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‘‘(ii) the only amounts distributable
from such portion (whether income or cor-
pus) 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 compensation for
services rendered.
‘‘(3) SPECIAL
RULES.—Except as otherwise
provided in regulations prescribed by the Secretary,
a controlled foreign corporation shall be treated as
a domestic corporation for purposes of paragraph
(1).
‘‘(4) RECHARACTERIZATION
OF
PURPORTED
GIFTS.—In the case of any transfer directly or indi-
rectly 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 ap-
propriate to prevent the avoidance of the purposes of
this subsection.
‘‘(5) SPECIAL RULE WHERE GRANTOR IS FOR-
EIGN PERSON.—If—
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‘‘(A) but for this subsection, a foreign per-
son would be treated as the owner of any por-
tion 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
(directly or indirectly) 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—
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‘‘(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 reversion-
ary interest in such 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.
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‘‘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.
‘‘(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
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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.
‘‘(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
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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
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
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‘‘(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.
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—
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‘‘(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 bene-
ficiary or to accumulate and add the income to cor-
pus. A power does not fall within the powers de-
scribed 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 in-
come or corpus, except where such action is to pro-
vide 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—
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‘‘(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-
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
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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.
‘‘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
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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
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
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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-
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
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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—
‘‘(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 reversion-
ary interest; but the grantor may be treated as the owner