scribe) such information as the Secretary may prescribe re-
garding each foreign gift received during such year.
‘‘(b) FOREIGN GIFT.—For purposes of this section, the
term ‘foreign gift’ means any amount received from a per-
son other than a United States person which the recipient
treats as a gift or bequest. Such term shall not include any
qualified 
transfer 
(within 
the 
meaning 
of 
section
2503(e)(2)) or any distribution properly disclosed in a re-
turn under section 6048(c).
‘‘(c) PENALTY FOR FAILURE TO FILE INFORMATION.—
‘‘(1) IN GENERAL.—If a United States person
fails to furnish the information required by subsection
(a) with respect to any foreign gift within the time
prescribed therefor (including extensions)—
‘‘(A) the tax consequences of the receipt of
such gift shall be determined by the Secretary,
and
‘‘(B) such United States person shall pay
(upon notice and demand by the Secretary and
in the same manner as tax) an amount equal to
5 percent of the amount of such foreign gift for
each month for which the failure continues (not
to exceed 25 percent of such amount in the aggre-
gate).
‘‘(2) REASONABLE
CAUSE
EXCEPTION.—Para-
graph (1) shall not apply to any failure to report a
foreign gift if the United States person shows that the
failure is due to reasonable cause and not due to will-
ful neglect.
‘‘(d) COST-OF-LIVING ADJUSTMENT.—In the case of
any taxable year beginning after December 31, 1996, the
$10,000 amount under subsection (a) shall be increased by
an amount equal to the product of such amount and the
cost-of-living adjustment for such taxable year under section
1(f)(3), except that subparagraph (B) thereof shall be ap-
plied by substituting ‘1995’ for ‘1992’.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
such subpart is amended by inserting after the item relating
to section 6039E the following new item:
‘‘Sec. 6039F. Notice of large gifts received from foreign persons.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts received after the date of
the enactment of this Act in taxable years ending after such
date.
SEC. 416. MODIFICATION OF RULES RELATING TO FOREIGN
TRUSTS WHICH ARE NOT GRANTOR TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCUMU-
LATION DISTRIBUTIONS.—Subsection (a) of section 668 (re-
lating to interest charge on accumulation distributions from
foreign trusts) is amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of the tax deter-
mined under section 667(a)—
‘‘(1) INTEREST DETERMINED USING UNDERPAY-
MENT RATES.—The interest charge determined under
this section with respect to any distribution is the
amount of interest which would be determined on the
partial tax computed under section 667(b) for the pe-
riod described in paragraph (2) using the rates and
the method under section 6621 applicable to under-
payments of tax.
‘‘(2) PERIOD.—For purposes of paragraph (1),
the period described in this paragraph is the period
which begins on the date which is the applicable num-
ber of years before the date of the distribution and
which ends on the date of the distribution.
‘‘(3) APPLICABLE NUMBER OF YEARS.—For pur-
poses of paragraph (2)—
‘‘(A) IN GENERAL.—The applicable number
of years with respect to a distribution is the
number determined by dividing—
‘‘(i) the sum of the products described
in subparagraph (B) with respect to each
undistributed income year, by
‘‘(ii) the aggregate undistributed net
income.
The quotient determined under the preceding
sentence shall be rounded under procedures pre-
scribed by the Secretary.
‘‘(B) PRODUCT DESCRIBED.—For purposes
of subparagraph (A), the product described in
this subparagraph with respect to any undistrib-
uted income year is the product of—
‘‘(i) the undistributed net income for
such year, and
‘‘(ii) the sum of the number of taxable
years between such year and the taxable
year of the distribution (counting in each
case the undistributed income year but not
counting the taxable year of the distribu-
tion).
‘‘(4) UNDISTRIBUTED INCOME YEAR.—For pur-
poses of this subsection, the term ‘undistributed in-
come year’ means any prior taxable year of the trust
for which there is undistributed net income, other
than a taxable year during all of which the bene-
ficiary receiving the distribution was not a citizen or
resident of the United States.
‘‘(5) DETERMINATION OF UNDISTRIBUTED NET
INCOME.—Notwithstanding section 666, for purposes
of this subsection, an accumulation distribution from
the trust shall be treated as reducing proportionately
the undistributed net income for undistributed income
years.
‘‘(6) PERIODS
BEFORE
1996.—Interest for the
portion of the period described in paragraph (2)
which occurs before January 1, 1996, shall be deter-
mined—
‘‘(A) by using an interest rate of 6 percent,
and
‘‘(B) without compounding until January
1, 1996.’’.
(b) ABUSIVE
TRANSACTIONS.—Section 643(a) is
amended by inserting after paragraph (6) the following new
paragraph:
‘‘(7) ABUSIVE
TRANSACTIONS.—The Secretary
shall prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this part,
including regulations to prevent avoidance of such
purposes.’’.
