41332 Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Rules and Regulations

of Food and Drugs, 21 CFR part 884 is

amended as follows:

PART 884—OBSTETRICAL AND

GYNECOLOGICAL DEVICES

1. The authority citation for 21 CFR

part 884 continues to read as follows:

Authority: 21 U.S.C. 351, 360, 360c, 360e,

360j, 371.

2. Section 884.2050 is revised to read

as follows:

§ 884.2050 Obstetric data analyzer.

(a) Identification. An obstetric data

analyzer (fetal status data analyzer) is a

device used during labor to analyze

electronic signal data obtained from

fetal and maternal monitors. The

obstetric data analyzer provides clinical

diagnosis of fetal status and

recommendations for labor management

and clinical interventions. This generic

type of device may include signal

analysis and display equipment,

electronic interfaces for other

equipment, and power supplies and

component parts.

(b) Classification: Class III (premarket

approval).

(c) Date PMA or notice of completion

of PDP is required. A PMA or a notice

of completion of a PDP is required to be

filed with the Food and Drug

Administration on or before October 3,

2000, for any obstetric data analyzer

described in paragraph (a) of this

section that was in commercial

distribution before May 28, 1976, or that

has been found, on or before October 3,

2000, to be substantially equivalent to

an obstetric data analyzer described in

paragraph (a) of this section that was in

commercial distribution before May 28,

1976. Any other obstetric data analyzer

described in paragraph (a) of this

section shall have an approved PMA or

declared completed PDP in effect before

being placed in commercial

distribution.

Dated: June 22, 2000.

Linda S. Kahan,

Deputy Director for Regulations Policy, Center

for Devices and Radiological Health.

[FR Doc. 00–16808 Filed 7–5–00; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8890]

RIN 1545–AX25

Definition of Grantor

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final and temporary

regulations.

SUMMARY: This document contains final

regulations defining the term grantor for

purposes of part I of subchapter J,

chapter 1 of the Internal Revenue Code.

These regulations provide necessary

guidance in determining who is the

grantor of a trust in applying those Code

sections. These regulations affect trusts

and any person creating or funding a

trust.

DATES: Effective Date: These regulations

are effective July 5, 2000.

Applicability Dates: For dates of

applicability of § 1.671–2(e), see

§ 1.671–2(e)(7).

FOR FURTHER INFORMATION CONTACT:

James A. Quinn at (202) 622–3060 (not

a toll-free number).

SUPPLEMENTARY INFORMATION

Background

On June 5, 1997, the Treasury

Department and the IRS published a

notice of proposed rulemaking (REG–

252487–96) under section 671 of the

Internal Revenue Code (Code) in the

Federal Register (62 FR 30785).

Comments responding to the notice

were received and a public hearing was

held on August 27, 1997. After

consideration of the comments, the

proposed regulations under section 671

were re-issued as proposed (64 FR

43323) and temporary regulations (64

FR 43267) on August 10, 1999.

The proposed and temporary

regulations provide a definition of

grantor for purposes of part I of

subchapter J, chapter 1 of the Code. No

comments were received in response to

the Notice of Proposed Rulemaking

published on August 10, 1999, in the

Federal Register, and no one requested

to speak at the public hearing scheduled

for November 2, 1999. Accordingly, the

public hearing was canceled on October

28, 1999 (64 FR 58006). This document

finalizes the proposed regulations and

removes the temporary regulations.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in

Executive Order 12866. Therefore, a

regulatory assessment is not required. It

also has been determined that section

553(b) of the Administrative Procedure

Act (5 U.S.C. chapter 5) does not apply

to these regulations, and, because the

regulations do not impose a collection

of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. 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 the regulations’ impact on small

business.

Drafting Information

The principal author of these

regulations is James A. Quinn of the

Office of the Assistant Chief Counsel

(Passthroughs and Special Industries).

