§679 — Foreign trusts having one or more United States beneficiaries

Statute Text — 26 U.S.C. §679

Treasury Regulations

• Treas. Reg. §1.679-0Outline of major topics Show full text ▾ Collapse ▴

  This section lists the major paragraphs contained in §§ 1.679-1 through 1.679-7 as follows:

  (a) In general.

  (b) Interaction with sections 673 through 678.

  (c) Definitions.

  (1) U.S. transferor.

  (2) U.S. person.

  (3) Foreign trust.

  (4) Property.

  (5) Related person.

  (6) Obligation.

  (d) Examples.

  (a) Existence of U.S. beneficiary.

  (1) In general.

  (2) Benefit to a U.S. person

  (i) In general.

  (ii) Certain unexpected beneficiaries.

  (iii) Examples.

  (3) Changes in beneficiary's status.

  (i) In general.

  (ii) Examples.

  (4) General rules.

  (i) Records and documents.

  (ii) Additional factors.

  (iii) Examples.

  (b) Indirect U.S. beneficiaries.

  (1) Certain foreign entities.

  (2) Other indirect beneficiaries.

  (3) Examples.

  (c) Treatment of U.S. transferor upon foreign trust's acquisition or loss of U.S. beneficiary.

  (1) Trusts acquiring a U.S. beneficiary.

  (2) Trusts ceasing to have a U.S. beneficiary.

  (3) Examples.

  (a) In general.

  (b) Transfers by certain trusts.

  (1) In general.

  (2) Example.

  (c) Indirect transfers.

  (1) Principal purpose of tax avoidance.

  (2) Principal purpose of tax avoidance deemed to exist.

  (3) Effect of disregarding intermediary.

  (i) In general.

  (ii) Special rule.

  (iii) Effect on intermediary.

  (4) Related parties.

  (5) Examples.

  (d) Constructive transfers.

  (1) In general.

  (2) Examples.

  (e) Guarantee of trust obligations.

  (1) In general.

  (2) Amount transferred.

  (3) Principal repayments.

  (4) Guarantee.

  (5) Examples.

  (f) Transfers to entities owned by a foreign trust.

  (1) General rule.

  (2) Examples.

  (a) In general.

  (b) Transfers for fair market value.

  (1) In general.

  (2) Special rule.

  (i) Transfers for partial consideration.

  (ii) Example.

  (c) Certain obligations not taken into account.

  (d) Qualified obligations.

  (1) In general.

  (2) Additional loans.

  (3) Obligations that cease to be qualified.

  (4) Transfers resulting from failed qualified obligations.

  (5) Renegotiated loans.

  (6) Principal repayments.

  (7) Examples.

  (a) In general.

  (b) Special rules.

  (1) Change in grantor trust status.

  (2) Treatment of undistributed income.

  (c) Examples.

  (a) In general.

  (b) Amount deemed transferred.

  (c) Example.

  (a) In general.

  (b) Special rules.

• Treas. Reg. §1.679-0(a)In general. Show full text ▾ Collapse ▴

  In general.

• Treas. Reg. §1.679-0(b)Special rules. Show full text ▾ Collapse ▴

  Special rules.

• Treas. Reg. §1.679-0(c)Example. Show full text ▾ Collapse ▴

  Example.

• Treas. Reg. §1.679-0(d)Qualified obligations. Show full text ▾ Collapse ▴

  Qualified obligations.

  (1) In general.

  (2) Additional loans.

  (3) Obligations that cease to be qualified.

  (4) Transfers resulting from failed qualified obligations.

  (5) Renegotiated loans.

  (6) Principal repayments.

  (7) Examples.

• Treas. Reg. §1.679-0(e)Guarantee of trust obligations. Show full text ▾ Collapse ▴

  Guarantee of trust obligations.

  (1) In general.

  (2) Amount transferred.

  (3) Principal repayments.

  (4) Guarantee.

  (5) Examples.

• Treas. Reg. §1.679-0(f)Transfers to entities owned by a foreign trust. Show full text ▾ Collapse ▴

  Transfers to entities owned by a foreign trust.

  (1) General rule.

  (2) Examples.

• Treas. Reg. §1.679-0(i)Transfers for partial consideration. Show full text ▾ Collapse ▴

  Transfers for partial consideration.

