252 
treated as the grantor of such portion to the ex-
tent such beneficiary has made (directly or indi-
rectly) transfers of property (other than in a 
sale for full and adequate consideration) to 
such foreign person. 
‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section, including regulations providing that para-
graph (1) shall not apply in appropriate cases. 
‘‘SEC. 155. REVERSIONARY INTERESTS. 
‘‘(a) GENERAL RULE.—The grantor shall be treated 
as the owner of any portion of a trust in which he has 
a reversionary interest in either the corpus or the income 
therefrom, if, as of the inception of that portion of the 
trust, the value of such interest exceeds 5 percent of the 
value of such portion. 
‘‘(b) REVERSIONARY INTEREST TAKING EFFECT AT 
DEATH
OF
MINOR
LINEAL
DESCENDANT
BENE-
FICIARY.—In the case of any beneficiary who— 
‘‘(1) is a lineal descendant of the grantor, and 
‘‘(2) holds all of the present interests in any 
portion of a trust, the grantor shall not be treated 
under subsection (a) as the owner of such portion 
solely by reason of a reversionary interest in such
253 
portion which takes effect upon the death of such 
beneficiary before such beneficiary attains age 21. 
‘‘(c) SPECIAL RULE FOR DETERMINING VALUE OF 
REVERSIONARY INTEREST.—For purposes of subsection 
(a), the value of the grantor’s reversionary interest shall 
be determined by assuming the maximum exercise of dis-
cretion in favor of the grantor. 
‘‘(d) POSTPONEMENT OF DATE SPECIFIED FOR RE-
ACQUISITION.—Any postponement of the date specified for 
the reacquisition of possession or enjoyment of the rever-
sionary interest shall be treated as a new transfer in trust 
commencing with the date on which the postponement is 
effective and terminating with the date prescribed by the 
postponement. However, income for any period shall not 
be included in the income of the grantor by reason of the 
preceding sentence if such income would not be so includ-
ible in the absence of such postponement. 
‘‘SEC. 156. POWER TO CONTROL BENEFICIAL ENJOYMENT. 
‘‘(a) GENERAL RULE.—The grantor shall be treated 
as the owner of any portion of a trust in respect of which 
the beneficial enjoyment of the corpus or the income there-
from is subject to a power of disposition, exercisable by 
the grantor or a nonadverse party, or both, without the 
approval or consent of any adverse party.
254 
‘‘(b) EXCEPTIONS
FOR CERTAIN POWERS.—Sub-
section (a) shall not apply to the following powers regard-
less of by whom held: 
‘‘(1) POWER TO APPLY INCOME TO SUPPORT OF 
A
DEPENDENT.—A power described in section 
159(b) to the extent that the grantor would not be 
subject to tax under that section. 
‘‘(2) POWER
AFFECTING
BENEFICIAL
ENJOY-
MENT
ONLY
AFTER
OCCURRENCE
OF
EVENT.—A 
power, the exercise of which can only affect the ben-
eficial enjoyment of the income for a period com-
mencing after the occurrence of an event such that 
a grantor would not be treated as the owner under 
section 155 if the power were a reversionary inter-
est; but the grantor may be treated as the owner 
after the occurrence of the event unless the power is 
relinquished. 
‘‘(3) POWER EXERCISABLE ONLY BY WILL.—A 
power exercisable only by will, other than a power in 
the grantor to appoint by will the income of the 
trust where the income is accumulated for such dis-
position by the grantor or may be so accumulated in 
the discretion of the grantor or a nonadverse party, 
or both, without the approval or consent of any ad-
verse party.
255 
‘‘(4) POWER TO ALLOCATE AMONG CHARITABLE 
BENEFICIARIES.—A power to determine the bene-
ficial enjoyment of the corpus or the income there-
from if the corpus or income is irrevocably payable 
for a purpose specified in section 101(c) (relating to 
definition of charitable contributions) or to an em-
ployee stock ownership plan (as defined in section 
4975(e)(7)) in a qualified gratuitous transfer (as de-
fined in section 149(g)(1)). 
