H. R. 2491—580
individual to such trust but shall not otherwise be taken
into account.
‘‘(C) RESIDENCY STARTING DATE.—For purposes of this
paragraph, an individual’s residency starting date is the
residency 
starting 
date 
determined 
under 
section
7701(b)(2)(A).
‘‘(5) OUTBOUND TRUST MIGRATIONS.—If—
‘‘(A) an individual who is a citizen or resident 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
individual 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 purposes of this paragraph.’’.
(d) MODIFICATIONS RELATING TO WHETHER TRUST HAS UNITED
STATES BENEFICIARIES.—Subsection (c) of section 679 is amended
by adding at the end the following new paragraph:
‘‘(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.’’.
(e) TECHNICAL
AMENDMENT.—Subparagraph (A) of section
679(c)(2) is amended to read as follows:
‘‘(A) in the case of a foreign corporation, such corpora-
tion is a controlled foreign corporation (as defined in section
957(a)),’’.
(f) REGULATIONS.—Section 679 is amended by adding at the
end the following new subsection:
‘‘(d) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.’’.
(g) EFFECTIVE DATE.—The amendments made by this section
shall apply to transfers of property after February 6, 1995.
SEC. 11343. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS
UNDER GRANTOR TRUST RULES.
(a) GENERAL RULE.—
(1) Subsection (f) of section 672 (relating to special rule
where grantor is foreign person) is amended to read as follows:
‘‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNERSHIP.—
‘‘(1) IN GENERAL.—Notwithstanding any other provision of
this subpart, this subpart shall apply only to the extent such
application results in an amount being currently taken into
account (directly or through 1 or more entities) under this
chapter in computing the income of a citizen or resident of
the United States or a domestic corporation.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN REVOCABLE AND IRREVOCABLE TRUSTS.—
Paragraph (1) shall not apply to any trust if—
‘‘(i) the power to revest absolutely in the grantor
title to the trust property is exercisable solely by the
grantor without the approval or consent of any other
H. R. 2491—581
person or with the consent of a related or subordinate
party who is subservient to the grantor, or
‘‘(ii) the only amounts distributable from such trust
(whether income or corpus) during the lifetime of the
grantor are amounts distributable to the grantor or
the spouse of the grantor.
‘‘(B) COMPENSATORY TRUSTS.—Except as provided in
regulations, paragraph (1) shall not apply to any portion
of a trust distributions from which are taxable as com-
pensation for services rendered.
‘‘(3) SPECIAL RULES.—Except as otherwise provided in regu-
lations prescribed by the Secretary—
‘‘(A) a controlled foreign corporation (as defined in sec-
tion 957) shall be treated as a domestic corporation for
purposes of paragraph (1), and
‘‘(B) paragraph (1) shall not apply for purposes of apply-
ing section 1296.
‘‘(4) RECHARACTERIZATION
OF
PURPORTED
GIFTS.—In the
case of any transfer directly or indirectly from a partnership
or foreign corporation which the transferee treats as a gift
or bequest, the Secretary may recharacterize such transfer
in such circumstances as the Secretary determines to be appro-
priate to prevent the avoidance of the purposes of this sub-
section.
‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOREIGN PERSON.—
If—
‘‘(A) but for this subsection, a foreign person would
be treated as the owner of any portion of a trust, and
‘‘(B) such trust has a beneficiary who is a United
States person,
such beneficiary shall be treated as the grantor of such portion
to the extent such beneficiary has made transfers of property
by gift (directly or indirectly) to such foreign person. For pur-
poses of the preceding sentence, any gift shall not be taken
into account to the extent such gift would be excluded from
taxable gifts under section 2503(b).
‘‘(6) REGULATIONS.—The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this subsection, including regulations providing
that paragraph (1) shall not apply in appropriate cases.’’.
(2) The last sentence of subsection (c) of section 672 of
such Code is amended by inserting ‘‘subsection (f) and’’ before
‘‘sections 674’’.