  (ii) Example.

• Treas. Reg. §1.679-1U.S. transferor treated as owner of foreign trust Show full text ▾ Collapse ▴

  (a) In general. A U.S. transferor who transfers property to a foreign trust is treated as the owner of the portion of the trust attributable to the property transferred if there is a U.S. beneficiary of any portion of the trust, unless an exception in § 1.679-4 applies to the transfer.

  (b) Interaction with sections 673 through 678. The rules of this section apply without regard to whether the U.S. transferor retains any power or interest described in sections 673 through 677. If a U.S. transferor would be treated as the owner of a portion of a foreign trust pursuant to the rules of this section and another person would be treated as the owner of the same portion of the trust pursuant to section 678, then the U.S. transferor is treated as the owner and the other person is not treated as the owner.

  (c) Definitions. The following definitions apply for purposes of this section and §§ 1.679-2 through 1.679-7:

  (1) U.S. transferor. The term U.S. transferor means any U.S. person who makes a transfer (as defined in § 1.679-3) of property to a foreign trust.

  (2) U.S. person. The term U.S. person means a United States person as defined in section 7701(a)(30), a nonresident alien individual who elects under section 6013(g) to be treated as a resident of the United States, and an individual who is a dual resident taxpayer within the meaning of § 301.7701(b)-7(a) of this chapter.

  (3) Foreign trust. Section 7701(a)(31)(B) defines the term foreign trust. See also § 301.7701-7 of this chapter.

  (4) Property. The term property means any property including cash.

  (5) Related person. A person is a related person if, without regard to the transfer at issue, the person is—

  (i) A grantor of any portion of the trust (within the meaning of § 1.671-2(e)(1));

  (ii) An owner of any portion of the trust under sections 671 through 679;

  (iii) A beneficiary of the trust; or

  (iv) A person who is related (within the meaning of section 643(i)(2)(B)) to any grantor, owner or beneficiary of the trust.

  (6) Obligation. The term obligation means any bond, note, debenture, certificate, bill receivable, account receivable, note receivable, open account, or other evidence of indebtedness, and, to the extent not previously described, any annuity contract.

  (d) Examples. The following examples illustrate the rules of paragraph (a) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's father, who is a resident alien, D is A's uncle, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:

• Treas. Reg. §1.679-1(a)In general. Show full text ▾ Collapse ▴

  In general. A U.S. transferor who transfers property to a foreign trust is treated as the owner of the portion of the trust attributable to the property transferred if there is a U.S. beneficiary of any portion of the trust, unless an exception in § 1.679-4 applies to the transfer.

• Treas. Reg. §1.679-1(b)Interaction with sections 673 through 678. Show full text ▾ Collapse ▴

  Interaction with sections 673 through 678. The rules of this section apply without regard to whether the U.S. transferor retains any power or interest described in sections 673 through 677. If a U.S. transferor would be treated as the owner of a portion of a foreign trust pursuant to the rules of this section and another person would be treated as the owner of the same portion of the trust pursuant to section 678, then the U.S. transferor is treated as the owner and the other person is not treated as the owner.

• Treas. Reg. §1.679-1(c)Definitions. Show full text ▾ Collapse ▴

  Definitions. The following definitions apply for purposes of this section and §§ 1.679-2 through 1.679-7:

  (1) U.S. transferor. The term U.S. transferor means any U.S. person who makes a transfer (as defined in § 1.679-3) of property to a foreign trust.

  (2) U.S. person. The term U.S. person means a United States person as defined in section 7701(a)(30), a nonresident alien individual who elects under section 6013(g) to be treated as a resident of the United States, and an individual who is a dual resident taxpayer within the meaning of § 301.7701(b)-7(a) of this chapter.

  (3) Foreign trust. Section 7701(a)(31)(B) defines the term foreign trust. See also § 301.7701-7 of this chapter.

  (4) Property. The term property means any property including cash.