‘‘(5) POWER
TO
DISTRIBUTE
CORPUS.—A 
power to distribute corpus either— 
‘‘(A) to or for a beneficiary or beneficiaries 
or to or for a class of beneficiaries (whether or 
not income beneficiaries) provided that the 
power is limited by a reasonably definite stand-
ard which is set forth in the trust instrument; 
or 
‘‘(B) to or for any current income bene-
ficiary, provided that the distribution of corpus 
must be chargeable against the proportionate 
share of corpus held in trust for the payment 
of income to the beneficiary as if the corpus 
constituted a separate trust. 
A power does not fall within the powers described in 
this paragraph if any person has a power to add to
256 
the beneficiary or beneficiaries or to a class of bene-
ficiaries designated to receive the income or corpus, 
except where such action is to provide for after-born 
or after-adopted children. 
‘‘(6) POWER
TO
WITHHOLD
INCOME
TEMPO-
RARILY.—A power to distribute or apply income to 
or for any current income beneficiary or to accumu-
late the income for him, provided that any accumu-
lated income must ultimately be payable— 
‘‘(A) to the beneficiary from whom dis-
tribution or application is withheld, to his es-
tate, or to his appointees (or persons named as 
alternate takers in default of appointment) pro-
vided that such beneficiary possesses a power of 
appointment which does not exclude from the 
class of possible appointees any person other 
than the beneficiary, his estate, his creditors, or 
the creditors of his estate, or 
‘‘(B) on termination of the trust, or in con-
junction with a distribution of corpus which is 
augmented by such accumulated income, to the 
current income beneficiaries in shares which 
have been irrevocably specified in the trust in-
strument.
257 
Accumulated income shall be considered so payable 
although it is provided that if any beneficiary does 
not survive a date of distribution which could rea-
sonably have been expected to occur within the bene-
ficiary’s lifetime, the share of the deceased bene-
ficiary is to be paid to his appointees or to one or 
more designated alternate takers (other than the 
grantor or the grantor’s estate) whose shares have 
been irrevocably specified. A power does not fall 
within the powers described in this paragraph if any 
person has a power to add to the beneficiary or 
beneficiaries or to a class of beneficiaries designated 
to receive the income or corpus except where such 
action is to provide for after-born or after-adopted 
children. 
‘‘(7) POWER
TO
WITHHOLD
INCOME
DURING 
DISABILITY
OF
A
BENEFICIARY.—A power exer-
cisable only during— 
‘‘(A) the existence of a legal disability of 
any current income beneficiary, or 
‘‘(B) the period during which any income 
beneficiary shall be under the age of 21 years, 
to distribute or apply income to or for such 
beneficiary or to accumulate and add the in-
come to corpus. A power does not fall within
258 
the powers described in this paragraph if any 
person has a power to add to the beneficiary or 
beneficiaries or to a class of beneficiaries des-
ignated to receive the income or corpus, except 
where such action is to provide for after-born or 
after-adopted children. 
‘‘(8) POWER TO ALLOCATE BETWEEN CORPUS 
AND INCOME.—A power to allocate receipts and dis-
bursements as between corpus and income, even 
though expressed in broad language. 
‘‘(c) EXCEPTION FOR CERTAIN POWERS OF INDE-
PENDENT TRUSTEES.—Subsection (a) shall not apply to 
a power solely exercisable (without the approval or consent 
of any other person) by a trustee or trustees, none of 
whom is the grantor, and no more than half of whom are 
related or subordinate parties who are subservient to the 
wishes of the grantor— 
‘‘(1) to distribute, apportion, or accumulate in-
come to or for a beneficiary or beneficiaries, or to, 
for, or within a class of beneficiaries; or 
‘‘(2) to pay out corpus to or for a beneficiary 
or beneficiaries or to or for a class of beneficiaries 
(whether or not income beneficiaries). 
A power does not fall within the powers described in this 
subsection if any person has a power to add to the bene-
259 
ficiary or beneficiaries or to a class of beneficiaries des-
ignated to receive the income or corpus, except where such 
action is to provide for after-born or after-adopted chil-
dren. For periods during which an individual is the spouse 
of the grantor (within the meaning of section 154(e)(2)), 
any reference in this subsection to the grantor shall be 
treated as including a reference to such individual. 
