Grantor Trust Reporting Requirements

DEPARTMENT OF THE TREASURY

26 CFR Parts 1, 25, 301, and 602

[TD 8633]

RIN 1545-AS37

Grantor Trust Reporting Requirements

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations relating to the

method of reporting for trusts that are treated as owned by grantors or

other persons under the provisions of subpart E (section 671 and

following), part I, subchapter J, chapter 1 of the Internal Revenue

Code. These regulations are intended to reduce the current filing

burden on trustees, to provide necessary information to grantors or

other persons treated as the owners of trusts, to reduce any cases of

duplicate filing, and to provide more meaningful information to the

IRS. These regulations affect grantors and trustees of trusts that are

treated as owned by grantors or other persons, as well as persons who

are required to file information returns with respect to payments to

these trusts.

DATES: These regulations are effective January 1, 1996. For dates of

applicability of these regulations, see Sec. 1.671-4(h).

FOR FURTHER INFORMATION CONTACT: Steven Schneider, (202) 622-3060 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations

has been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

control number 1545-1442. This information is required by the IRS to

insure the proper reporting of income and proceeds paid to a trust any

portion of which is treated as owned by the grantor or another person.

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless the collection of

information displays a valid control number.

The estimated annual burden per respondent is 30 minutes.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be sent to the Internal

Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,

DC 20224, and to the Office of Management and Budget, Attn: Desk

Officer for the Department of the Treasury, Office of Information and

Regulatory Affairs, Washington, DC 20503.

Books or records relating to this collection of information must be

retained as long as their contents may become material in the

administration of any internal revenue law. Generally, tax returns and

tax return information are confidential, as required by 26 U.S.C. 6103.

Background

On July 22, 1994, the IRS published in the Federal Register a

notice of proposed rulemaking and notice of public hearing (59 FR

37450) proposing amendments to the Income Tax Regulations (26 CFR part

1) under section 671 of the Internal Revenue Code (Code) and to the

Procedure and Administration Regulations (26 CFR part 301) under

sections 6012 and 6109 of the Code.

Written comments responding to the notice were received. A public

hearing was held on September 21, 1994, pursuant to the notice

published in the Federal Register on July 22, 1994. After consideration

of all written and oral comments regarding the proposed amendments,

those amendments are adopted as revised by this Treasury decision.

Explanation of Provisions and Significant Changes in the Final

Regulations

Subject to certain new limitations under Sec. 1.671-4(b)(6) and

(7), discussed below, Sec. 1.671-4(b) of the final regulations retains

the optional alternative methods of reporting contained in the proposed

regulations published on July 22, 1994.

Several comments were submitted requesting confirmation that the

alternative methods of reporting described in the proposed regulations

are optional and not mandatory. Section 1.671-4(b) of the final

regulations clarifies that the trustee of a trust all of which is

treated as owned by one or more grantors or other persons may, but is

not required to, report pursuant to one of the alternative methods.

Certain commentators were unsure of which persons are considered

payors for purposes of the alternative filing methods. The final

regulations define the term payor as including any person who is

required by any provision of the Code and the regulations thereunder to

make any type of information return with respect to the trust for the

taxable year.

With respect to the alternative methods of reporting, several

commentators were unsure of the items

[[Page 66086]]

and the amounts of income that must be reported on any Forms 1099

required to be filed by the trustee. Section 1.671-4(b)(5) of the final

regulations clarifies that the amounts that must be included on any

Forms 1099 required to be filed by the trustee do not include any

amounts that are reportable by the payor on an information return other

than Form 1099.

For example, in the case of a trustee who furnishes the name, TIN,

and address of the trust to all payors pursuant to Sec. 1.671-

4(b)(2)(i)(B) of the final regulations, the trustee does not include

items of income attributable to an interest in a partnership on any

Forms 1099 filed by the trustee because those items are reportable by

the partnership on Schedule K-1 of Form 1065 (reporting distributive

shares to members of a partnership). While the statement furnished to

the grantor or other person treated as the owner of the trust by the

trustee will show all items of income, deduction, and credit

attributable to the partnership interest, those items will not be

reported to the IRS by the trustee on any type of form.

Several commentators were unsure of the dates by which a trustee

must file any required Forms 1099 and must furnish any required

statements to grantors or other persons treated as owners of the trust.

Section 1.671-4(c) of the final regulations provides that the due date

for any Forms 1099 required to be filed with the IRS by a trustee is

the due date otherwise in effect for filing Forms 1099. Currently, the

due date is February 28 of the following year.

