 by the U.S. person that uses the trust property without regard to whether the use of trust property would have any U.S. income tax consequences to a U.S. grantor or beneficiary of the foreign trust. If the U.S. person who uses the trust property is related to a U.S. grantor or beneficiary of a foreign nongrantor trust, then the U.S. grantor or beneficiary also must report the distribution.

The Treasury Department and the IRS are of the view that because, under section 643(i), a distribution to a U.S. person related to a U.S. grantor or beneficiary affects the U.S. grantor's or beneficiary's income tax liability, it is appropriate to require reporting by both the U.S. person receiving a distribution from a foreign trust and the U.S. grantor or beneficiary of the foreign trust who is related to that U.S. person. Requiring both parties to report the distribution ensures that the IRS has the information it needs for tax compliance efforts.

Proposed § 1.6048-4(b)(7) confirms that the term
distribution
also includes any covered gift or bequest (within the meaning of section 2801(e)) that is received from a foreign trust.

3. Information Statements

Proposed § 1.6048-4(c) lists four types of information statements that may be provided by a foreign trust if a U.S. person receives a distribution (including a loan of cash or marketable securities or the use of other trust property) from the foreign trust—Foreign Grantor Trust Owner Statement, Foreign Grantor Trust Beneficiary Statement, Foreign Nongrantor Trust Beneficiary Statement, and Foreign-Owned Grantor Trust Beneficiary Statement. The instructions for Form 3520 will be modified after these regulations are finalized to include a list of items that must be included on a Foreign-Owned Grantor Trust Beneficiary Statement. The list will be similar to the lists of items that must be included on the Foreign Grantor Trust Beneficiary Statement and the Foreign Nongrantor Trust Beneficiary Statement. A U.S. person who receives one of these statements may use the statement to determine the tax consequences of the distribution.

4. Tax Consequences of Distributions

Proposed § 1.6048-4(d) describes the rules that a U.S. person (other than a U.S. owner of the distributing trust) must use to determine the tax consequences of a distribution from a foreign trust other than a distribution that is a loan of cash or marketable securities or the use of other trust property that is not treated as a section 643(i) distribution under proposed § 1.643(i)-1. Two methods to determine the tax consequences are provided: (i) the actual calculation method and (ii) the default calculation method. If the U.S. person who receives the distribution does not receive a copy of the relevant statement (see proposed § 1.6048-4(c)), the U.S. person must determine the tax consequences of the distribution under the default calculation method. A U.S. person who receives the relevant statement generally may compute the tax consequences of the distribution under either the actual calculation method or the default calculation method. However, a U.S. person may not use the actual calculation method if the U.S. person knows or has reason to know that the information in the relevant statement is incorrect. Additionally, if the U.S. person has previously used the default calculation method with respect to distributions from the foreign trust, the U.S. person must consistently use the default calculation method to determine the tax consequences of any subsequent distributions from the trust for all future years, except for the year in which the trust terminates.

Under the actual calculation method provided in proposed § 1.6048-4(d)(2), a U.S. person who receives a Foreign Grantor Trust Beneficiary Statement or a Foreign-Owned Grantor Trust Beneficiary Statement from the foreign trust determines the income tax consequences of the distribution as a distribution being made from a grantor trust. Thus, if the distribution is a gift under section 102, the U.S. person does not include the distribution in gross income, but the distribution remains subject to the proposed § 1.6048-4 reporting requirements. A U.S. person who receives a Foreign Nongrantor Trust Beneficiary Statement determines the tax consequences of the distribution by applying the rules of subparts C and D of Part 1 of subchapter J of chapter 1 of the Code.

Under the default calculation method provided in proposed § 1.6048-4(d)(3)(i)(A), the U.S. person treats a portion of the distribution as a distribution of current income based on the average amount of the distributions that the U.S. person received from the foreign trust during the prior three taxable years, with only the excess amount of the distribution (that is, the amount that exceeds 125 percent of that average) treated as an accumulation distribution within the meaning of section 665(b) consisting of undistributed net income (
UNI
) of the foreign trust. In applying the default calculation method, in the absence of actual information provided on a statement described in proposed § 1.6048-4(c), the U.S. person must presume that the applicable number of years the foreign trust has been in existence is ten years and that no taxes described in section 665(d) have been imposed on the trust in any applicable previous year (even if a distribution has been made and tax under section 665(d) has previously been imposed). These rules are consistent with the default calculation method that is currently prescribed in the instructions for Part III of Form 3520. The U.S. person's use of the default calculation method does not affect any calculations made by the foreign trust for purposes of trust accounting. See proposed § 1.6048-4(d)(3)(ii).