  (5) Related person. A person is a related person if, without regard to the transfer at issue, the person is—

• Treas. Reg. §1.679-1(d)Examples. Show full text ▾ Collapse ▴

  Examples. The following examples illustrate the rules of paragraph (a) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's father, who is a resident alien, D is A's uncle, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:

• Treas. Reg. §1.679-1(i)A grantor of any portion of the trust (within the meaning of § 1. Show full text ▾ Collapse ▴

  A grantor of any portion of the trust (within the meaning of § 1.671-2(e)(1));

  (ii) An owner of any portion of the trust under sections 671 through 679;

  (iii) A beneficiary of the trust; or

  (iv) A person who is related (within the meaning of section 643(i)(2)(B)) to any grantor, owner or beneficiary of the trust.

  (6) Obligation. The term obligation means any bond, note, debenture, certificate, bill receivable, account receivable, note receivable, open account, or other evidence of indebtedness, and, to the extent not previously described, any annuity contract.

• Treas. Reg. §1.679-2Trusts treated as having a U.S. beneficiary Show full text ▾ Collapse ▴

  (a) Existence of U.S. beneficiary—(1) In general. The determination of whether a foreign trust has a U.S. beneficiary is made on an annual basis. A foreign trust is treated as having a U.S. beneficiary unless during the taxable year of the U.S. transferor—

  (i) No part of the income or corpus of the trust may be paid or accumulated to or for the benefit of, directly or indirectly, a U.S. person; and

  (ii) If the 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.

  (2) Benefit to a U.S. person—(i) In general. For purposes of paragraph (a)(1) of this section, income or corpus may be paid or accumulated to or for the benefit of a U.S. person during a taxable year of the U.S. transferor if during that year, directly or indirectly, income may be distributed to, or accumulated for the benefit of, a U.S. person, or corpus may be distributed to, or held for the future benefit of, a U.S. person. This determination is made without regard to whether income or corpus is actually distributed to a U.S. person during that year, and without regard to whether a U.S. person's interest in the trust income or corpus is contingent on a future event.

  (ii) Certain unexpected beneficiaries. Notwithstanding paragraph (a)(2)(i) of this section, for purposes of paragraph (a)(1) of this section, a person who is not named as a beneficiary and is not a member of a class of beneficiaries as defined under the trust instrument is not taken into consideration if the U.S. transferor demonstrates to the satisfaction of the Commissioner that the person's contingent interest in the trust is so remote as to be negligible. The preceding sentence does not apply with respect to persons to whom distributions could be made pursuant to a grant of discretion to the trustee or any other person. A class of beneficiaries generally does not include heirs who will benefit from the trust under the laws of intestate succession in the event that the named beneficiaries (or members of the named class) have all deceased (whether or not stated as a named class in the trust instrument).

  (iii) Examples. The following examples illustrate the rules of paragraphs (a)(1) and (2) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's daughter, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:

  (3) Changes in beneficiary's status—(i) In general. For purposes of paragraph (a)(1) of this section, the possibility that a person that is not a U.S. person could become a U.S. person will not cause that person to be treated as a U.S. person for purposes of paragraph (a)(1) of this section until the tax year of the U.S. transferor in which that individual actually becomes a U.S. person. However, if a person who is not a U.S. person becomes a U.S. person for the first time more than 5 years after the date of a transfer to the foreign trust by a U.S. transferor, that person is not treated as a U.S. person for purposes of applying paragraph (a)(1) of this section with respect to that transfer.

  (ii) Examples. The following examples illustrate the rules of paragraph (a)(3) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's daughter, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:

  (4) General rules—(i) Records and documents. Even if, based on the terms of the trust instrument, a foreign trust is not treated as having a U.S. beneficiary within the meaning of paragraph (a)(1) of this section, the trust may nevertheless be treated as having a U.S. beneficiary pursuant to paragraph (a)(1) of this section based on the following—

  (A) All written and oral agreements and understandings relating to the trust;

  (B) Memoranda or letters of wishes;

  (C) All records that relate to the actual distribution of income and corpus; and

  (D) All other documents that relate to the trust, whether or not of any purported legal effect.