Section 1.671-4(d) of the final regulations provides that the due

date for the statement required to be furnished by a trustee to the

grantor or other person treated as an owner of the trust is the date

specified by section 6034A(a). Currently, the due date is April 15 of

the following year.

Comments were received requesting clarification of the trustee's

obligation, under the first of the alternative reporting methods, to

furnish the name and TIN of the grantor to all payors. The final

regulations provide that: (1) A trustee may not report under the first

alternative reporting method unless the grantor or other person treated

as the owner of the trust provides to the trustee a complete Form W-9

or other acceptable substitute form; (2) a trustee reporting under the

first alternative reporting method acts as the agent of the grantor or

other person treated as the owner of the trust for purposes of

furnishing backup withholding information to a payor; and (3) the payor

may rely on the name and TIN provided to the payor by the trustee. If

the Form W-9 indicates that the grantor or other person is subject to

backup withholding, then the trustee must notify all payors of

reportable interest and dividend payments of the requirement to backup

withhold.

Comments were received requesting clarification of the annuity and

unitrust payment dates under Sec. 25.2702-3 of the Gift Tax Regulations

for trusts electing one of the alternative methods of reporting. The

final regulations contain conforming amendments to Sec. 25.2702-

3(b)(1)(i) and Sec. 25.2702-3(c)(1)(i).

One commentator noted the need for more guidance concerning the

reporting requirements for widely held fixed investment trusts. Because

that guidance is outside the scope of this regulation, the final

regulations do not provide special rules for these trusts. However IRS

and Treasury anticipate providing guidance for these trusts in a

separate project and would welcome comments from interested taxpayers

and practitioners regarding such guidance.

Several of the comments received with respect to the proposed

regulations emphasized the necessity of making the trustee's choice to

report under one of the alternative methods revocable. The final

regulations provide that a trustee who has reported pursuant to one of

the alternative methods may report pursuant to the general rule

requiring the trustee to file a Form 1041 for any subsequent taxable

years of the trust, provided that certain conditions are met.

The final regulations provide that the trustee of a trust all of

which is treated as owned by one grantor or one other person that is an

exempt recipient for information reporting purposes may not report

under an alternative method. However, if the trust is treated as owned

by two or more grantors or other persons, the trustee may report

pursuant to the alternative method for multiple grantors if (1) at

least one grantor or one other person who is treated as an owner of the

trust is a person who is not an exempt recipient for information

reporting purposes and (2) the trustee reports without regard to

whether any of the grantors or other persons treated as owners of the

trust are exempt recipients for information reporting purposes.

The final regulations also provide that the trustee of a trust all

of which is treated as owned by one grantor or other person whose

taxable year is a fiscal year may not report under an alternative

method. However, the trustee of a trust that is treated as owned by two

or more grantors or other persons may report pursuant to the

alternative method for multiple grantors even though one or more of the

grantors or other persons treated as an owner of the trust has a

taxable year that is the fiscal year.

In addition, the final regulations provide that a trustee of a

trust that is a qualified subchapter S trust as defined in section

1361(d)(3) may not report under an alternative method.

The final regulations also provide that the trustee of a trust may

not report under an alternative method if any person who is treated as

an owner of the trust is not a United States person.

Effective Date and Transition Rule

The final regulations are effective for taxable years beginning on

or after January 1, 1996, subject to a requirement that certain

trustees file a final Form 1041 before adopting one of the alternative

methods of reporting. The final regulations retain the transition rule

contained in the proposed regulations providing that, for taxable years

beginning prior to January 1, 1996, the IRS will not challenge the

manner of reporting by trustees of certain trusts.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It has also been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a Regulatory Flexibility Analysis is

not required. Pursuant to section 7805(f) of the Code, the notice of

proposed rulemaking preceding these regulations was submitted to the

Small Business Administration for comment on its impact on small

business.

Drafting Information

The principal author of these regulations is Robert Rio, formerly

of the Office of Assistant Chief Counsel (Passthroughs and Special

Industries), IRS. However, other personnel from the IRS and Treasury

Department participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 25

Gift taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income

taxes,

[[Page 66087]]

Penalties, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1, 25, 301, and 602 are amended as

follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. Section 1.671-4 is revised to read as follows:

Sec. 1.671-4 Method of reporting.

(a) Portion of trust treated as owned by the grantor or another

person. Except as otherwise provided in paragraph (b) of this section,

items of income, deduction, and credit attributable to any portion of a

trust which, under the provisions of subpart E (section 671 and

following), part I, subchapter J, chapter 1 of the Internal Revenue

Code, is treated as owned by the grantor or another person are not

reported by the trust on Form 1041, but are shown on a separate

statement to be attached to that form.

