§675 — Administrative powers
61 citing cases
Statute Text — 26 U.S.C. §675
The grantor shall be treated as the owner of any portion of a trust in respect of which—
A power exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party enables the grantor or any person to purchase, exchange, or otherwise deal with or dispose of the corpus or the income therefrom for less than an adequate consideration in money or money’s worth.
A power exercisable by the grantor or a nonadverse party, or both, enables the grantor to borrow the corpus or income, directly or indirectly, without adequate interest or without adequate security except where a trustee (other than the grantor) is authorized under a general lending power to make loans to any person without regard to interest or security.
The grantor has directly or indirectly borrowed the corpus or income and has not completely repaid the loan, including any interest, before the beginning of the taxable year. The preceding sentence shall not apply to a loan which provides for adequate interest and adequate security, if such loan is made by a trustee other than the grantor and other than a related or subordinate trustee subservient to the grantor. For periods during which an individual is the spouse of the grantor (within the meaning of section 672(e)(2)), any reference in this paragraph to the grantor shall be treated as including a reference to such individual.
A power of administration is exercisable in a nonfiduciary capacity by any person without the approval or consent of any person in a fiduciary capacity. For purposes of this paragraph, the term “power of administration” means any one or more of the following powers: (A) a power to vote or direct the voting of stock or other securities of a corporation in which the holdings of the grantor and the trust are significant from the viewpoint of voting control; (B) a power to control the investment of the trust funds either by directing investments or reinvestments, or by vetoing proposed investments or reinvestments, to the extent that the trust funds consist of stocks or securities of corporations in which the holdings of the grantor and the trust are significant from the viewpoint of voting control; or (C) a power to reacquire the trust corpus by substituting other property of an equivalent value.
Treasury Regulations
-
Treas. Reg. §1.675-1Administrative powers
(a) General rule. Section 675 provides in effect that the grantor is treated as the owner of any portion of a trust if under the terms of the trust instrument or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiaries of the trust. If a grantor retains a power to amend the administrative provisions of a trust instrument which is broad enough to permit an amendment causing the grantor to be treated as the owner of a portion of the trust under section 675, he will be treated as the owner of the portion from its inception. See section 671 and §§ 1.671-2 and 1.671-3 for rules for treatment of items of income, deduction, and credit when a person is treated as the owner of all or only a portion of a trust.
(b) Prohibited controls. The circumstances which cause administrative controls to be considered exercisable primarily for the benefit of the grantor are specifically described in paragraphs (1) through (4) of section 675 as follows:
(1) The existence of a power, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party, which enables the grantor or any other person to purchase, exchange, or otherwise deal with or dispose of the corpus or the income of the trust for less than adequate consideration in money or money's worth. Whether the existence of the power itself will constitute the holder an adverse party will depend on the particular circumstances.
(2) The existence of a power exercisable by the grantor or a nonadverse party, or both, which enables the grantor to borrow the corpus or income of the trust, directly or indirectly, without adequate interest or adequate security. However, this paragraph does not apply where a trustee (other than the grantor acting alone) is authorized under a general lending power to make loans to any person without regard to interest or security. A general lending power in the grantor, acting alone as trustee, under which he has power to determine interest rates and the adequacy of security is not in itself an indication that the grantor has power to borrow the corpus or income without adequate interest or security.
(3) The circumstance that the grantor has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. The preceding sentence does not apply to a loan which provides for adequate interest and adequate security, if it is made by a trustee other than the grantor or a related or subordinate trustee subservient to the grantor. See section 672(c) for definition of “a related or subordinate party”.
(4) The existence of certain powers of administration exercisable in a nonfiduciary capacity by any nonadverse party without the approval or consent of any person in a fiduciary capacity. The term powers of administration means one or more of the following powers:
(i) A power to vote or direct the voting of stock or other securities of a corporation in which the holdings of the grantor and the trust are significant from the viewpoint of voting control;
(ii) A power to control the investment of the trust funds either by directing investments or reinvestments, or by vetoing proposed investments or reinvestments, to the extent that the trust funds consist of stocks or securities of corporations in which the holdings of the grantor and the trust are significant from the viewpoint of voting control; or
(iii) A power to reacquire the trust corpus by substituting other property of an equivalent value.