However, other personnel from the IRS

and Treasury Department participated

in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by removing the entry

for section 1.671–2T and adding an

entry in numerical order to read in part

as follows:

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

Section 1.671–2 also issued under 26

U.S.C. 643(a)(7) and 672(f)(6). * * *

§ 1.643(h)–1 [Amended]

Par. 2. Section 1.643(h)–1 is amended

as follows:

1. In paragraph (a)(2)(i) the language

‘‘§ 1.671–2T(e)(2)’’ is removed, and

‘‘§ 1.671–2(e)(2)’’ is added in its place.

2. In paragraph (b)(1) the language

‘‘§ 1.671–2T(e)(2)’’ is removed, and

‘‘§ 1.671–2(e)(2)’’ is added in its place.

3. In paragraph (b)(2) the language

‘‘§ 1.671–2T(e)’’ is removed, and

‘‘§ 1.671–2(e)’’ is added in its place.

4. In paragraph (g) Example 1 the

language ‘‘§ 1.671–2T(e)(2)’’ is removed,

and ‘‘§ 1.671–2(e)(2)’’ is added in its

place.

Par. 3. Section 1.671–2(e) is revised to

read as follows:

§ 1.671–2 Applicable principles.

* * * * *

(e)(1) For purposes of part I of

subchapter J, chapter 1 of the Internal

Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Rules and Regulations 41333

Revenue Code, a grantor includes any

person to the extent such person either

creates a trust, or directly or indirectly

makes a gratuitous transfer (within the

meaning of paragraph (e)(2) of this

section) of property to a trust. For

purposes of this section, the term

property includes cash. If a person

creates or funds a trust on behalf of

another person, both persons are treated

as grantors of the trust. (See section

6048 for reporting requirements that

apply to grantors of foreign trusts.)

However, a person who creates a trust

but makes no gratuitous transfers to the

trust is not treated as an owner of any

portion of the trust under sections 671

through 677 or 679. Also, a person who

funds a trust with an amount that is

directly reimbursed to such person

within a reasonable period of time and

who makes no other transfers to the

trust that constitute gratuitous transfers

is not treated as an owner of any portion

of the trust under sections 671 through

677 or 679. See also § 1.672(f)–5(a).

(2)(i) A gratuitous transfer is any

transfer other than a transfer for fair

market value. A transfer of property to

a trust may be considered a gratuitous

transfer without regard to whether the

transfer is treated as a gift for gift tax

purposes.

(ii) For purposes of this paragraph (e),

a transfer is for fair market value only

to the extent of the value of property

received from the trust, services

rendered by the trust, or the right to use

property of the trust. For example, rents,

royalties, interest, and compensation

paid to a trust are transfers for fair

market value only to the extent that the

payments reflect an arm’s length price

for the use of the property of, or for the

services rendered by, the trust. For

purposes of this determination, an

interest in the trust is not property

received from the trust. In addition, a

person will not be treated as making a

transfer for fair market value merely

because the transferor recognizes gain

on the transaction. See, for example,

section 684 regarding the recognition of

gain on certain transfers to foreign

trusts.

(iii) For purposes of this paragraph

(e), a gratuitous transfer does not

include a distribution to a trust with

respect to an interest held by such trust

in either a trust described in paragraph

(e)(3) of this section or an entity other

than a trust.

For example, a distribution to a trust

by a corporation with respect to its stock

described in section 301 is not a

gratuitous transfer.

(3) A grantor includes any person who

acquires an interest in a trust from a

grantor of the trust if the interest

acquired is an interest in certain

investment trusts described in

§ 301.7701–4(c) of this chapter,

liquidating trusts described in

§ 301.7701–4(d) of this chapter, or

environmental remediation trusts

described in § 301.7701–4(e) of this

chapter.

(4) If a gratuitous transfer is made by

a partnership or corporation to a trust

and is for a business purpose of the

partnership or corporation, the

partnership or corporation will

generally be treated as the grantor of the

trust. For example, if a partnership

makes a gratuitous transfer to a trust in

order to secure a legal obligation of the

partnership to a third party unrelated to

the partnership, the partnership will be

treated as the grantor of the trust.