(b) A trust all of which is treated as owned by one or more

grantors or other persons--(1) In general. In the case of a trust all

of which is treated as owned by one or more grantors or other persons,

and which is not described in paragraph (b)(6) or (7) of this section,

the trustee may, but is not required to, report by one of the methods

described in this paragraph (b) rather than by the method described in

paragraph (a) of this section. A trustee may not report, however,

pursuant to paragraph (b)(2)(i)(A) of this section unless the grantor

or other person treated as the owner of the trust provides to the

trustee a complete Form W-9 or acceptable substitute Form W-9 signed

under penalties of perjury. See section 3406 and the regulations

thereunder for the information to include on, and the manner of

executing, the Form W-9, depending upon the type of reportable payments

made.

(2) A trust all of which is treated as owned by one grantor or by

one other person--(i) In general. In the case of a trust all of which

is treated as owned by one grantor or one other person, the trustee

reporting under this paragraph (b) must either--

(A) Furnish the name and taxpayer identification number (TIN) of

the grantor or other person treated as the owner of the trust, and the

address of the trust, to all payors during the taxable year, and comply

with the additional requirements described in paragraph (b)(2)(ii) of

this section; or

(B) Furnish the name, TIN, and address of the trust to all payors

during the taxable year, and comply with the additional requirements

described in paragraph (b)(2)(iii) of this section.

(ii) Additional obligations of the trustee when name and TIN of the

grantor or other person treated as the owner of the trust and the

address of the trust are furnished to payors. (A) Unless the grantor or

other person treated as the owner of the trust is the trustee or a co-

trustee of the trust, the trustee must furnish the grantor or other

person treated as the owner of the trust with a statement that--

(1) Shows all items of income, deduction, and credit of the trust

for the taxable year;

(2) Identifies the payor of each item of income;

(3) Provides the grantor or other person treated as the owner of

the trust with the information necessary to take the items into account

in computing the grantor's or other person's taxable income; and

(4) Informs the grantor or other person treated as the owner of the

trust that the items of income, deduction and credit and other

information shown on the statement must be included in computing the

taxable income and credits of the grantor or other person on the income

tax return of the grantor or other person.

(B) The trustee is not required to file any type of return with the

Internal Revenue Service.

(iii) Additional obligations of the trustee when name, TIN, and

address of the trust are furnished to payors--(A) Obligation to file

Forms 1099. The trustee must file with the Internal Revenue Service the

appropriate Forms 1099, reporting the income or gross proceeds paid to

the trust during the taxable year, and showing the trust as the payor

and the grantor or other person treated as the owner of the trust as

the payee. The trustee has the same obligations for filing the

appropriate Forms 1099 as would a payor making reportable payments,

except that the trustee must report each type of income in the

aggregate, and each item of gross proceeds separately. See paragraph

(b)(5) of this section regarding the amounts required to be included on

any Forms 1099 filed by the trustee.

(B) Obligation to furnish statement. (1) Unless the grantor or

other person treated as the owner of the trust is the trustee or a co-

trustee of the trust, the trustee must also furnish to the grantor or

other person treated as the owner of the trust a statement that--

(i) Shows all items of income, deduction, and credit of the trust

for the taxable year;

(ii) Provides the grantor or other person treated as the owner of

the trust with the information necessary to take the items into account

in computing the grantor's or other person's taxable income; and

(iii) Informs the grantor or other person treated as the owner of

the trust that the items of income, deduction and credit and other

information shown on the statement must be included in computing the

taxable income and credits of the grantor or other person on the income

tax return of the grantor or other person.

(2) By furnishing the statement, the trustee satisfies the

obligation to furnish statements to recipients with respect to the

Forms 1099 filed by the trustee.

(iv) Examples. The following examples illustrate the provisions of

this paragraph (b)(2):

Example 1. G, a United States citizen, creates an irrevocable

trust which provides that the ordinary income is to be payable to

him for life and that on his death the corpus shall be distributed

to B, an unrelated person. Except for the right to receive income, G

retains no right or power which would cause him to be treated as an

owner under sections 671 through 679. Under the applicable local

law, capital gains must be added to corpus. Since G has a right to

receive income, he is treated as an owner of a portion of the trust

under section 677. The tax consequences of any items of capital gain

of the trust are governed by the provisions of subparts A, B, C, and

D (section 641 and following), part I, subchapter J, chapter 1 of

the Internal Revenue Code. Because not all of the trust is treated

as owned by the grantor or another person, the trustee may not

report by the methods described in paragraph (b)(2) of this section.