(b) CREDIT FOR CERTAIN TAXES.—Paragraph (2) of section 665(d)
is amended by adding at the end the following new sentence:
‘‘Under rules or regulations prescribed by the Secretary, in the
case of any foreign trust of which the settlor or another person
would be treated as owner of any portion of the trust under subpart
E but for section 672(f), the term ‘taxes imposed on the trust’
includes the allocable amount of any income, war profits, and excess
profits taxes imposed by any foreign country or possession of the
United States on the settlor or such other person in respect of
trust gross income.’’.
(c) DISTRIBUTIONS
BY CERTAIN FOREIGN TRUSTS THROUGH
NOMINEES.—
(1) Section 643 is amended by adding at the end the follow-
ing new subsection:
H. R. 2491—582
‘‘(h) DISTRIBUTIONS
BY CERTAIN FOREIGN TRUSTS THROUGH
NOMINEES.—For purposes of this part, any amount paid to a United
States person which is derived directly or indirectly from a foreign
trust of which the payor is not the grantor shall be deemed in
the year of payment to have been directly paid by the foreign
trust to such United States person.’’.
(2) Section 665 is amended by striking subsection (c).
(d) EFFECTIVE DATE.—
(1) IN
GENERAL.—Except as provided by paragraph (2),
the amendments made by this section shall take effect on
the date of the enactment of this Act.
(2) EXCEPTION
FOR
CERTAIN
TRUSTS.—The amendments
made by this section shall not apply to any trust—
(A) which is treated as owned by the grantor or another
person under section 676 or 677 (other than subsection
(a)(3) thereof) of the Internal Revenue Code of 1986, and
(B) which is in existence on September 19, 1995.
The preceding sentence shall not apply to the portion of any
such trust attributable to any transfer to such trust after
September 19, 1995.
(e) TRANSITIONAL RULE.—If—
(1) by reason of the amendments made by this section,
any person other than a United States person ceases to be
treated as the owner of a portion of a domestic trust, and
(2) before January 1, 1997, such trust becomes a foreign
trust, or the assets of such trust are transferred to a foreign
trust,
no tax shall be imposed by section 1491 of the Internal Revenue
Code of 1986 by reason of such trust becoming a foreign trust
or the assets of such trust being transferred to a foreign trust.
SEC. 11344. INFORMATION REPORTING REGARDING FOREIGN GIFTS.
(a) IN GENERAL.—Subpart A of part III of subchapter A of
chapter 61 is amended by inserting after section 6039E the following
new section:
‘‘SEC. 6039F. NOTICE OF GIFTS RECEIVED FROM FOREIGN PERSONS.
‘‘(a) IN GENERAL.—If the value of the aggregate foreign gifts
received by a United States person (other than an organization
described in section 501(c) and exempt from tax under section
501(a)) during any taxable year exceeds $10,000, such United States
person shall furnish (at such time and in such manner as the
Secretary shall prescribe) such information as the Secretary may
prescribe regarding 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 person 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)).
‘‘(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 exten-
sions)—
‘‘(A) the tax consequences of the receipt of such gift
shall be determined by the Secretary in the Secretary’s
sole discretion from the Secretary’s own knowledge or from
H. R. 2491—583
such information as the Secretary may obtain through testi-
mony or otherwise, 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 aggregate).
‘‘(2) REASONABLE CAUSE EXCEPTION.—Paragraph (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 willful 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 applied by substituting ‘1995’ for ‘1992’.
‘‘(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the purposes
of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for such sub-
part 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. 11345. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS
WHICH ARE NOT GRANTOR TRUSTS.
(a) MODIFICATION OF INTEREST CHARGE ON ACCUMULATION DIS-
TRIBUTIONS.—Subsection (a) of section 668 (relating to interest
charge on accumulation distributions from foreign trusts) is
amended to read as follows:
‘‘(a) GENERAL RULE.—For purposes of the tax determined under
section 667(a)—
‘‘(1) INTEREST DETERMINED USING UNDERPAYMENT 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 period described in paragraph (2) using the rates and
the method under section 6621 applicable to underpayments
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 number of years before the
date of the distribution and which ends on the date of the
distribution.
‘‘(3) APPLICABLE NUMBER OF YEARS.—For purposes of para-
graph (2)—
‘‘(A) IN GENERAL.—The applicable number of years with
respect to a distribution is the number determined by divid-
ing—