‘‘(d) POWER TO ALLOCATE INCOME IF LIMITED BY 
A STANDARD.—Subsection (a) shall not apply to a power 
solely exercisable (without the approval or consent of any 
other person) by a trustee or trustees, none of whom is 
the grantor or spouse living with the grantor, to distribute, 
apportion, or accumulate income to or for a beneficiary 
or beneficiaries, or to, for, or within a class of bene-
ficiaries, whether or not the conditions of paragraph (6) 
or (7) of subsection (b) are satisfied, if such power is lim-
ited by a reasonably definite external standard which is 
set forth in the trust instrument. A power does not fall 
within the powers described in this subsection if any per-
son has a power to add to the beneficiary or beneficiaries 
or to a class of beneficiaries designated to receive the in-
come or corpus except where such action is to provide for 
after-born or after-adopted children.
260 
‘‘SEC. 157. ADMINISTRATIVE POWERS. 
‘‘The grantor shall be treated as the owner of any 
portion of a trust in respect of which— 
‘‘(1) POWER TO DEAL FOR LESS THAN ADE-
QUATE AND FULL CONSIDERATION.—A power exer-
cisable 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 ade-
quate consideration in money or money’s worth. 
‘‘(2) POWER TO BORROW WITHOUT ADEQUATE 
INTEREST OR SECURITY.—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. 
‘‘(3) BORROWING OF THE TRUST FUNDS.—The 
grantor has directly or indirectly borrowed the cor-
pus 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
261 
and adequate security, if such loan is made by a 
trustee other than the grantor and other than a re-
lated or subordinate trustee subservient to the 
grantor. For periods during which an individual is 
the spouse of the grantor (within the meaning of 
section 154(e)(2)), any reference in this paragraph 
to the grantor shall be treated as including a ref-
erence to such individual. 
‘‘(4) GENERAL POWERS OF ADMINISTRATION.— 
A power of administration is exercisable in a non-
fiduciary capacity by any person without the ap-
proval or consent of any person in a fiduciary capac-
ity. For purposes of this paragraph, the term ‘power 
of administration’ means any one or more of the fol-
lowing powers: (A) a power to vote or direct the vot-
ing 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 reac-
262 
quire the trust corpus by substituting other property 
of an equivalent value. 
‘‘SEC. 158. POWER TO REVOKE. 
‘‘(a) GENERAL RULE.—The grantor shall be treated 
as the owner of any portion of a trust, whether or not 
he is treated as such owner under any other provision of 
this part, where at any time the power to revest in the 
grantor title to such portion is exercisable by the grantor 
or a non-adverse party, or both. 
‘‘(b) POWER AFFECTING BENEFICIAL ENJOYMENT 
ONLY AFTER OCCURRENCE OF EVENT.—Subsection (a) 
shall not apply to a power the exercise of which can only 
affect the beneficial enjoyment of the income for a period 
commencing after the occurrence of an event such that 
a grantor would not be treated as the owner under section 
155 if the power were a reversionary interest. But the 
grantor may be treated as the owner after the occurrence 
of such event unless the power is relinquished. 
‘‘SEC. 159. INCOME FOR BENEFIT OF GRANTOR. 
‘‘(a) GENERAL RULE.—The grantor shall be treated 
as the owner of any portion of a trust, whether or not 
he is treated as such owner under section 156, whose in-
come without the approval or consent of any adverse party 
is, or, in the discretion of the grantor or a nonadverse 
party, or both, may be—
263 
‘‘(1) distributed to the grantor or the grantor’s 
spouse; 
‘‘(2) held or accumulated for future distribution 
to the grantor or the grantor’s spouse; or 
‘‘(3) applied to the payment of premiums on 
policies of insurance on the life of the grantor or the 
grantor’s spouse (except policies of insurance irrev-
ocably payable for a purpose specified in section 
101(c) (relating to definition of charitable contribu-
tions)). 