Example 2. (i)(A) On January 2, 1996, G, a United States

citizen, creates a trust all of which is treated as owned by G. The

trustee of the trust is T. During the 1996 taxable year the trust

has the following items of income and gross proceeds:

Interest.........................................................$2,500

Dividends.........................................................3,205

Proceeds from sale of B stock.....................................2,000

(B) The trust has no items of deduction or credit.

(ii)(A) The payors of the interest paid to the trust are X

($2,000), Y ($300), and Z ($200). The payors of the dividends paid

to the trust are A ($3,200), and D ($5). The payor of the gross

proceeds paid to the trust is D, a brokerage firm, which held the B

stock as the nominee for the trust. The B stock was purchased by T

for $1,500 on January 3, 1996, and sold by T on November 29, 1996. T

chooses to report pursuant to paragraph

[[Page 66088]]

(b)(2)(i)(B) of this section, and therefore furnishes the name, TIN,

and address of the trust to X, Y, Z, A, and D. X, Y, and Z each

furnish T with a Form 1099-INT showing the trust as the payee. A

furnishes T with a Form 1099-DIV showing the trust as the payee. D

does not furnish T with a Form 1099-DIV because D paid a dividend of

less than $10 to T. D furnishes T with a Form 1099-B showing the

trust as the payee.

(B) On or before February 28, 1997, T files a Form 1099-INT with

the Internal Revenue Service on which T reports interest

attributable to G, as the owner of the trust, of $2,500; a Form

1099-DIV on which T reports dividends attributable to G, as the

owner of the trust, of $3,205; and a Form 1099-B on which T reports

gross proceeds from the sale of B stock attributable to G, as the

owner of the trust, of $2,000. On or before April 15, 1997, T

furnishes a statement to G which lists the following items of income

and information necessary for G to take the items into account in

computing G's taxable income:

Interest.........................................................$2,500

Dividends.........................................................3,205

Gain from sale of B stock...........................................500

Information regarding sale of B stock:

Proceeds.........................................................$2,000

Basis.............................................................1,500

Date acquired...................................................1/03/96

Date sold......................................................11/29/96

(C) T informs G that any items of income, deduction and credit

and other information shown on the statement must be included in

computing the taxable income and credits of the grantor or other

person on the income tax return of the grantor or other person.

(D) T has complied with T's obligations under this section.

(iii)(A) Same facts as paragraphs (i) and (ii) of this Example

2, except that G contributed the B stock to the trust on January 2,

1996. On or before April 15, 1997, T furnishes a statement to G

which lists the following items of income and information necessary

for G to take the items into account in computing G's taxable

income:

Interest $2,500

Dividends 3,205

Information regarding sale of B stock:

Proceeds.........................................................$2,000

Date sold......................................................11/29/96

(B) T informs G that any items of income, deduction and credit

and other information shown on the statement must be included in

computing the taxable income and credits of the grantor or other

person on the income tax return of the grantor or other person.

(C) T has complied with T's obligations under this section.

Example 3. On January 2, 1996, G, a United States citizen,

creates a trust all of which is treated as owned by G. The trustee

of the trust is T. The only asset of the trust is an interest in C,

a common trust fund under section 584(a). T chooses to report

pursuant to paragraph (b)(2)(i)(B) of this section and therefore

furnishes the name, TIN, and address of the trust to C. C files a

Form 1065 and a Schedule K-1 (Partner's Share of Income, Credits,

Deductions, etc.) showing the name, TIN, and address of the trust

with the Internal Revenue Service and furnishes a copy to T. Because

the trust did not receive any amounts described in paragraph (b)(5)

of this section, T does not file any type of return with the

Internal Revenue Service. On or before April 15, 1997, T furnishes G

with a statement that shows all items of income, deduction, and

credit of the trust for the 1996 taxable year. In addition, T

informs G that any items of income, deduction and credit and other

information shown on the statement must be included in computing the

taxable income and credits of the grantor or other person on the

income tax return of the grantor or other person. T has complied

with T's obligations under this section.

(3) A trust all of which is treated as owned by two or more

grantors or other persons--(i) In general. In the case of a trust all

of which is treated as owned by two or more grantors or other persons,

the trustee must furnish the name, TIN, and address of the trust to all

payors for the taxable year, and comply with the additional

requirements described in paragraph (b)(3)(ii) of this section.