  (ii) Additional factors. For purposes of determining whether a foreign trust is treated as having a U.S. beneficiary within the meaning of paragraph (a)(1) of this section, the following additional factors are taken into account—

  (A) If the terms of the trust instrument allow the trust to be amended to benefit a U.S. person, all potential benefits that could be provided to a U.S. person pursuant to an amendment must be taken into account;

  (B) If the terms of the trust instrument do not allow the trust to be amended to benefit a U.S. person, but the law applicable to a foreign trust may require payments or accumulations of income or corpus to or for the benefit of a U.S. person (by judicial reformation or otherwise), all potential benefits that could be provided to a U.S. person pursuant to the law must be taken into account, unless the U.S. transferor demonstrates to the satisfaction of the Commissioner that the law is not reasonably expected to be applied or invoked under the facts and circumstances; and

  (C) If the parties to the trust ignore the terms of the trust instrument, or if it is reasonably expected that they will do so, all benefits that have been, or are reasonably expected to be, provided to a U.S. person must be taken into account.

  (iii) Examples. The following examples illustrate the rules of paragraph (a)(4) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's daughter, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:

  (b) Indirect U.S. beneficiaries—(1) Certain foreign entities. For purposes of paragraph (a)(1) of this section, an amount is treated as paid or accumulated to or for the benefit of a U.S. person if the amount is paid to or accumulated for the benefit of—

  (i) A controlled foreign corporation, as defined in section 957(a);

  (ii) A foreign partnership, if a U.S. person is a partner of such partnership; or

  (iii) A foreign trust or estate, if such trust or estate has a U.S. beneficiary (within the meaning of paragraph (a)(1) of this section).

  (2) Other indirect beneficiaries. For purposes of paragraph (a)(1) of this section, an amount is treated as paid or accumulated to or for the benefit of a U.S. person if the amount is paid to or accumulated for the benefit of a U.S. person through an intermediary, such as an agent or nominee, or by any other means where a U.S. person may obtain an actual or constructive benefit.

  (3) Examples. The following examples illustrate the rules of this paragraph (b). Unless otherwise noted, A is a resident alien. B is A's son and is a resident alien. FT is a foreign trust. The examples are as follows:

  (c) Treatment of U.S. transferor upon foreign trust's acquisition or loss of U.S. beneficiary—(1) Trusts acquiring a U.S. beneficiary. If a foreign trust to which a U.S. transferor has transferred property is not treated as having a U.S. beneficiary (within the meaning of paragraph (a) of this section) for any taxable year of the U.S. transferor, but the trust is treated as having a U.S. beneficiary (within the meaning of paragraph (a) of this section) in any subsequent taxable year, the U.S. transferor is treated as having additional income in the first such taxable year of the U.S. transferor in which the trust is treated as having a U.S. beneficiary. The amount of the additional income is equal to the trust's undistributed net income, as defined in section 665(a), at the end of the U.S. transferor's immediately preceding taxable year and is subject to the rules of section 668, providing for an interest charge on accumulation distributions from foreign trusts.

  (2) Trusts ceasing to have a U.S. beneficiary. If, for any taxable year of a U.S. transferor, a foreign trust that has received a transfer of property from the U.S. transferor ceases to be treated as having a U.S. beneficiary, the U.S. transferor ceases to be treated as the owner of the portion of the trust attributable to the transfer beginning in the first taxable year following the last taxable year of the U.S. transferor during which the trust was treated as having a U.S. beneficiary (unless the U.S. transferor is treated as an owner thereof pursuant to sections 673 through 677). The U.S. transferor is treated as making a transfer of property to the foreign trust on the first day of the first taxable year following the last taxable year of the U.S. transferor during which the trust was treated as having a U.S. beneficiary. The amount of the property deemed to be transferred to the trust is the portion of the trust attributable to the prior transfer to which paragraph (a)(1) of this section applied. For rules regarding the recognition of gain on transfers to foreign trusts, see section 684.

  (3) Examples. The rules of this paragraph (c) are illustrated by the following examples. A is a resident alien, B is A's son, and FT is a foreign trust. The examples are as follows:

• Treas. Reg. §1.679-2(a)Existence of U. Show full text ▾ Collapse ▴

  Existence of U.S. beneficiary—(1) In general. The determination of whether a foreign trust has a U.S. beneficiary is made on an annual basis. A foreign trust is treated as having a U.S. beneficiary unless during the taxable year of the U.S. transferor—

• Treas. Reg. §1.679-2(b)Indirect U. Show full text ▾ Collapse ▴

  Indirect U.S. beneficiaries—(1) Certain foreign entities. For purposes of paragraph (a)(1) of this section, an amount is treated as paid or accumulated to or for the benefit of a U.S. person if the amount is paid to or accumulated for the benefit of—