If a power is exercisable by a person as trustee, it is presumed that the power is exercisable in a fiduciary capacity primarily in the interests of the beneficiaries. This presumption may be rebutted only by clear and convincing proof that the power is not exercisable primarily in the interests of the beneficiaries. If a power is not exercisable by a person as trustee, the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration.
(c) Authority of trustee. The mere fact that a power exercisable by a trustee is described in broad language does not indicate that the trustee is authorized to purchase, exchange, or otherwise deal with or dispose of the trust property or income for less than an adequate and full consideration in money or money's worth, or is authorized to lend the trust property or income to the grantor without adequate interest. On the other hand, such authority may be indicated by the actual administration of the trust.
-
Treas. Reg. §1.675-1(a)General rule.
General rule. Section 675 provides in effect that the grantor is treated as the owner of any portion of a trust if under the terms of the trust instrument or circumstances attendant on its operation administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiaries of the trust. If a grantor retains a power to amend the administrative provisions of a trust instrument which is broad enough to permit an amendment causing the grantor to be treated as the owner of a portion of the trust under section 675, he will be treated as the owner of the portion from its inception. See section 671 and §§ 1.671-2 and 1.671-3 for rules for treatment of items of income, deduction, and credit when a person is treated as the owner of all or only a portion of a trust.
-
Treas. Reg. §1.675-1(b)Prohibited controls.
Prohibited controls. The circumstances which cause administrative controls to be considered exercisable primarily for the benefit of the grantor are specifically described in paragraphs (1) through (4) of section 675 as follows:
(1) The existence of a power, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party, which enables the grantor or any other person to purchase, exchange, or otherwise deal with or dispose of the corpus or the income of the trust for less than adequate consideration in money or money's worth. Whether the existence of the power itself will constitute the holder an adverse party will depend on the particular circumstances.
(2) The existence of a power exercisable by the grantor or a nonadverse party, or both, which enables the grantor to borrow the corpus or income of the trust, directly or indirectly, without adequate interest or adequate security. However, this paragraph does not apply where a trustee (other than the grantor acting alone) is authorized under a general lending power to make loans to any person without regard to interest or security. A general lending power in the grantor, acting alone as trustee, under which he has power to determine interest rates and the adequacy of security is not in itself an indication that the grantor has power to borrow the corpus or income without adequate interest or security.
(3) The circumstance that the grantor has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. The preceding sentence does not apply to a loan which provides for adequate interest and adequate security, if it is made by a trustee other than the grantor or a related or subordinate trustee subservient to the grantor. See section 672(c) for definition of “a related or subordinate party”.
(4) The existence of certain powers of administration exercisable in a nonfiduciary capacity by any nonadverse party without the approval or consent of any person in a fiduciary capacity. The term powers of administration means one or more of the following powers:
-
Treas. Reg. §1.675-1(c)Authority of trustee.
Authority of trustee. The mere fact that a power exercisable by a trustee is described in broad language does not indicate that the trustee is authorized to purchase, exchange, or otherwise deal with or dispose of the trust property or income for less than an adequate and full consideration in money or money's worth, or is authorized to lend the trust property or income to the grantor without adequate interest. On the other hand, such authority may be indicated by the actual administration of the trust.
-
Treas. Reg. §1.675-1(i)§1.675-1(i)
A power to vote or direct the voting of stock or other securities of a corporation in which the holdings of the grantor and the trust are significant from the viewpoint of voting control;
(ii) A power to control the investment of the trust funds either by directing investments or reinvestments, or by vetoing proposed investments or reinvestments, to the extent that the trust funds consist of stocks or securities of corporations in which the holdings of the grantor and the trust are significant from the viewpoint of voting control; or
(iii) A power to reacquire the trust corpus by substituting other property of an equivalent value.
If a power is exercisable by a person as trustee, it is presumed that the power is exercisable in a fiduciary capacity primarily in the interests of the beneficiaries. This presumption may be rebutted only by clear and convincing proof that the power is not exercisable primarily in the interests of the beneficiaries. If a power is not exercisable by a person as trustee, the determination of whether the power is exercisable in a fiduciary or a nonfiduciary capacity depends on all the terms of the trust and the circumstances surrounding its creation and administration.