(ii) Additional obligations of trustee--(A) Obligation to file

Forms 1099. The trustee must file with the Internal Revenue Service the

appropriate Forms 1099, reporting the items of income paid to the trust

by all payors during the taxable year attributable to the portion of

the trust treated as owned by each grantor or other person, and showing

the trust as the payor and each grantor or other person treated as an

owner of the trust as the payee. The trustee has the same obligations

for filing the appropriate Forms 1099 as would a payor making

reportable payments, except that the trustee must report each type of

income in the aggregate, and each item of gross proceeds separately.

See paragraph (b)(5) of this section regarding the amounts required to

be included on any Forms 1099 filed by the trustee.

(B) Obligation to furnish statement. (1) The trustee must also

furnish to each grantor or other person treated as an owner of the

trust a statement that--

(i) Shows all items of income, deduction, and credit of the trust

for the taxable year attributable to the portion of the trust treated

as owned by the grantor or other person;

(ii) Provides the grantor or other person treated as an owner of

the trust with the information necessary to take the items into account

in computing the grantor's or other person's taxable income; and

(iii) Informs the grantor or other person treated as the owner of

the trust that the items of income, deduction and credit and other

information shown on the statement must be included in computing the

taxable income and credits of the grantor or other person on the income

tax return of the grantor or other person.

(2) Except for the requirements pursuant to section 3406 and the

regulations thereunder, by furnishing the statement, the trustee

satisfies the obligation to furnish statements to recipients with

respect to the Forms 1099 filed by the trustee.

(4) Persons treated as payors--(i) In general. For purposes of this

section, the term payor means any person who is required by any

provision of the Internal Revenue Code and the regulations thereunder

to make any type of information return (including Form 1099 or Schedule

K-1) with respect to the trust for the taxable year, including persons

who make payments to the trust or who collect (or otherwise act as

middlemen with respect to) payments on behalf of the trust.

(ii) Application to brokers and customers. For purposes of this

section, a broker, within the meaning of section 6045, is considered a

payor. A customer, within the meaning of section 6045, is considered a

payee.

(5) Amounts required to be included on Forms 1099 filed by the

trustee--(i) In general. The amounts that must be included on any Forms

1099 required to be filed by the trustee pursuant to this section do

not include any amounts that are reportable by the payor on an

information return other than Form 1099. For example, in the case of a

trust which owns an interest in a partnership, the trust's distributive

share of the income and gain of the partnership is not includible on

any Forms 1099 filed by the trustee pursuant to this section because

the distributive share is reportable by the partnership on Schedule K-

1.

(ii) Example. The following example illustrates the provisions of

this paragraph (b)(5):

Example. (i)(A) On January 2, 1996, G, a United States citizen,

creates a trust all of which is treated as owned by G. The trustee

of the trust is T. The assets of the trust during the 1996 taxable

year are shares of stock in X, an S corporation, a limited

partnership interest in P, shares of stock in M, and shares of stock

in N. T chooses to report pursuant to paragraph (b)(2)(i)(B) of this

section and therefore furnishes the name, TIN, and address of the

trust to X, P, M, and N. M furnishes T with a Form 1099-DIV showing

the trust as the payee. N does not furnish T with a Form 1099-DIV

because N paid a dividend of less than $10 to T. X and P furnish T

with Schedule K-1 (Shareholder's Share of Income, Credits,

Deductions, etc.) and Schedule K-1 (Partner's Share of Income,

Credits, Deductions, etc.), respectively, showing the trust's name,

TIN, and address.

(B) For the 1996 taxable year the trust has the following items

of income and deduction:

[[Page 66089]]

Dividends paid by M . . . . . . . . . . . . . . $12

Dividends paid by N . . . . . . . . . . . . . . 6

Administrative expense . . . . . . . . . . . . $20

Items reported by X on Schedule K-1 attributable to trust's

shares of stock in X:

Interest . . . . . . . . . . . . . . . . . . $20

Dividends . . . . . . . . . . . . . . . . . 35

Items reported by P on Schedule K-1 attributable to trust's

limited partnership interest in P:

Ordinary income . . . . . . . . . . . . . $300

(ii)(A) On or before February 28, 1997, T files with the

Internal Revenue Service a Form 1099-DIV on which T reports

dividends attributable to G as the owner of the trust in the amount

of $18. T does not file any other returns.

(B) T has complied with T's obligation under paragraph

(b)(2)(iii)(A) of this section to file the appropriate Forms 1099.