However, if a partnership or a

corporation makes a gratuitous transfer

to a trust that is not for a business

purpose of the partnership or

corporation but is for the personal

purposes of one or more of the partners

or shareholders, the gratuitous transfer

will be treated as a constructive

distribution to such partners or

shareholders under federal tax

principles and the partners or the

shareholders will be treated as the

grantors of the trust. For example, if a

partnership makes a gratuitous transfer

to a trust that is for the benefit of a child

of a partner, the gratuitous transfer will

be treated as a distribution to the

partner under section 731 and a

subsequent gratuitous transfer by the

partner to the trust.

(5) If a trust makes a gratuitous

transfer of property to another trust, the

grantor of the transferor trust generally

will be treated as the grantor of the

transferee trust. However, if a person

with a general power of appointment

over the transferor trust exercises that

power in favor of another trust, then

such person will be treated as the

grantor of the transferee trust, even if

the grantor of the transferor trust is

treated as the owner of the transferor

trust under subpart E of part I,

subchapter J, chapter 1 of the Internal

Revenue Code.

(6) The following examples illustrate

the rules of this paragraph (e). Unless

otherwise indicated, all trusts are

domestic trusts, and all other persons

are United States persons. The examples

are as follows:

Example 1. A creates and funds a trust, T,

for the benefit of her children. B

subsequently makes a gratuitous transfer to

T. Under paragraph (e)(1) of this section, both

A and B are grantors of T.

Example 2. A makes an investment in a

fixed investment trust, T, that is classified as

a trust under § 301.7701–4(c)(1) of this

chapter. A is a grantor of T. B subsequently

acquires A’s entire interest in T. Under

paragraph (e)(3) of this section, B is a grantor

of T with respect to such interest.

Example 3. A, an attorney, creates a foreign

trust, FT, on behalf of A’s client, B, and

transfers $100 to FT out of A’s funds. A is

reimbursed by B for the $100 transferred to

FT. The trust instrument states that the

trustee has discretion to distribute the

income or corpus of FT to B and B’s children.

Both A and B are treated as grantors of FT

under paragraph (e)(1) of this section. In

addition, B is treated as the owner of the

entire trust under section 677. Because A is

reimbursed for the $100 transferred to FT on

behalf of B, A is not treated as transferring

any property to FT. Therefore, A is not an

owner of any portion of FT under sections

671 through 677 regardless of whether A

retained any power over or interest in FT

described in sections 673 through 677.

Furthermore, A is not treated as an owner of

any portion of FT under section 679. Both A

and B are responsible parties for purposes of

the requirements in section 6048.

Example 4. A creates and funds a trust, T.

A does not retain any power or interest in T

that would cause A to be treated as an owner

of any portion of the trust under sections 671

through 677. B holds an unrestricted power,

exercisable solely by B, to withdraw certain

amounts contributed to the trust before the

end of the calendar year and to vest those

amounts in B. B is treated as an owner of the

portion of T that is subject to the withdrawal

power under section 678(a)(1). However, B is

not a grantor of T under paragraph (e)(1) of

this section because B neither created T nor

made a gratuitous transfer to T.

Example 5. A transfers cash to a trust, T,

through a broker, in exchange for units in T.

The units in T are not property for purposes

of determining whether A has received fair

market value under paragraph (e)(2)(ii) of this

section. Therefore, A has made a gratuitous

transfer to T, and, under paragraph (e)(1) of

this section, A is a grantor of T.

Example 6. A borrows cash from T, a trust.

A has not made any gratuitous transfers to T.

Arm’s length interest payments by A to T

will not be treated as gratuitous transfers

under paragraph (e)(2)(ii) of this section.

Therefore, under paragraph (e)(1) of this

section, A is not a grantor of T with respect

to the interest payments.

Example 7. A, B’s brother, creates a trust,

T, for B’s benefit and transfers $50,000 to T.

The trustee invests the $50,000 in stock of

Company X. C, B’s uncle, purportedly sells

property with a fair market value of

$1,000,000 to T in exchange for the stock

when it has appreciated to a fair market value

of $100,000. Under paragraph (e)(2)(ii) of this

section, the $900,000 excess value is a

gratuitous transfer by C. Therefore, under

paragraph (e)(1) of this section, A is a grantor

with respect to the portion of the trust valued

at $100,000, and C is a grantor of T with

respect to the portion of the trust valued at

$900,000. In addition, A or C or both will be

treated as the owners of the respective

portions of the trust of which each person is

a grantor if A or C or both retain powers over

or interests in such portions under sections

673 through 677.