• Treas. Reg. §1.679-2(c)Treatment of U. Show full text ▾ Collapse ▴

  Treatment of U.S. transferor upon foreign trust's acquisition or loss of U.S. beneficiary—(1) Trusts acquiring a U.S. beneficiary. If a foreign trust to which a U.S. transferor has transferred property is not treated as having a U.S. beneficiary (within the meaning of paragraph (a) of this section) for any taxable year of the U.S. transferor, but the trust is treated as having a U.S. beneficiary (within the meaning of paragraph (a) of this section) in any subsequent taxable year, the U.S. transferor is treated as having additional income in the first such taxable year of the U.S. transferor in which the trust is treated as having a U.S. beneficiary. The amount of the additional income is equal to the trust's undistributed net income, as defined in section 665(a), at the end of the U.S. transferor's immediately preceding taxable year and is subject to the rules of section 668, providing for an interest charge on accumulation distributions from foreign trusts.

  (2) Trusts ceasing to have a U.S. beneficiary. If, for any taxable year of a U.S. transferor, a foreign trust that has received a transfer of property from the U.S. transferor ceases to be treated as having a U.S. beneficiary, the U.S. transferor ceases to be treated as the owner of the portion of the trust attributable to the transfer beginning in the first taxable year following the last taxable year of the U.S. transferor during which the trust was treated as having a U.S. beneficiary (unless the U.S. transferor is treated as an owner thereof pursuant to sections 673 through 677). The U.S. transferor is treated as making a transfer of property to the foreign trust on the first day of the first taxable year following the last taxable year of the U.S. transferor during which the trust was treated as having a U.S. beneficiary. The amount of the property deemed to be transferred to the trust is the portion of the trust attributable to the prior transfer to which paragraph (a)(1) of this section applied. For rules regarding the recognition of gain on transfers to foreign trusts, see section 684.

  (3) Examples. The rules of this paragraph (c) are illustrated by the following examples. A is a resident alien, B is A's son, and FT is a foreign trust. The examples are as follows:

• Treas. Reg. §1.679-2(i)§1.679-2(i) Show full text ▾ Collapse ▴

  A controlled foreign corporation, as defined in section 957(a);

  (ii) A foreign partnership, if a U.S. person is a partner of such partnership; or

  (iii) A foreign trust or estate, if such trust or estate has a U.S. beneficiary (within the meaning of paragraph (a)(1) of this section).

  (2) Other indirect beneficiaries. For purposes of paragraph (a)(1) of this section, an amount is treated as paid or accumulated to or for the benefit of a U.S. person if the amount is paid to or accumulated for the benefit of a U.S. person through an intermediary, such as an agent or nominee, or by any other means where a U.S. person may obtain an actual or constructive benefit.

  (3) Examples. The following examples illustrate the rules of this paragraph (b). Unless otherwise noted, A is a resident alien. B is A's son and is a resident alien. FT is a foreign trust. The examples are as follows:

• Treas. Reg. §1.679-3Transfers Show full text ▾ Collapse ▴

  (a) In general. A transfer means a direct, indirect, or constructive transfer.

  (b) Transfers by certain trusts—(1) In general. If any portion of a trust is treated as owned by a U.S. person, a transfer of property from that portion of the trust to a foreign trust is treated as a transfer from the owner of that portion to the foreign trust.

  (2) Example. The following example illustrates this paragraph (b):

  (c) Indirect transfers—(1) Principal purpose of tax avoidance. A transfer to a foreign trust by any person (intermediary) to whom a U.S. person transfers property is treated as an indirect transfer by a U.S. person to the foreign trust if such transfer is made pursuant to a plan one of the principal purposes of which is the avoidance of United States tax.

  (2) Principal purpose of tax avoidance deemed to exist. For purposes of paragraph (c)(1) of this section, a transfer is deemed to have been made pursuant to a plan one of the principal purposes of which was the avoidance of United States tax if—

  (i) The U.S. person is related (within the meaning of paragraph (c)(4) of this section) to a beneficiary of the foreign trust, or has another relationship with a beneficiary of the foreign trust that establishes a reasonable basis for concluding that the U.S. transferor would make a transfer to the foreign trust; and

  (ii) The U.S. person cannot demonstrate to the satisfaction of the Commissioner that—

  (A) The intermediary has a relationship with a beneficiary of the foreign trust that establishes a reasonable basis for concluding that the intermediary would make a transfer to the foreign trust;

  (B) The intermediary acted independently of the U.S. person;

  (C) The intermediary is not an agent of the U.S. person under generally applicable United States agency principles; and

  (D) The intermediary timely complied with the reporting requirements of section 6048, if applicable.