(6) Trusts that cannot report under this paragraph (b). The

following trusts cannot use the methods of reporting described in this

paragraph (b)--

(i) A common trust fund as defined in section 584(a);

(ii) A trust that has its situs or any of its assets located

outside the United States;

(iii) A trust that is a qualified subchapter S trust as defined in

section 1361(d)(3);

(iv) A trust all of which is treated as owned by one grantor or one

other person whose taxable year is a fiscal year;

(v) A trust all of which is treated as owned by one grantor or one

other person who is not a United States person; or

(vi) A trust all of which is treated as owned by two or more

grantors or other persons, one of whom is not a United States person.

(7) Grantors or other persons who are treated as owners of the

trust and are exempt recipients for information reporting purposes--(i)

Trust treated as owned by one grantor or one other person. The trustee

of a trust all of which is treated as owned by one grantor or one other

person may not report pursuant to this paragraph (b) if the grantor or

other person is an exempt recipient for information reporting purposes.

(ii) Trust treated as owned by two or more grantors or other

persons. The trustee of a trust, all of which is treated as owned by

two or more grantors or other persons, may not report pursuant to this

paragraph (b) if one or more grantors or other persons treated as

owners are exempt recipients for information reporting purposes

unless--

(A) At least one grantor or one other person who is treated as an

owner of the trust is a person who is not an exempt recipient for

information reporting purposes; and

(B) The trustee reports without regard to whether any of the

grantors or other persons treated as owners of the trust are exempt

recipients for information reporting purposes.

(8) Husband and wife who make a single return jointly. A trust all

of which is treated as owned by a husband and wife who make a single

return jointly of income taxes for the taxable year under section 6013

is considered to be owned by one grantor for purposes of this paragraph

(b).

(c) Due date for Forms 1099 required to be filed by trustee. The

due date for any Forms 1099 required to be filed with the Internal

Revenue Service by a trustee pursuant to this section is the due date

otherwise in effect for filing Forms 1099.

(d) Due date and other requirements with respect to statement

required to be furnished by trustee. The due date for the statement

required to be furnished by a trustee to the grantor or other person

treated as an owner of the trust pursuant to this section is the date

specified by section 6034A(a). The trustee must maintain in its records

a copy of the statement furnished to the grantor or other person

treated as an owner of the trust for a period of three years from the

due date for furnishing such statement specified in this paragraph (d).

(e) Backup withholding requirements--(1) Trustee reporting under

paragraph (b)(2)(i)(A) of this section. In order for the trustee to be

able to report pursuant to paragraph (b)(2)(i)(A) of this section and

to furnish to all payors the name and TIN of the grantor or other

person treated as the owner of the trust, the grantor or other person

must provide a complete Form W-9 to the trustee in the manner provided

in paragraph (b)(1) of this section, and the trustee must give the name

and TIN shown on that Form W-9 to all payors. In addition, if the Form

W-9 indicates that the grantor or other person is subject to backup

withholding, the trustee must notify all payors of reportable interest

and dividend payments of the requirement to backup withhold. If the

Form W-9 indicates that the grantor or other person is not subject to

backup withholding, the trustee does not have to notify the payors that

backup withholding is not required. The trustee should not give the

Form W-9, or a copy thereof, to a payor because the Form W-9 contains

the address of the grantor or other person and paragraph (b)(2)(i)(A)

of this section requires the trustee to furnish the address of the

trust to all payors and not the address of the grantor or other person.

The trustee acts as the agent of the grantor or other person for

purposes of furnishing to the payors the information required by this

paragraph (e)(1). Thus, a payor may rely on the name and TIN provided

to the payor by the trustee, and, if given, on the trustee's statement

that the grantor is subject to backup withholding.

(2) Other backup withholding requirements. Whether a trustee is

treated as a payor for purposes of backup withholding is determined

pursuant to section 3406 and the regulations thereunder.

(f) Penalties for failure to file a correct Form 1099 or furnish a

correct statement. A trustee who fails to file a correct Form 1099 or

to furnish a correct statement to a grantor or other person treated as

an owner of the trust as required by paragraph (b) of this section is

subject to the penalties provided by sections 6721 and 6722 and the

regulations thereunder.

(g) Changing reporting methods--(1) Changing from reporting by

filing Form 1041 to a method described in paragraph (b) of this

section. If the trustee has filed a Form 1041 for any taxable year

ending before January 1, 1996 (and has not filed a final Form 1041

pursuant to Sec. 1.671-4(b)(3) (as contained in the 26 CFR part 1

edition revised as of April 1, 1995)), or files a Form 1041 for any

taxable year thereafter, the trustee must file a final Form 1041 for

the taxable year which ends after January 1, 1995, and which

immediately precedes the first taxable year for which the trustee

reports pursuant to paragraph (b) of this section, on the front of

which form the trustee must write: ``Pursuant to Sec. 1.671-4(g), this

is the final Form 1041 for this grantor trust.''.