This subsection shall not apply to a power the exercise 
of which can only affect the beneficial enjoyment of the 
income for a period commencing after the occurrence of 
an event such that the grantor would not be treated as 
the owner under section 153 if the power were a rever-
sionary interest; but the grantor may be treated as the 
owner after the occurrence of the event unless the power 
is relinquished. 
‘‘(b) OBLIGATIONS OF SUPPORT.—Income of a trust 
shall not be considered taxable to the grantor under sub-
section (a) or any other provision of this chapter merely 
because such income in the discretion of another person, 
the trustee, or the grantor acting as trustee or co-trustee, 
may be applied or distributed for the support or mainte-
nance of a beneficiary (other than the grantor’s spouse)
264 
whom the grantor is legally obligated to support or main-
tain, except to the extent that such income is so applied 
or distributed. In cases where the amounts so applied or 
distributed are paid out of corpus or out of other than 
income for the taxable year, such amounts shall be consid-
ered to be an amount paid or credited within the meaning 
of paragraph (2) of section 146(a) and shall be taxed to 
the grantor under section 147. 
‘‘SEC. 160. PERSON OTHER THAN GRANTOR TREATED AS 
SUBSTANTIAL OWNER. 
‘‘(a) GENERAL RULE.—A person other than the 
grantor shall be treated as the owner of any portion of 
a trust with respect to which: 
‘‘(1) such person has a power exercisable solely 
by himself to vest the corpus or the income there-
from in himself, or 
‘‘(2) such person has previously partially re-
leased or otherwise modified such a power and after 
the release or modification retains such control as 
would, within the principles of sections 153 to 159, 
inclusive, subject a grantor of a trust to treatment 
as the owner thereof. 
‘‘(b) EXCEPTION WHERE GRANTOR IS TAXABLE.— 
Subsection (a) shall not apply with respect to a power over 
income, as originally granted or thereafter modified, if the
265 
grantor of the trust or a transferor (to whom section 161 
applies) is otherwise treated as the owner under sections 
153 through 159 or section 161. 
‘‘(c) OBLIGATIONS
OF SUPPORT.—Subsection (a) 
shall not apply to a power which enables such person, in 
the capacity of trustee or cotrustee, merely to apply the 
income of the trust to the support or maintenance of a 
person whom the holder of the power is obligated to sup-
port or maintain except to the extent that such income 
is so applied. In cases where the amounts so applied or 
distributed are paid out of corpus or out of other than 
income of the taxable year, such amounts shall be consid-
ered to be an amount paid or credited within the meaning 
of paragraph (2) of section 146(a) and shall be taxed to 
the holder of the power under section 147. 
‘‘(d) EFFECT OF RENUNCIATION OR DISCLAIMER.— 
Subsection (a) shall not apply with respect to a power 
which has been renounced or disclaimed within a reason-
able time after the holder of the power first became aware 
of its existence. 
‘‘SEC. 161. FOREIGN TRUSTS HAVING ONE OR MORE 
UNITED STATES BENEFICIARIES. 
‘‘(a) TRANSFEROR TREATED AS OWNER.— 
‘‘(1) IN
GENERAL.—A United States person 
who directly or indirectly transfers property to a for-
266 
eign trust (other than a trust described in section 
6048(a)(3)(B)(ii)) shall be treated as the owner for 
his taxable year of the portion of such trust attrib-
utable to such property if for such year there is a 
United States beneficiary of any portion of such 
trust. 
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 
apply— 
‘‘(A) TRANSFERS BY REASON OF DEATH.— 
To any transfer by reason of the death of the 
transferor. 
‘‘(B) 
TRANSFERS
AT
FAIR
MARKET 
VALUE.—To any transfer of property to a trust 
in exchange for consideration of at least the fair 
market value of the transferred property. For 
purposes of the preceding sentence, consider-
ation other than cash shall be taken into ac-
count at its fair market value. 
‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO 
ACCOUNT
UNDER
FAIR
MARKET
VALUE
EXCEP-
TION.— 
‘‘(A) IN GENERAL.—In determining wheth-
er paragraph (2)(B) applies to any transfer by 
a person described in clause (ii) or (iii) of sub-
267 
paragraph (C), there shall not be taken into ac-
count— 
‘‘(i) except as provided in regulations, 
any obligation of a person described in 
subparagraph (C), and 
‘‘(ii) to the extent provided in regula-
tions, any obligation which is guaranteed 
by a person described in subparagraph (C). 
‘‘(B) TREATMENT
OF
PRINCIPAL
PAY-
MENTS
ON
OBLIGATION.—Principal payments 
by the trust on any obligation referred to in 
subparagraph (A) shall be taken into account 
on and after the date of the payment in deter-
mining the portion of the trust attributable to 
the property transferred. 
‘‘(C) PERSONS DESCRIBED.—The persons 
described in this subparagraph are— 
‘‘(i) the trust, 
‘‘(ii) any grantor, owner, or bene-
ficiary of the trust, and 
‘‘(iii) any person who is related (with-
in the meaning of section 143(i)(2)(B) to 
any grantor, owner, or beneficiary of the 
trust.
268 
‘‘(4) SPECIAL RULES APPLICABLE TO FOREIGN 
GRANTOR WHO LATER BECOMES A UNITED STATES 
PERSON.— 
‘‘(A) IN GENERAL.—If a nonresident alien 
individual has a residency starting date within 
5 years after directly or indirectly transferring 
property to a foreign trust, this section and sec-
tion 6048 shall be applied as if such individual 
transferred to such trust on the residency start-
ing date an amount equal to the portion of such 
trust attributable to the property transferred by 
such individual to such trust in such transfer. 
‘‘(B) TREATMENT OF UNDISTRIBUTED IN-
COME.—For purposes of this section, undistrib-
uted net income for periods before such individ-
ual’s residency starting date shall be taken into 
account in determining the portion of the trust 
which is attributable to property transferred by 
such individual to such trust but shall not oth-
erwise be taken into account. 
‘‘(C) RESIDENCY
STARTING
DATE.—For 
purposes of this paragraph, an individual’s resi-
dency starting date is the residency starting 
date determined under section 7701(b)(2)(A). 
‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—
269 
‘‘(A) an individual who is a citizen or resi-
dent of the United States transferred property 
to a trust which was not a foreign trust, and 
‘‘(B) such trust becomes a foreign trust 
while such individual is alive, then this section 
and section 6048 shall be applied as if such in-
dividual transferred to such trust on the date 
such trust becomes a foreign trust an amount 
equal to the portion of such trust attributable 
to the property previously transferred by such 
individual to such trust. A rule similar to the 
rule of paragraph (4)(B) shall apply for pur-
poses of this paragraph. 
‘‘(b) TRUSTS ACQUIRING UNITED STATES BENE-
FICIARIES.—If— 
‘‘(1) subsection (a) applies to a trust for the 
transferor’s taxable year, and 
‘‘(2) subsection (a) would have applied to the 
trust for his immediately preceding taxable year but 
for the fact that for such preceding taxable year 
there was no United States beneficiary for any por-
tion of the trust, then, for purposes of this chapter, 
the transferor shall be treated as having income for 
the taxable year (in addition to his other income for 
such year) equal to the undistributed net income (at
270 
the close of such immediately preceding taxable 
year) attributable to the portion of the trust referred 
to in subsection (a). 
‘‘(c) TRUSTS
TREATED
AS
HAVING
A
UNITED 
STATES BENEFICIARY.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, a trust shall be treated as having a United 
States beneficiary for the taxable year unless— 
‘‘(A) under the terms of the trust, no part 
of the income or corpus of the trust may be 
paid or accumulated during the taxable year to 
or for the benefit of a United States person, 
and 
‘‘(B) if the trust were terminated at any 
time during the taxable year, no part of the in-
come or corpus of such trust could be paid to 
or for the benefit of a United States person. 