5. Accumulation Distributions and U.S. Agents

Proposed § 1.6048-4(e) provides that, if a U.S. person fails to provide adequate records to the IRS for purposes of determining the income tax consequences of a distribution from a foreign trust (within the meaning of

proposed § 1.6048-4(b)) other than a loan or use of trust property that is not treated as a section 643(i) distribution under proposed § 1.643(i)-1, then the entire distribution is treated as an accumulation distribution includible in the U.S. person's income. However, if the trustee of the foreign trust authorizes a U.S. person to act as the trust's limited agent under the rules prescribed in proposed § 1.6048-3(e), then the IRS can summons and examine trust records through the U.S. agent and thus may determine the tax consequences of the distribution under the general rules provided in proposed § 1.6048-4(d)(1) rather than treating the entire distribution as an accumulation distribution.

6. Coordination With the Rule for Reporting Large Foreign Gifts

Proposed § 1.6048-4(f) addresses the interaction of proposed § 1.6048-4 and proposed § 1.6039F-1. If a U.S. person receives a distribution from a foreign trust, the U.S. person must report the distribution under proposed § 1.6048-4(a) and not under proposed § 1.6039F-1, regardless of whether the distribution is taxable to the U.S. person.

D. Exceptions

1. Exceptions To Reporting Transfers of Property to Foreign Trusts

Proposed § 1.6048-5(a) provides an exception from section 6048(a) reporting based on section 6048(a)(3)(B). The proposed regulations provide that, for purposes of proposed § 1.6048-2, a reportable event does not include any of the following: (1) a transfer of property to a foreign trust that is a transfer for fair market value within the meaning of § 1.679-4(b) (other than a transfer described in the following sentence); (2) any transfer of property to certain compensatory foreign trusts, as 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 IRS that has not been revoked that recognizes the trust as an organization described in section 501(c)(3) that is exempt from Federal income tax under section 501(a). However, a reportable event does include a transfer for fair market value if the transfer is made by a U.S. transferor that is a related person (as defined in § 1.679-1(c)(5)) with respect to the foreign trust in exchange for any obligation of the trust or of a related person, without regard to whether such obligation is a qualified obligation described in proposed § 1.679-4(d).

2. Additional Exceptions To Reporting Transactions With Foreign Trusts

Proposed § 1.6048-5(b) through (e) provides additional exceptions from section 6048 reporting based on the authority granted to the IRS by section 6048(d)(4) to suspend or modify the requirements of section 6048.

i. Tax-Favored Foreign Retirement Trusts, Non-Retirement Savings Trusts, and de Minimis Savings Trusts

Proposed § 1.6048-5(b) provides an exception from section 6048(a) through (c) and proposed §§ 1.6048-2 through 1.6048-4 for certain eligible U.S. individuals' transactions with, or ownership of, certain tax-favored foreign retirement trusts, non-retirement savings trusts, and de minimis savings trusts. These exceptions to section 6048 reporting generally follow the exceptions provided under Rev. Proc. 2020-17, but are modified to address comments received, including comments requesting that future guidance include an increase to the applicable contribution limitation thresholds, rules for tax-favored foreign retirement trusts that may allow limited contributions of unearned income, and relief with respect to certain trusts that do not fall within the listed categories but that have values below a certain threshold.