(2) Changing from reporting by a method described in paragraph (b)

of this section to the filing of a Form 1041. The trustee of a trust

who reported pursuant to paragraph (b) of this section for a taxable

year may report pursuant to paragraph (a) of this section for

subsequent taxable years. If the trustee reported pursuant to paragraph

(b)(2)(i)(A) of this section, and therefore furnished the name and TIN

of the grantor to all payors, the trustee must furnish the name, TIN,

and address of the trust to all payors for such subsequent taxable

years. If the trustee reported pursuant to paragraph (b)(2)(i)(B) or

(b)(3)(i) of this section, and therefore furnished the name and TIN of

the trust to all payors, the trustee

[[Page 66090]]

must indicate on each Form 1096 (Annual Summary and Transmittal of U.S.

Information Returns) that it files (or appropriately on magnetic media)

for the final taxable year for which the trustee so reports that it is

the final return of the trust.

(3) Changing between methods described in paragraph (b) of this

section--(i) Changing from furnishing the TIN of the grantor to

furnishing the TIN of the trust. The trustee of a trust who reported

pursuant to paragraph (b)(2)(i)(A) of this section for a taxable year,

and therefore furnished the name and TIN of the grantor to all payors,

may report pursuant to paragraph (b)(2)(i)(B) of this section, and

furnish the name and TIN of the trust to all payors, for subsequent

taxable years.

(ii) Changing from furnishing the TIN of the trust to furnishing

the TIN of the grantor. The trustee of a trust who reported pursuant to

paragraph (b)(2)(i)(B) of this section for a taxable year, and

therefore furnished the name and TIN of the trust to all payors, may

report pursuant to paragraph (b)(2)(i)(A) of this section, and furnish

the name and TIN of the grantor to all payors, for subsequent taxable

years. The trustee, however, must indicate on each Form 1096 (Annual

Summary and Transmittal of U.S. Information Returns) that it files (or

appropriately on magnetic media) for the final taxable year for which

the trustee reports pursuant to paragraph (b)(2)(i)(B) of this section

that it is the final return of the trust.

(4) Example. The following example illustrates the provisions of

paragraph (g) of this section:

Example. (i) On January 3, 1994, G, a United States citizen,

creates a trust all of which is treated as owned by G. The trustee

of the trust is T. On or before April 17, 1995, T files with the

Internal Revenue Service a Form 1041 with an attached statement for

the 1994 taxable year showing the items of income, deduction, and

credit of the trust. On or before April 15, 1996, T files with the

Internal Revenue Service a Form 1041 with an attached statement for

the 1995 taxable year showing the items of income, deduction, and

credit of the trust. On the Form 1041, T states that ``pursuant to

Sec. 1.671-4(g), this is the final Form 1041 for this grantor

trust.'' T may report pursuant to paragraph (b) of this section for

the 1996 taxable year.

(ii) T reports pursuant to paragraph (b)(2)(i)(B) of this

section, and therefore furnishes the name, TIN, and address of the

trust to all payors, for the 1996 and 1997 taxable years. T chooses

to report pursuant to paragraph (a) of this section for the 1998

taxable year. On each Form 1096 (Annual Summary and Transmittal of

U.S. Information Returns) which T files for the 1997 taxable year

(or appropriately on magnetic media), T indicates that it is the

trust's final return. On or before April 15, 1999, T files with the

Internal Revenue Service a Form 1041 with an attached statement

showing the items of income, deduction, and credit of the trust. On

the Form 1041, T uses the same TIN which T used on the Forms 1041

and Forms 1099 it filed for previous taxable years. T has complied

with T's obligations under paragraph (g)(2) of this section.

(h) Effective date and transition rule--(1) Effective date. The

trustee of a trust any portion of which is treated as owned by one or

more grantors or other persons must report pursuant to this section for

taxable years beginning on or after January 1, 1996.

(2) Transition rule. For taxable years beginning prior to January

1, 1996, the Internal Revenue Service will not challenge the manner of

reporting of--

(i) A trustee of a trust all of which is treated as owned by one or

more grantors or other persons who did not report in accordance with

Sec. 1.671-4(a) (as contained in the 26 CFR part 1 edition revised as

of April 1, 1995) as in effect for taxable years beginning prior to

January 1, 1996, but did report in a manner substantially similar to

one of the reporting methods described in paragraph (b) of this

section; or

(ii) A trustee of two or more trusts all of which are treated as

owned by one or more grantors or other persons who filed a single Form

1041 for all of the trusts, rather than a separate Form 1041 for each

trust, provided that the items of income, deduction, and credit of each

trust were shown on a statement attached to the single Form 1041.