  (3) Effect of disregarding intermediary—(i) In general. Except as provided in paragraph (c)(3)(ii) of this section, if a transfer is treated as an indirect transfer pursuant to paragraph (c)(1) of this section, then the intermediary is treated as an agent of the U.S. person, and the property is treated as transferred to the foreign trust by the U.S. person in the year the property is transferred, or made available, by the intermediary to the foreign trust. The fair market value of the property transferred is determined as of the date of the transfer by the intermediary to the foreign trust.

  (ii) Special rule. If the Commissioner determines, or if the taxpayer can demonstrate to the satisfaction of the Commissioner, that the intermediary is an agent of the foreign trust under generally applicable United States agency principles, the property will be treated as transferred to the foreign trust in the year the U.S. person transfers the property to the intermediary. The fair market value of the property transferred will be determined as of the date of the transfer by the U.S. person to the intermediary.

  (iii) Effect on intermediary. If a transfer of property is treated as an indirect transfer under paragraph (c)(1) of this section, the intermediary is not treated as having transferred the property to the foreign trust.

  (4) Related parties. For purposes of this paragraph (c), a U.S. transferor is treated as related to a U.S. beneficiary of a foreign trust if the U.S. transferor and the beneficiary are related for purposes of section 643(i)(2)(B), with the following modifications—

  (i) For purposes of applying section 267 (other than section 267(f)) and section 707(b)(1), “at least 10 percent” is used instead of “more than 50 percent” each place it appears; and

  (ii) The principles of section 267(b)(10), using “at least 10 percent” instead of “more than 50 percent,” apply to determine whether two corporations are related.

  (5) Examples. The rules of this paragraph (c) are illustrated by the following examples:

  (d) Constructive transfers—(1) In general. For purposes of paragraph (a) of this section, a constructive transfer includes any assumption or satisfaction of a foreign trust's obligation to a third party.

  (2) Examples. The rules of this paragraph (d) are illustrated by the following examples. In each example, A is a U.S. citizen and FT is a foreign trust. The examples are as follows:

  (e) Guarantee of trust obligations—(1) In general. If a foreign trust borrows money or other property from any person who is not a related person (within the meaning of § 1.679-1(c)(5)) with respect to the trust (lender) and a U.S. person (U.S. guarantor) that is a related person with respect to the trust guarantees (within the meaning of paragraph (e)(4) of this section) the foreign trust's obligation, the U.S. guarantor is treated for purposes of this section as a U.S. transferor that has made a transfer to the trust on the date of the guarantee in an amount determined under paragraph (e)(2) of this section. To the extent this paragraph causes the U.S. guarantor to be treated as having made a transfer to the trust, a lender that is a U.S. person shall not be treated as having transferred that amount to the foreign trust.

  (2) Amount transferred. The amount deemed transferred by a U.S. guarantor described in paragraph (e)(1) of this section is the guaranteed portion of the adjusted issue price of the obligation (within the meaning of § 1.1275-1(b)) plus any accrued but unpaid qualified stated interest (within the meaning of § 1.1273-1(c)).

  (3) Principal repayments. If a U.S. person is treated under this paragraph (e) as having made a transfer by reason of the guarantee of an obligation, payments of principal to the lender by the foreign trust with respect to the obligation are taken into account on and after the date of the payment in determining the portion of the trust attributable to the property deemed transferred by the U.S. guarantor.

  (4) Guarantee. For purposes of this section, the term guarantee—

  (i) Includes any arrangement under which a person, directly or indirectly, assures, on a conditional or unconditional basis, the payment of another's obligation;

  (ii) Encompasses any form of credit support, and includes a commitment to make a capital contribution to the debtor or otherwise maintain its financial viability; and

  (iii) Includes an arrangement reflected in a comfort letter, regardless of whether the arrangement gives rise to a legally enforceable obligation. If an arrangement is contingent upon the occurrence of an event, in determining whether the arrangement is a guarantee, it is assumed that the event has occurred.