‘‘(2) ATTRIBUTION OF OWNERSHIP.—For pur-
poses of paragraph (1), an amount shall be treated 
as paid or accumulated to or for the benefit of a 
United States person if such amount is paid to or 
accumulated for a foreign corporation, foreign part-
nership, or foreign trust or estate, and—
271 
‘‘(A) in the case of a foreign corporation, 
such corporation is a controlled foreign corpora-
tion, 
‘‘(B) in the case of a foreign partnership, 
a United States person is a partner of such 
partnership, or 
‘‘(C) in the case of a foreign trust or es-
tate, such trust or estate has a United States 
beneficiary (within the meaning of paragraph 
(1)). 
‘‘(3) CERTAIN UNITED STATES BENEFICIARIES 
DISREGARDED.—A beneficiary shall not be treated 
as a United States person in applying this section 
with respect to any transfer of property to foreign 
trust if such beneficiary first became a United 
States person more than 5 years after the date of 
such transfer. 
‘‘(d) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section. 
‘‘SEC. 162. LIMITATION ON CHARITABLE DEDUCTION. 
‘‘In computing the deduction allowable under section 
142(c) to a trust, no amount otherwise allowable under 
section 142(c) as a deduction shall be allowed as a deduc-
272 
tion with respect to income of the taxable year which is 
allocable to unrelated business income for such year. 
‘‘SEC. 163. INCOME OF AN ESTATE OR TRUST IN CASE OF DI-
VORCE, ETC. 
‘‘(a) INCLUSION IN GROSS INCOME OF WIFE.—There 
shall be included in the gross income of a wife who is di-
vorced or legally separated under a decree of divorce or 
of separate maintenance (or who is separated from her 
husband under a written separation agreement) the 
amount of the income of any trust which such wife is enti-
tled to receive and which, except for this section, would 
be includible in the gross income of her husband, and such 
amount shall not, despite any other provision of this sub-
title, be includible in the gross income of such husband. 
This subsection shall not apply to that part of any such 
income of the trust which the terms of the decree, written 
separation agreement, or trust instrument fix, in terms 
of an amount of money or a portion of such income, as 
a sum which is payable for the support of minor children 
of such husband. In case such income is less than the 
amount specified in the decree, agreement, or instrument, 
for the purpose of applying the preceding sentence, such 
income, to the extent of such sum payable for such sup-
port, shall be considered a payment for such support.
273 
‘‘(b) WIFE CONSIDERED A BENEFICIARY.—For pur-
poses of computing the taxable income of the estate or 
trust and the taxable income of a wife to whom subsection 
(a) applies, such wife shall be considered as the bene-
ficiary. 
‘‘(c) CROSS REFERENCE.—For definitions of ‘hus-
band’ and ‘wife’, as used in this section, see section 
7701(a)(17). 
‘‘SEC. 164. RECOGNITION OF GAIN ON CERTAIN TRANSFERS 
TO CERTAIN FOREIGN TRUSTS AND ESTATES. 
‘‘(a) IN GENERAL.—Except as provided in regula-
tions, in the case of any transfer of property by a United 
States person to a foreign estate or trust, for purposes 
of this subtitle, such transfer shall be treated as a sale 
or exchange for an amount equal to the fair market value 
of the property transferred, and the transferor shall recog-
nize as gain the excess of— 
‘‘(1) the fair market value of the property so 
transferred, over 
‘‘(2) the adjusted basis (for purposes of deter-
mining gain) of such property in the hands of the 
transferor. 
‘‘(b) EXCEPTION.—Subsection (a) shall not apply to 
a transfer to a trust by a United States person to the
274 
extent that any person is treated as the owner of such 
trust under section 153. 
‘‘(c) TREATMENT OF TRUSTS WHICH BECOME FOR-
EIGN TRUSTS.—If a trust which is not a foreign trust be-
comes a foreign trust, such trust shall be treated for pur-
poses of this section as having transferred, immediately 
before becoming a foreign trust, all of its assets to a for-
eign trust. 
‘‘SEC. 165. TREATMENT OF FUNERAL TRUSTS. 