A
tax-favored foreign retirement trust
means a foreign trust that is established under the laws of a foreign jurisdiction 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 certain additional requirements, such as contribution limitations or value thresholds, conditions for withdrawal, and information reporting. See proposed § 1.6048-5(b)(2). A
tax-favored foreign non-retirement savings trust
means a foreign trust that is established under the laws of a foreign jurisdiction to operate exclusively or almost exclusively to provide, or to earn income for the provision of, medical, disability, or educational benefits, and that also meets certain additional requirements, such as contribution limitations, conditions for withdrawal, and information reporting. See proposed § 1.6048-5(b)(3). A
tax-favored foreign de minimis savings trust
means a foreign trust that is established under the laws of a foreign jurisdiction to operate as a savings vehicle, that is not treated as a tax-favored foreign retirement trust or a tax-favored foreign non-retirement savings trust, and that meets certain additional requirements, such as information reporting, and whose value is under a de minimis threshold. See proposed § 1.6048-5(b)(4).

The Treasury Department and the IRS are of the view that it would be appropriate to exempt U.S. individuals from the requirement to provide information about these foreign trusts for several reasons. First, these foreign trusts generally are subject to written restrictions, such as contribution limitations, conditions for withdrawal, and information reporting, under the laws of the country in which they are established that are broadly consistent with the eligibility requirements under the Code for U.S. trusts serving similar policy goals. Second, U.S. individuals with an interest in these trusts may be required under section 6038D to separately report information about their interests in accounts held by, or through, these trusts. Additionally, with respect to tax-favored foreign de minimis savings trusts and tax-favored foreign retirement trusts, the Treasury Department and the IRS are of the view that exempting U.S. individuals from the section 6048 requirements based on the value of the trust is appropriate and consistent with the reporting thresholds under section 6038D.

ii. Distributions From Certain Foreign Compensatory Trusts

The proposed regulations implement the exception from section 6048(c) reporting provided in section V of Notice 97-34 for distributions from certain foreign compensatory trusts described in § 1.672(f)-3(c)(1) (section 402(b) employee trusts and foreign rabbi trusts). Proposed § 1.6048-5(c). The exception applies only if the U.S. individual who receives the distribution reports the distribution as compensation income on a Federal income tax return.

iii. Distributions Received by Certain Domestic Charitable Organizations

Proposed § 1.6048-5(d) implements the exception from section 6048(c) reporting provided in section V of Notice 97-34 for distributions received by a domestic organization described in section 501(c)(3). The exception applies only if the domestic organization has received a determination letter from the IRS that has not been revoked recognizing the domestic organization's exemption from Federal income tax under section 501(a) as an organization described in section 501(c)(3).

iv. Certain Trusts Located in a Mirror Code Possession

Proposed § 1.6048-5(e) provides an exemption from sections 6048(a)

through (c) for 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 the mirror code possession. For this purpose, 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, A trust is located in a mirror code possession if a court within such 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.

E. Special Rules

1. Dual Resident and Dual Status Taxpayers

Proposed § 1.6048-6(a)(1) provides that a dual resident taxpayer (within the meaning of § 301.7701(b)-7(a)(1)) who computes U.S. income tax liability as a nonresident alien and complies with the filing requirements of § 301.7701(b)-7(b) and (c) is not treated as a U.S. person for purposes of the proposed regulations for the portion of the year that the dual resident taxpayer is treated as a nonresident alien. Similarly, under proposed § 1.6048-6(a)(2), a dual status taxpayer who abandons U.S. citizenship or residence during the tax year or acquires U.S. citizenship or residence during the taxable year, as provided in § 1.6012-1(b)(2)(ii), is not treated as a U.S. person for purposes of the proposed regulations for the portion of the year that the dual status taxpayer is treated as a nonresident alien. As a result, these taxpayers are not subject to section 6048 reporting for the portion of the year during which they are treated as nonresident aliens for purposes of computing their U.S. income tax liability.