41334 Federal Register / Vol. 65, No. 129 / Wednesday, July 5, 2000 / Rules and Regulations

Example 8. G creates and funds a trust, T1,

for the benefit of G’s children and

grandchildren. After G’s death, under

authority granted to the trustees in the trust

instrument, the trustees of T1 transfer a

portion of the assets of T1 to another trust,

T2, and retain a power to revoke T2 and

revest the assets of T2 in T1. Under

paragraphs (e)(1) and (5) of this section, G is

the grantor of T1 and T2. In addition, because

the trustees of T1 have retained a power to

revest the assets of T2 in T1, T1 is treated as

the owner of T2 under section 678(a).

Example 9. G creates and funds a trust, T1,

for the benefit of B. G retains a power to

revest the assets of T1 in G within the

meaning of section 676. Under the trust

agreement, B is given a general power of

appointment over the assets of T1. B

exercises the general power of appointment

with respect to one-half of the corpus of T1

in favor of a trust, T2, that is for the benefit

of C, B’s child. Under paragraph (e)(1) of this

section, G is the grantor of T1, and under

paragraphs (e)(1) and (5) of this section, B is

the grantor of T2.

(7) The rules of this section are

applicable to any transfer to a trust, or

transfer of an interest in a trust, on or

after August 10, 1999.

§ 1.671–2T [Removed]

Par. 4. Section 1.671–2T is removed.

§ 1.672(f)–2 [Amended]

Par. 5. Section 1.672(f)–2 is amended

as follows:

1. In paragraph (b)(1) the language

‘‘§ 1.671–2T(e)(2)’’ is removed, and

‘‘§ 1.671–2(e)(2)’’ is added in its place.

2. In paragraph (d) Example 1 the

language ‘‘§ 1.671–2T(e)’’ is removed,

and ‘‘§ 1.671–2(e)’’ is added in its place.

§ 1.672(f)–3 [Amended]

Par. 6. Section 1.672(f)–3 is amended

as follows:

1. In paragraph (a)(1) the language

‘‘§ 1.671–2T(e)’’ is removed, and

‘‘§ 1.671–2(e)’’ is added in its place.

2. In paragraph (a)(4) Example 2 the

language ‘‘§ 1.671–2T(e)’’ is removed,

and ‘‘§ 1.671–2(e)’’ is added in its place.

3. In paragraph (b)(1) the language

‘‘§ 1.671–2T(e)(2)’’ is removed, and

‘‘§ 1.671–2(e)(2)’’ is added in its place.

4. In paragraph (b)(1) the language

‘‘§ 1.671–2T(e)’’ is removed, and

‘‘§ 1.671–2(e)’’ is added in its place.

5. In paragraph (b)(4) Example 1 the

language ‘‘§ 1.671–2T(e)’’ is removed,

and ‘‘§ 1.671–2(e)’’ is added in its place.

6. In paragraph (b)(4) Example 2 the

language ‘‘§ 1.671–2T(e)’’ is removed

and ‘‘§ 1.671–2(e)’’ is added in its place.

§ 1.672(f)–4 [Amended]

Par. 7. Section 1.672(f)–4 is amended

as follows:

1. In paragraph (c)(1) the language

‘‘§ 1.671–2T(e)(2)’’ is removed, and

‘‘§ 1.671–2(e)(2)’’ is added in its place.

2. In paragraph (c)(1) the language

‘‘§ 1.671–2T(e)(4)’’ is removed, and

‘‘§ 1.671–2(e)(4)’’ is added in its place.

3. In paragraph (d)(1) the language

‘‘§ 1.671–2T(e)(2)(ii)’’ is removed, and

‘‘§ 1.671–2(e)(2)(ii)’’ is added in its

place.