61 Citing Cases
(2) specified powers to control beneficial - 32 - [*32] enjoyment ofthe corpus or income are vested in the grantor or certain other persons, gee sec. 674; (3) certain administrative powers are exercisable by the grantor or a nonadverse party,18 gee sec. 675; (4) the trust can be revoked by the grantor or a nonadverse party, see sec. 676; or (5) trust income can be distributed to the grantor or the grantor's spouse or be used to pay for insurance on their lives without the consent ofan adverse pa
Petitioner had full control over the 1978 Trust as indicated by the trust instrument. None of the other trustees nor any other party could limit the distribution of either principal or income to petitioner. Furthermore, petitioner ultimately became the only trustee after a 1995 modification of the trust instrument. The trust is therefore
Petitioner had full control over the 1978 Trust as indicated by the trust instrument . None of the other trustees nor any other party could limit the distribution of either principal or income to petitioner. Furthermore, petitioner ultimately became the only trustee after a 1995 modification of the trust instrument. The trust is therefore
Adverse party is defined as “any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust.” Sec. 672(a). Even if the section 672 definition of an adverse party is satisfied, however, sections 674-677 require a trust’s
Adverse party is defined as “any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust.” Sec. 672(a). Even if the section 672 definition of an adverse party is satisfied, however, sections 674-677 require a trust’s
Adverse party is defined as “any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust.” Sec. 672(a). Even if the section 672 definition of an adverse party is satisfied, however, sections 674-677 require a trust’s
, (4) specified powers to control - 27 - beneficial enjoyment of the corpus or income are not vested in the grantor or certain other persons (sec. 674), and (5) certain administrative powers are not exercisable by the grantor or a nonadverse party (sec. 675). (4) Discusssion The facts establish that one or both of the J. Shirleys performed services for which payment was made and neither reported any compensation, either directly or indirectly (e.g, by way of salary), for performing such services
ec. 677), (4) specified powers to control beneficial enjoyment of the corpus or income are not vested in the grantor or certain other persons (sec. 674), and (5) certain administrative powers are not exercisable by the grantor or a nonadverse party (sec. 675). 4. Analysis a. Income With respect to Complete Connections Trust, we have found that petitioners carried on the same business activities both before and after the trust reported income from such activities, and we have found that petitione
, (4) specified powers to control - 27 - beneficial enjoyment of the corpus or income are not vested in the grantor or certain other persons (sec. 674), and (5) certain administrative powers are not exercisable by the grantor or a nonadverse party (sec. 675). (4) Discusssion The facts establish that one or both of the J. Shirleys performed services for which payment was made and neither reported any compensation, either directly or indirectly (e.g, by way of salary), for performing such services
, (4) specified powers to control - 27 - beneficial enjoyment of the corpus or income are not vested in the grantor or certain other persons (sec. 674), and (5) certain administrative powers are not exercisable by the grantor or a nonadverse party (sec. 675). (4) Discusssion The facts establish that one or both of the J. Shirleys performed services for which payment was made and neither reported any compensation, either directly or indirectly (e.g, by way of salary), for performing such services
sec. 677; (4) specified powers to control beneficial enjoyment of the corpus or income are not vested in the grantor or certain other persons, sec. 674; and (5) certain administrative powers are not exercisable by the grantor or a nonadverse party, sec. 675. - 24 - d. Analysis The Careys bear the burden of proof. They have failed to prove that the trust interest and business gross receipts should not be taxed to them under either the fundamental principles or grantor trust rules described above
, (4) specified powers to control - 27 - beneficial enjoyment of the corpus or income are not vested in the grantor or certain other persons (sec. 674), and (5) certain administrative powers are not exercisable by the grantor or a nonadverse party (sec. 675). (4) Discusssion The facts establish that one or both of the J. Shirleys performed services for which payment was made and neither reported any compensation, either directly or indirectly (e.g, by way of salary), for performing such services
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a
Section 675(3) provides that the grantor is treated as the owner of any portion of a trust in respect of which the grantor - 369 - has directly or indirectly borrowed the corpus or income of the trust and has not completely repaid the loan, including any interest, before the beginning of the taxable year. However, this section does not apply to a