‘‘(a) IN GENERAL.—In the case of a qualified funeral 
trust, sections 144 through 161 shall not apply, and no 
deduction shall be allowed by section 142(b). 
‘‘(b) QUALIFIED FUNERAL TRUST.—‘Qualified fu-
neral trust’ means any trust (other than a foreign trust) 
if— 
‘‘(1) the trust arises as a result of a contract 
with a person engaged in the trade or business of 
providing funeral or burial services or property nec-
essary to provide such services, 
‘‘(2) the sole purpose of the trust is to hold, in-
vest, and reinvest funds in the trust and to use such 
funds solely to make payments for such services or 
property for the benefit of the beneficiaries of the 
trust,
275 
‘‘(3) the only beneficiaries of such trust are in-
dividuals with respect to whom such services or 
property are to be provided at their death under 
contracts described in paragraph (1), 
‘‘(4) the only contributions to the trust are con-
tributions by or for the benefit of such beneficiaries, 
‘‘(5) the trustee elects the application of this 
subsection, and 
‘‘(6) the trust would (but for the election de-
scribed in paragraph (5)) be treated as owned under 
sections 153 through 161 by the purchasers of the 
contracts described in paragraph (1). 
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.— 
‘‘(1) IN
GENERAL.—Any trust which accepts 
aggregate contributions by or for the benefit of an 
individual in excess of $7,000 shall not be a quali-
fied funeral trust. 
‘‘(2) RELATED TRUSTS.—For purposes of para-
graph (1), all trusts having trustees which are re-
lated persons shall be treated as 1 trust. For pur-
poses of the preceding sentence, persons are related 
if— 
‘‘(A) the relationship between such persons 
is described in section 171(a)(5), or
276 
‘‘(B) the Secretary determines that treat-
ing such persons as related is necessary to pre-
vent avoidance of the purposes of this section. 
‘‘(3) INFLATION ADJUSTMENT.—In the case of 
any contract referred to in subsection (b)(1) which 
is entered into during any calendar year after 2007, 
the dollar amount referred to in paragraph (1) shall 
be adjusted for inflation in accordance with section 
25. 
‘‘(d) APPLICATION
OF RATE SCHEDULE.—Section 
140(b) shall be applied to each qualified funeral trust by 
treating each beneficiary’s interest in each such trust as 
a separate trust. 
‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO PUR-
CHASER ON CANCELLATION.—No gain or loss shall be rec-
ognized to a purchaser of a contract described in sub-
section (b)(1) by reason of any payment from such trust 
to such purchaser by reason of cancellation of such con-
tract. If any payment referred to in the preceding sentence 
consists of property other than money, the basis of such 
property in the hands of such purchaser shall be the same 
as the trust’s basis in such property immediately before 
the payment.
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‘‘(f) SIMPLIFIED REPORTING.—The Secretary may 
prescribe rules for simplified reporting of all trusts having 
a single trustee. 
‘‘SEC. 166. INCOME IN RESPECT OF A DECEDENT. 
‘‘(a) INCLUSION IN GROSS INCOME.— 
‘‘(1) GENERAL USE.—The amount of all items 
of gross income in respect of a decedent which are 
not properly includible in respect of a taxable period 
in which falls the date of his death, or a prior pe-
riod, shall be included in gross income, for the tax-
able year when received, of— 
‘‘(A) the estate of the decedent, if the right 
to receive the amount is acquired by the dece-
dent’s estate, 
‘‘(B) the person who, by reason of the 
death of the decedent, acquires the right to re-
ceive the amount, if the right to receive the 
amount is not acquired by the decedent’s estate 
from the decedent, 
‘‘(C) the person who acquires from the de-
cedent the right to receive the amount by be-
quest, devise or inheritance, if the amount is re-
ceived after a distribution by the decedent’s es-
tate of such right.
278 
‘‘(2) DEFINITION.—The Secretary shall pre-
scribe regulations on the treatment of income from 
sales of rights to receive income and installment 
sales. 