4. In paragraph (g) Example 4 the

language ‘‘§ 1.671–2T(e)’’ is removed,

and ‘‘§ 1.671–2(e)’’ is added in its place.

§ 1.672(f)–5 [Amended]

Par. 8. In § 1.672(f)–5, paragraph (a)(1)

is amended by removing the language

‘‘§ 1.671–2T(e)(2)’’ and adding ‘‘§ 1.671–

2(e)(2)’’ in its place.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: June 28, 2000.

Jonathan Talisman,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 00–16931 Filed 7–3–00; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Parts 501 and 598

Reporting and Procedures

Regulations; Foreign Narcotics

Kingpin Sanctions Regulations

AGENCY: Office of Foreign Assets

Control, Treasury.

ACTION: Final rule; amendments.

SUMMARY: The Office of Foreign Assets

Control of the U.S. Department of the

Treasury is amending its Reporting and

Procedures Regulations, and issuing the

Foreign Narcotics Kingpin Sanctions

Regulations, in implementation of the

Foreign Narcotics Kingpin Designation

Act.

EFFECTIVE DATE: July 5, 2000.

FOR FURTHER INFORMATION CONTACT: J.

Robert McBrien, Chief, International

Programs, tel.: 202/622–2420, or Barbara

C. Hammerle, Deputy Chief Counsel,

tel.: 202/622–2410, Office of Foreign

Assets Control, Department of the

Treasury, Washington, DC 20220.

SUPPLEMENTARY INFORMATION:

Electronic and Facsimile Availability

This document is available as an

electronic file on The Federal Bulletin

Board the day of publication in the

Federal Register. By modem, dial 202/

512–1387 and type ‘‘/GO FAC,’’ or call

202/512–1530 for disk or paper copies.

This file is available for downloading

without charge in ASCII and Adobe

Acrobat readable (*.PDF) formats. For

Internet access, the address for use with

the World Wide Web (Home Page),

Telnet, or FTP protocol is:

fedbbs.access.gpo.gov. This document

and additional information concerning

the programs of the Office of Foreign

Assets Control are available for

downloading from the Office’s Internet

Home Page: http://www.treas.gov/ofac,

or in fax form through the Office’s 24-

hour fax-on-demand service: call 202/

622–0077 using a fax machine, fax

modem, or (within the United States) a

touch-tone telephone.

Background

On December 3, 1999, President

Clinton signed into law the Foreign

Narcotics Kingpin Designation Act, Pub.

L. No. 106–120, title VIII, 113 Stat. 1606,

1626–1636 (1999) (to be codified at 21

U.S.C. 1901–1908, 8 U.S.C.

1182(a)(2)(C)) (the ‘‘Act’’), which

provides authority for the application of

sanctions to significant foreign narcotics

traffickers and their organizations

operating worldwide. Section 805(b) of

the Act blocks all property and interests

in property within the United States or

within the possession or control of any

United States person, which are owned

or controlled by significant foreign

narcotics traffickers, as identified by the

President, or foreign persons designated

by the Secretary of the Treasury, in

consultation with the Attorney General,

the Director of Central Intelligence, the

Director of the Federal Bureau of

Investigation, the Administrator of the

Drug Enforcement Administration, the

Secretary of Defense, and the Secretary

of State, because they are found to be:

(1) Materially assisting in, or

providing financial or technological

support for or to, or providing goods or

services in support of, the international

narcotics trafficking activities of a

significant foreign narcotics trafficker or

foreign persons designated by the

Secretary of the Treasury pursuant to

section 805(b) of the Act;

(2) Owned, controlled, or directed by,

or acting for or on behalf of, a significant

foreign narcotics trafficker or foreign

persons designated by the Secretary of

the Treasury pursuant to section 805(b)

of the Act; or

(3) Playing a significant role in

international narcotics trafficking.

Significant foreign narcotics

traffickers and persons coming within

any of the above three categories are

referred to as specially designated

narcotics traffickers.

Section 805(e)(1) of the Act authorizes

the Secretary of the Treasury, in

consultation with the Attorney General,

the Director of Central Intelligence, the

Director of the Federal Bureau of

Investigation, the Administrator of the