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a foreign trust for purposes of this section and section
6677 if such trust has substantial activities, or holds
substantial property, outside the United States.
‘‘(3) TIME AND MANNER OF FILING INFORMA-
TION.—Any notice or return required under this sec-
tion shall be made at such time and in such manner
as the Secretary shall prescribe.
‘‘(4) 
MODIFICATION
OF
RETURN
REQUIRE-
MENTS.—The Secretary is authorized to suspend or
modify any requirement of this section if the Sec-
retary determines that the United States has no sig-
nificant tax interest in obtaining the required infor-
mation.’’.
(b) INCREASED PENALTIES.—Section 6677 (relating to
failure to file information returns with respect to certain
foreign trusts) is amended to read as follows:
‘‘SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT
TO CERTAIN FOREIGN TRUSTS.
‘‘(a) CIVIL PENALTY.—In addition to any criminal
penalty provided by law, if any notice or return required
to be filed by section 6048—
‘‘(1) is not filed on or before the time provided
in such section, or
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‘‘(2) does not include all the information re-
quired pursuant to such section or includes incorrect
information,
the person required to file such notice or return shall pay
a penalty equal to 35 percent of the gross reportable
amount. If any failure described in the preceding sentence
continues for more than 90 days after the day on which
the Secretary mails notice of such failure to the person re-
quired to pay such penalty, such person shall pay a penalty
(in addition to the amount determined under the preceding
sentence) of $10,000 for each 30-day period (or fraction
thereof) during which such failure continues after the expi-
ration of such 90-day period. In no event shall the penalty
under this subsection with respect to any failure exceed the
gross reportable amount.
‘‘(b) SPECIAL RULES FOR RETURNS UNDER SECTION
6048(b).—In the case of a return required under section
6048(b)—
‘‘(1) the United States person referred to in such
section shall be liable for the penalty imposed by sub-
section (a), and
‘‘(2) subsection (a) shall be applied by substitut-
ing ‘5 percent’ for ‘35 percent’.
‘‘(c) GROSS REPORTABLE AMOUNT.—For purposes of
subsection (a), the term ‘gross reportable amount’ means—
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‘‘(1) the gross value of the property involved in
the event (determined as of the date of the event) in
the case of a failure relating to section 6048(a),
‘‘(2) the gross value of the portion of the trust’s
assets at the close of the year treated as owned by the
United States person in the case of a failure relating
to section 6048(b)(1), and
‘‘(3) the gross amount of the distributions in the
case of a failure relating to section 6048(c).
‘‘(d) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed by this section on any failure which is
shown to be due to reasonable cause and not due to willful
neglect. The fact that a foreign jurisdiction would impose
a civil or criminal penalty on the taxpayer (or any other
person) for disclosing the required information is not rea-
sonable cause.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Sub-
chapter B of chapter 63 (relating to deficiency procedures
for income, estate, gift, and certain excise taxes) shall not
apply in respect of the assessment or collection of any pen-
alty imposed by subsection (a).’’.
(c) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6724(d) is amended
by striking ‘‘or’’ at the end of subparagraph (S), by
striking the period at the end of subparagraph (T)
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and inserting ‘‘, or’’, and by inserting after subpara-
graph (T) the following new subparagraph:
‘‘(U) section 6048(b)(1)(B) (relating to for-
eign trust reporting requirements).’’.
(2) The table of sections for subpart B of part
III of subchapter A of chapter 61 is amended by strik-
ing the item relating to section 6048 and inserting
the following new item:
‘‘Sec. 6048. Information with respect to certain foreign trusts.’’.
(3) The table of sections for part I of subchapter
B of chapter 68 is amended by striking the item relat-
ing to section 6677 and inserting the following new
item:
‘‘Sec. 6677. Failure to file information with respect to certain foreign trusts.’’.
(d) EFFECTIVE DATES.—
(1) REPORTABLE EVENTS.—To the extent related
to subsection (a) of section 6048 of the Internal Reve-
nue Code of 1986, as amended by this section, the
amendments made by this section shall apply to re-
portable events (as defined in such section 6048) oc-
curring after the date of the enactment of this Act.
(2) GRANTOR TRUST REPORTING.—To the extent
related to subsection (b) of such section 6048, the
amendments made by this section shall apply to tax-
able years of United States persons beginning after
the date of the enactment of this Act.
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(3) REPORTING
BY
UNITED
STATES
BENE-
FICIARIES.—To the extent related to subsection (c) of
such section 6048, the amendments made by this sec-
tion shall apply to distributions received after the
date of the enactment of this Act.
SEC. 602. MODIFICATIONS OF RULES RELATING TO FOR-
EIGN TRUSTS HAVING ONE OR MORE UNITED
STATES BENEFICIARIES.
(a) TREATMENT OF TRUST OBLIGATIONS, ETC.—
(1) Paragraph (2) of section 679(a) is amended
by striking subparagraph (B) and inserting the fol-
lowing:
‘‘(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, consideration
other than cash shall be taken into account at its
fair market value.’’.
(2) Subsection (a) of section 679 (relating to for-
eign trusts having one or more United States bene-
ficiaries) is amended by adding at the end the follow-
ing new paragraph:
‘‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO AC-
COUNT UNDER FAIR MARKET VALUE EXCEPTION.—
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‘‘(A) IN GENERAL.—In determining whether
paragraph (2)(B) applies to any transfer by a
person described in clause (ii) or (iii) of sub-
paragraph (C), there shall not be taken into ac-
count—
‘‘(i) except as provided in regulations,
any obligation of a person described in sub-
paragraph (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 PAYMENTS
ON
OBLIGATION.—Principal payments by the
trust on any obligation referred to in subpara-
graph (A) shall be taken into account on and
after the date of the payment in determining 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 or beneficiary of the
trust, and