‘‘(b) The amount of any homeowner deduction or for-
eign tax credit in respect of a decedent which is not prop-
erly allowable to the decedent with respect to the taxable 
period in which falls the date of his death, or a prior pe-
riod, shall be allowed in accordance with regulations that 
reflect the principles of section 691(b) of the Internal Rev-
enue Code of 1986. 
‘‘Subchapter II—Definitions and Rules of 
Application 
‘‘Sec. 171. Definitions. 
‘‘Sec. 172. Rules of application. 
‘‘SEC. 171. DEFINITIONS. 
‘‘(a) IN GENERAL.—When used in this chapter, 
where not otherwise distinctly expressed or manifestly in-
compatible with the intent thereof— 
‘‘(1) BUSINESS
ENTITY.—The definition of 
‘business entity’ in section 206 (relating to the busi-
ness tax) shall apply. 
‘‘(2) BUSINESS TAX.—‘Business tax’ and ‘Sim-
plified USA Tax for businesses’ mean the tax im-
posed by section 201 and, to the extent required by 
the context, the provisions of chapter 2.
279 
‘‘(3) INTERNAL REVENUE CODE OF 1986.—‘In-
ternal Revenue Code of 1986’ means the Internal 
Revenue Code of 1986 as in effect immediately be-
fore the enactment of the Simplified USA Tax Act 
of 2006. 
‘‘(4) UNITED STATES.—‘United States’ means 
the States and the District of Columbia. 
‘‘(5) 
RELATED
PARTY.—‘Related 
party’ 
means— 
‘‘(A) Members of a family, as defined in 
paragraph (6)(D); 
‘‘(B) An individual and a business entity 
more than 50 percent in value of which is 
owned, directly or indirectly, by or for such in-
dividual (applying rules of constructive owner-
ship); 
‘‘(C) Two business entities that are eligible 
to file a consolidated return under chapter 2; 
‘‘(D) A grantor and a fiduciary of any 
trust; 
‘‘(E) A fiduciary of a trust and a fiduciary 
of another trust, if the same person is a grantor 
of both trusts; 
‘‘(F) A fiduciary of a trust and a bene-
ficiary of such trust;
280 
‘‘(G) A fiduciary of a trust and a bene-
ficiary of another trust, if the same person is 
a grantor of both trusts; 
‘‘(H) A fiduciary of a trust and a corpora-
tion more than 50 percent in value of the out-
standing stock of which is owned, directly or in-
directly, by or for the trust or by or for a per-
son who is a grantor of the trust; 
‘‘(I) A person and an organization to 
which section 251 (relating to certain edu-
cational and charitable organizations which are 
exempt from tax) applies and which is con-
trolled directly or indirectly by such person or 
(if such person is an individual) by members of 
the family of such individual; 
‘‘(J) Two business entities if the same per-
sons own more than 50 percent of the value of 
each (applying rules of constructive ownership), 
with value measured by— 
‘‘(i) the value of the outstanding stock 
in the case of a corporation, 
‘‘(ii) the capital interest or the profits 
interest, whichever is greater, in the case 
of a partnership or limited liability com-
pany;
281 
‘‘(K) Except in the case of a sale or ex-
change in satisfaction of a pecuniary bequest, 
an executor of an estate and a beneficiary of 
such estate. 
‘‘(6) CONSTRUCTIVE
OWNERSHIP.—For pur-
poses of determining, in applying paragraph (5), the 
ownership of a business entity— 
‘‘(A) Stock or other equity interest owned, 
directly or indirectly, by or for a corporation, 
partnership, estate, or trust shall be considered 
as being owned proportionately by or for its 
shareholders, partners, or beneficiaries; 
‘‘(B) An individual shall be considered as 
owning the stock or other equity interest owned, 
directly or indirectly, by or for his family; 
‘‘(C) An individual owning (otherwise than 
by the application of subparagraph (B)) any 
stock in a corporation or other equity interest 
in another form of business entity shall be con-
sidered as owning the stock owned, directly or 
indirectly, by or for his partner; 
‘‘(D) The family of an individual shall in-
clude only his brothers and sisters (whether by 
the whole or half blood), spouse, ancestors, and 
lineal descendants; and