  (5) Examples. The rules of this paragraph (e) are illustrated by the following examples. In all of the examples, A is a U.S. resident and FT is a foreign trust. The examples are as follows:

  (f) Transfers to entities owned by a foreign trust—(1) General rule. If a U.S. person is a related person (as defined in § 1.679-1(c)(5)) with respect to a foreign trust, any transfer of property by the U.S. person to an entity in which the foreign trust holds an ownership interest is treated as a transfer of such property by the U.S. person to the foreign trust followed by a transfer of the property from the foreign trust to the entity owned by the foreign trust, unless the U.S. person demonstrates to the satisfaction of the Commissioner that the transfer to the entity is properly attributable to the U.S. person's ownership interest in the entity.

  (2) Examples. The rules of this paragraph (f) are illustrated by the following examples. In all of the examples, A is a U.S. citizen, FT is a foreign trust, and FC is a foreign corporation. The examples are as follows:

• Treas. Reg. §1.679-3(a)In general. Show full text ▾ Collapse ▴

  In general. A transfer means a direct, indirect, or constructive transfer.

• Treas. Reg. §1.679-3(b)Transfers by certain trusts—(1) In general. Show full text ▾ Collapse ▴

  Transfers by certain trusts—(1) In general. If any portion of a trust is treated as owned by a U.S. person, a transfer of property from that portion of the trust to a foreign trust is treated as a transfer from the owner of that portion to the foreign trust.

  (2) Example. The following example illustrates this paragraph (b):

• Treas. Reg. §1.679-3(c)Indirect transfers—(1) Principal purpose of tax avoidance. Show full text ▾ Collapse ▴

  Indirect transfers—(1) Principal purpose of tax avoidance. A transfer to a foreign trust by any person (intermediary) to whom a U.S. person transfers property is treated as an indirect transfer by a U.S. person to the foreign trust if such transfer is made pursuant to a plan one of the principal purposes of which is the avoidance of United States tax.

  (2) Principal purpose of tax avoidance deemed to exist. For purposes of paragraph (c)(1) of this section, a transfer is deemed to have been made pursuant to a plan one of the principal purposes of which was the avoidance of United States tax if—

• Treas. Reg. §1.679-3(d)Constructive transfers—(1) In general. Show full text ▾ Collapse ▴

  Constructive transfers—(1) In general. For purposes of paragraph (a) of this section, a constructive transfer includes any assumption or satisfaction of a foreign trust's obligation to a third party.

  (2) Examples. The rules of this paragraph (d) are illustrated by the following examples. In each example, A is a U.S. citizen and FT is a foreign trust. The examples are as follows:

• Treas. Reg. §1.679-3(e)Guarantee of trust obligations—(1) In general. Show full text ▾ Collapse ▴

  Guarantee of trust obligations—(1) In general. If a foreign trust borrows money or other property from any person who is not a related person (within the meaning of § 1.679-1(c)(5)) with respect to the trust (lender) and a U.S. person (U.S. guarantor) that is a related person with respect to the trust guarantees (within the meaning of paragraph (e)(4) of this section) the foreign trust's obligation, the U.S. guarantor is treated for purposes of this section as a U.S. transferor that has made a transfer to the trust on the date of the guarantee in an amount determined under paragraph (e)(2) of this section. To the extent this paragraph causes the U.S. guarantor to be treated as having made a transfer to the trust, a lender that is a U.S. person shall not be treated as having transferred that amount to the foreign trust.

  (2) Amount transferred. The amount deemed transferred by a U.S. guarantor described in paragraph (e)(1) of this section is the guaranteed portion of the adjusted issue price of the obligation (within the meaning of § 1.1275-1(b)) plus any accrued but unpaid qualified stated interest (within the meaning of § 1.1273-1(c)).

  (3) Principal repayments. If a U.S. person is treated under this paragraph (e) as having made a transfer by reason of the guarantee of an obligation, payments of principal to the lender by the foreign trust with respect to the obligation are taken into account on and after the date of the payment in determining the portion of the trust attributable to the property deemed transferred by the U.S. guarantor.

  (4) Guarantee. For purposes of this section, the term guarantee—