(i) Cross-reference. For rules relating to employer identification

numbers, and to the obligation of a payor of income or proceeds to the

trust to furnish to the payee a statement to recipient, see

Sec. 301.6109-1(a)(2) of this chapter.

Par. 3. Section 1.6012-3 is amended by revising paragraph (a)(9) to

read as follows:

Sec. 1.6012-3 Returns by fiduciaries.

(a) * * *

(9) A trust any portion of which is treated as owned by the grantor

or another person pursuant to sections 671 through 678. In the case of

a trust any portion of which is treated as owned by the grantor or

another person under the provisions of subpart E (section 671 and

following) part I, subchapter J, chapter 1 of the Internal Revenue Code

see Sec. 1.671-4.

* * * * *

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

Par. 4. The authority citation for part 25 continues to read in

part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 5. Section 25.2702-3 is amended by adding a sentence to the

end of paragraphs (b)(1)(i) and (c)(1)(i), respectively, to read as

follows:

Sec. 25.2702-3 Qualified interests.

* * * * *

(b) * * *

(1) * * * (i) * * * If the trustee reports for the taxable year

pursuant to Sec. 1.671-4(b) of this chapter, the annuity payment must

be made no later than the date by which the trustee would have been

required to file the Federal income tax return of the trust for the

taxable year (without regard to extensions) had the trustee reported

pursuant to Sec. 1.671-4(a) of this chapter.

* * * * *

(c) * * *

(1) * * * (i) * * * If the trustee reports for the taxable year

pursuant to Sec. 1.671-4(b) of this chapter, the unitrust payment must

be made no later than the date by which the trustee would have been

required to file the Federal income tax return of the trust for the

taxable year (without regard to extensions) had the trustee reported

pursuant to Sec. 1.671-4(a) of this chapter.

* * * * *

PART 301--PROCEDURE AND ADMINISTRATION

Par. 6. The authority citation for part 301 continues to read in

part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 7. Section 301.6109-1 is amended by revising paragraph (a)(2)

to read as follows:

Sec. 301.6109-1 Identifying numbers.

(a) * * *

(2) A trust all of which is treated as owned by the grantor or

another person pursuant to sections 671 through 678--(i) Obtaining a

taxpayer identification number. If a trust does not have a taxpayer

identification number and the trustee furnishes the name and taxpayer

identification number of the grantor or other person treated as the

owner of the trust and the address of the trust to all payors pursuant

to Sec. 1.671-4(b)(2)(i)(A) of this chapter, the trustee need not

obtain a taxpayer identification number for the trust until either the

first taxable year of the trust in which all of the trust is no longer

owned by the grantor or another person, or until the first taxable year

of the trust for which the trustee no longer reports pursuant to

Sec. 1.671-4(b)(2)(i)(A) of this chapter. If the trustee has not

already obtained a taxpayer identification number for the trust, the

trustee must obtain a taxpayer identification number for the trust as

provided in paragraph (d)(2) of this

[[Page 66091]]

section in order to report pursuant to Sec. 1.671-4(a), (b)(2)(i)(B),

or (b)(3)(i) of this chapter.

(ii) Obligations of persons who make payments to certain trusts.

Any payor that is required to file an information return with respect

to payments of income or proceeds to a trust must show the name and

taxpayer identification number that the trustee has furnished to the

payor on the return. Regardless of whether the trustee furnishes to the

payor the name and taxpayer identification number of the grantor or

other person treated as an owner of the trust, or the name and taxpayer

identification number of the trust, the payor must furnish a statement

to recipients to the trustee of the trust, rather than to the grantor

or other person treated as the owner of the trust. Under these

circumstances, the payor satisfies the obligation to show the name and

taxpayer identification number of the payee on the information return

and to furnish a statement to recipients to the person whose taxpayer

identification number is required to be shown on the form.

(iii) Persons treated as payors. For purposes of this paragraph

(a)(2), the term payor means a person described in Sec. 1.671-4(b)(4)

of this chapter.

* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 8. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Par. 9. In Sec. 602.101, paragraph (c) is amended in the table by

revising the entry for 1.671-4 to read ``1.671-4 . . . . 1545-1442''.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: December 5, 1995:

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 95-30682 Filed 12-20-95; 8:45 am]

BILLING CODE 4830-01-U