2. Reporting by all U.S. Transferors and Recipients

Section 6048(d)(1) provides that, “For purposes of [section 6048], in determining whether a United States person makes a transfer to, or receives a distribution from, a foreign trust, the fact that a portion of such trust is treated as owned by another person under the rules of subpart E of Part I of subchapter J of chapter 1 shall be disregarded.” The Treasury Department and the IRS are of the view that it is necessary to receive information about transfers to, and distributions from, foreign grantor trusts with regard to all U.S. transferors and U.S. recipients, including the U.S. owner, in order to administer the foreign trust provisions and to determine a taxpayer's U.S. tax liability with respect to foreign trusts. For example, the IRS uses this information to determine whether the transferor should be treated as the owner of the foreign trust, the value of the foreign trust's corpus at the end of the year for purposes of assessing penalties under section 6677, and the tax consequences of distributions in later years, such as distributions of corpus or UNI, if the foreign trust becomes a nongrantor trust (because, for example, the grantor dies). Therefore, proposed § 1.6048-6(b) clarifies that, pursuant to section 6048(d)(1), a transfer to, or a distribution from, a foreign trust is reportable under section 6048(a) and (c) and the proposed regulations without regard to whether the trust is a grantor trust or a nongrantor trust, and whether or not there are any U.S. income tax consequences associated with the transfer or distribution.

3. Domestic Trust With Substantial Foreign Activities or Assets

Proposed § 1.6048-6(c) is reserved for rules under section 6048(d)(2). Section 6048(d)(2) provides that, to the extent provided in regulations, a domestic trust is treated as a foreign trust for purposes of sections 6048 and 6677 if the trust has substantial activities, or holds substantial property, outside the United States. See section III.D.4 of the Background.

4. Joint Filers

Proposed § 1.6048-6(d) provides that married U.S. persons, each of whom is subject to the information reporting requirements under proposed § 1.6048-2(a) (as a grantor or transferor required to file Part I of Form 3520), proposed § 1.6048-3(a)(2) (as a U.S. owner of a foreign trust required to file a substitute Form 3520-A), or proposed § 1.6048-4(a) (as a U.S. recipient of a distribution from a foreign trust required to file Part III of Form 3520) for the same foreign trust, may file one Form 3520 for purposes of proposed §§ 1.6048-2 through 1.6048-4, but only if they file a joint income tax return under section 6013 for the tax year for which reporting is required.

V. Section 6677—Civil Penalties for Failure To File Information With Respect to Certain Foreign Trusts

Proposed § 1.6677-1 provides rules for civil penalties that may be assessed if any notice or return required to be filed under proposed §§ 1.6048-2 through 1.6048-4 is not timely filed or contains incomplete or incorrect information. The proposed regulations provide for three separate civil penalties that correspond to each separate reporting requirement under proposed § 1.6048-2, § 1.6048-3, and § 1.6048-4. The Treasury Department and the IRS interpret section 6677 as assessing a penalty based on a percentage of a gross reportable amount, a term that is defined separately under section 6677(c) and in the proposed regulations with respect to each corresponding section 6048 reporting requirement. This interpretation is consistent with the plain text of sections 6048 and 6677 and the purpose of the 1996 Act's modifications to these sections, which is to discourage U.S. persons from using foreign trusts to avoid their U.S. tax obligations.

A. General Rules

Proposed § 1.6677-1(a)(1) provides that, as a general rule, a person who fails to timely file a required notice or return, or fails to provide complete and correct information, is subject to a penalty equal to the greater of $10,000 or 35 percent of the applicable gross reportable amount (defined in proposed § 1.6677-1(c)) for each such failure (or for each year, in the case of a failure under proposed § 1.6048-3 relating to information reporting about U.S. owners of foreign trusts). If a person reports an amount that is less than the gross reportable amount, the penalty is based on the amount that is unreported.

Proposed § 1.6677-1(a)(2) provides that, if the failure to comply with the applicable reporting requirement continues for more than 90 days after the day on which the IRS mails notice of the failure to the U.S. person required to pay the penalty, the person is required to pay an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure continues.

Proposed § 1.6677-1(a)(3)(i) addresses maximum penalties. Proposed § 1.6677-1(a)(3)(i) provides that the aggregate amount of the penalties imposed by proposed § 1.6677-1(a)(1) and (2) (as modified by proposed § 1.6677-1(b), if applicable) with respect to any single failure may not exceed the gross reportable amount with respect to that failure (provided that the IRS receives

enough information to accurately determine the gross reportable amount). In some cases, the IRS can begin to assess penalties before it has received enough information to determine the gross reportable amount. If the aggregate amount of the penalty collected exceeds the applicable gross reportable amount (because the penalty was asses

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-09434. Public record. Not legal advice.