(c) TREATMENT OF LOANS FROM TRUSTS.—
(1) IN GENERAL.—Section 643 (relating to defi-
nitions applicable to subparts A, B, C, and D) is
amended by adding at the end the following new sub-
section:
‘‘(i) LOANS FROM FOREIGN TRUSTS.—For purposes of
subparts B, C, and D—
‘‘(1) GENERAL
RULE.—Except as provided in
regulations, if a foreign trust makes a loan of cash or
marketable securities directly or indirectly to—
‘‘(A) any grantor or beneficiary of such
trust who is a United States person, or
‘‘(B) any United States person not de-
scribed in subparagraph (A) who is related to
such grantor or beneficiary,
the amount of such loan shall be treated as a distribu-
tion by such trust to such grantor or beneficiary (as
the case may be).
‘‘(2) DEFINITIONS
AND
SPECIAL
RULES.—For
purposes of this subsection—
‘‘(A) CASH.—The term ‘cash’ includes for-
eign currencies and cash equivalents.
‘‘(B) RELATED PERSON.—
‘‘(i) IN GENERAL.—A person is related
to another person if the relationship between
such persons would result in a disallowance
of losses under section 267 or 707(b). In ap-
plying section 267 for purposes of the pre-
ceding sentence, section 267(c)(4) shall be
applied as if the family of an individual
includes the spouses of the members of the
family.
‘‘(ii) ALLOCATION.—If any person de-
scribed in paragraph (1)(B) is related to
more than one person, the grantor or bene-
ficiary to whom the treatment under this
subsection applies shall be determined under
regulations prescribed by the Secretary.
‘‘(C) EXCLUSION
OF
TAX-EXEMPTS.—The
term ‘United States person’ does not include any
entity exempt from tax under this chapter.
‘‘(D) TRUST
NOT
TREATED
AS
SIMPLE
TRUST.—Any trust which is treated under this
subsection as making a distribution shall be
treated as not described in section 651.
‘‘(3) SUBSEQUENT
TRANSACTIONS
REGARDING
LOAN PRINCIPAL.—If any loan is taken into account
under paragraph (1), any subsequent transaction be-
tween the trust and the original borrower regarding
the principal of the loan (by way of complete or par-
tial repayment, satisfaction, cancellation, discharge,
or otherwise) shall be disregarded for purposes of this
title.’’.
(2) TECHNICAL AMENDMENT.—Paragraph (8) of
section 7872(f) is amended by inserting ‘‘, 643(i),’’ be-
fore ‘‘or 1274’’ each place it appears.
(d) EFFECTIVE DATES.—
(1) INTEREST CHARGE.—The amendment made
by subsection (a) shall apply to distributions after the
date of the enactment of this Act.
(2) ABUSIVE
TRANSACTIONS.—The amendment
made by subsection (b) shall take effect on the date of
the enactment of this Act.
(3) LOANS
FROM
TRUSTS.—The amendment
made by subsection (c) shall apply to loans of cash
or marketable securities made after September 19,
1995.
SEC. 417. RESIDENCE OF TRUSTS, ETC.
(a) TREATMENT AS UNITED STATES PERSON.—
(1) IN
GENERAL.—Paragraph (30) of section
7701(a) is amended by striking ‘‘and’’ at the end of
subparagraph (C) and by striking subparagraph (D)
and by inserting the following new subparagraphs:
‘‘(D) any estate (other than a foreign estate,
within the meaning of paragraph (31)), and
‘‘(E) any trust if—
‘‘(i) a court within the United States
is able to exercise primary supervision over
the administration of the trust, and
‘‘(ii) one or more United States fidu-
ciaries have the authority to control all sub-
stantial decisions of the trust.’’.
(2) CONFORMING AMENDMENT.—Paragraph (31)
of section 7701(a) is amended to read as follows:
‘‘(31) FOREIGN ESTATE OR TRUST.—
‘‘(A) FOREIGN ESTATE.—The term ‘foreign
estate’ means an estate the income of which, from
sources without the United States which is not
effectively connected with the conduct of a trade
or business within the United States, is not in-
cludible in gross income under subtitle A.
‘‘(B) FOREIGN TRUST.—The term ‘foreign
trust’ means any trust other than a trust de-
scribed in subparagraph (E) of paragraph
(30).’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply—
(A) to taxable years beginning after Decem-
ber 31, 1996, or
(B) at the election of the trustee of a trust,
to taxable years ending after the date of the en-
actment of this Act.
Such an election, once made, shall be irrevocable.
(b) DOMESTIC TRUSTS WHICH BECOME FOREIGN
TRUSTS.—
(1) IN GENERAL.—Section 1491 (relating to im-
position of tax on transfers to avoid income tax) is
amended by adding at the end the following new flush
sentence:
‘‘If a trust which is not a foreign trust becomes a foreign
trust, such trust shall be treated for purposes of this section
as having transferred, immediately before becoming a for-
eign trust, all of its assets to a foreign trust.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall take effect on the date of the en-
actment of this Act.