H. R. 2491—584
‘‘(i) the sum of the products described in subpara-
graph (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 prescribed by the Sec-
retary.
‘‘(B) PRODUCT DESCRIBED.—For purposes of subpara-
graph (A), the product described in this subparagraph with
respect to any undistributed 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 distribu-
tion (counting in each case the undistributed income
year but not counting the taxable year of the distribu-
tion).
‘‘(4) UNDISTRIBUTED INCOME YEAR.—For purposes of this
subsection, the term ‘undistributed income 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 beneficiary receiving the distribution was not a citizen
or resident of the United States.
‘‘(5) DETERMINATION OF UNDISTRIBUTED NET INCOME.—Not-
withstanding 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 determined—
‘‘(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 definitions
applicable to subparts A, B, C, and D) is amended by adding
at the end the following new subsection:
‘‘(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 described in
subparagraph (A) who is related to such grantor or bene-
ficiary,
the amount of such loan shall be treated as a distribution
by such trust to such grantor or beneficiary (as the case may
be).
H. R. 2491—585
‘‘(2) DEFINITIONS AND SPECIAL RULES.—For purposes of this
subsection—
‘‘(A) CASH.—The term ‘cash’ includes foreign 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 applying section 267 for purposes of the
preceding 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 described in para-
graph (1)(B) is related to more than one person, the
grantor or beneficiary to whom the treatment under
this subsection applies shall be determined under regu-
lations 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 distribu-
tion shall be treated as not described in section 651.
‘‘(3) SUBSEQUENT
TRANSACTIONS
REGARDING
LOAN
PRIN-
CIPAL.—If any loan is taken into account under paragraph
(1), any subsequent transaction between the trust and the
original borrower regarding the principal of the loan (by way
of complete or partial repayment, satisfaction, cancellation, dis-
charge, 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),’’ before ‘‘or 1274’’
each place it appears.
(d) EFFECTIVE DATES.—
(1) INTEREST
CHARGE.—The amendment made by sub-
section (a) shall apply to distributions after the date of the
enactment of this Act.
(2) ABUSIVE TRANSACTIONS.—The amendment made by sub-
section (b) shall take effect on the date of the enactment of
this Act.
(3) LOANS FROM TRUSTS.—The amendment made by sub-
section (c) shall apply to loans of cash or marketable securities
after September 19, 1995.
SEC. 11346. RESIDENCE OF ESTATES AND TRUSTS, ETC.
(a) TREATMENT AS UNITED STATES PERSON.—
(1) IN
GENERAL.—Paragraph (30) of section 7701(a) is
amended by striking subparagraph (D) and by inserting after
subparagraph (C) the following:
‘‘(D) any estate or trust if—
‘‘(i) a court within the United States is able to
exercise primary supervision over the administration
of the estate or trust, and
‘‘(ii) in the case of a trust, one or more United
States fiduciaries have the authority to control all
substantial decisions of the trust.’’.
H. R. 2491—586
(2) CONFORMING AMENDMENT.—Paragraph (31) of section
7701(a) is amended to read as follows:
‘‘(31) FOREIGN ESTATE OR TRUST.—The term ‘foreign estate’
or ‘foreign trust’ means any estate or trust other than an
estate or trust described in section 7701(a)(30)(D).’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply—
(A) to taxable years beginning after December 31, 1996,
or
(B) at the election of the trustee of a trust, to taxable
years ending after the date of the enactment 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 imposition 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 foreign trust, all of
its assets to a foreign trust.’’.
(2) PENALTY.—Section 1494 is amended by adding at the
end the following new subsection:
‘‘(c) PENALTY.—In the case of any failure to file a return
required by the Secretary with respect to any transfer described
in section 1491 with respect to a trust, the person required to
file such return shall be liable for the penalties provided in section
6677 in the same manner as if such failure were a failure to
file a return under section 6048(a).’’.
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall take effect on the date of the enactment of this
Act.
CHAPTER 6—TREATMENT OF INDIVIDUALS WHO LOSE
UNITED STATES CITIZENSHIP
SEC. 11348. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON
INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP.
(a) IN GENERAL.—Subsection (a) of section 877 is amended
to read as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) IN GENERAL.—Every nonresident alien individual who,
within the 10-year period immediately preceding the close of
the taxable year, lost United States citizenship, unless such
loss did not have for 1 of its principal purposes the avoidance
of taxes under this subtitle or subtitle B, shall be taxable
for such taxable year in the manner provided in subsection
(b) if the tax imposed pursuant to such subsection exceeds
the tax which, without regard to this section, is imposed pursu-
ant to section 871.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX AVOID-
ANCE PURPOSE.—For purposes of paragraph (1), an individual
shall be treated as having a principal purpose to avoid such
taxes if—
‘‘(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period of
5 taxable years ending before the date of the loss of United
States citizenship is greater than $100,000, or
H. R. 2491—587
‘‘(B) the net worth of the individual as of such date
is $500,000 or more.
In the case of the loss of United States citizenship in any
calendar year after 1996, such $100,000 and $500,000 amounts
shall be increased by an amount equal to such dollar amount
multiplied by the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting ‘1994’
for ‘1992’ in subparagraph (B) thereof. Any increase under
the preceding sentence shall be rounded to the nearest multiple
of $1,000.’’
(b) EXCEPTIONS.—
(1) IN GENERAL.—Section 877 is amended by striking sub-
section (d), by redesignating subsection (c) as subsection (d),
and by inserting after subsection (b) the following new sub-
section:
‘‘(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—Subsection (a)(2) shall not apply to an
individual if—
‘‘(A) such individual is described in a subparagraph
of paragraph (2) of this subsection, and
‘‘(B) within the 1-year period beginning on the date
of the loss of United States citizenship, such individual
submits a ruling request for the Secretary’s determination
as to whether such loss has for 1 of its principal purposes
the avoidance of taxes under this subtitle or subtitle B.
‘‘(2) INDIVIDUALS DESCRIBED.—
‘‘(A) 
DUAL
CITIZENSHIP, 
ETC.—An 
individual 
is
described in this subparagraph if—
‘‘(i) the individual became at birth a citizen of
the United States and a citizen of another country
and continues to be a citizen of such other country,
or
‘‘(ii) the individual becomes (not later than the
close of a reasonable period after loss of United States
citizenship) a citizen of the country in which—
‘‘(I) such individual was born,
‘‘(II) if such individual is married, such individ-
ual’s spouse was born, or
‘‘(III) either of such individual’s parents were
born.
‘‘(B) LONG-TERM
FOREIGN
RESIDENTS.—An individual
is described in this subparagraph if, for each year in the
10-year period ending on the date of loss of United States
citizenship, the individual was present in the United States
for 30 days or less. The rule of section 7701(b)(3)(D)(ii)
shall apply for purposes of this subparagraph.
‘‘(C) RENUNCIATION
UPON
REACHING
AGE
OF
MAJOR-
ITY.—An individual is described in this subparagraph if
the individual’s loss of United States citizenship occurs
before such individual attains age 181⁄2.
‘‘(D) INDIVIDUALS
SPECIFIED
IN
REGULATIONS.—An
individual is described in this subparagraph if the individ-
ual is described in a category of individuals prescribed
by regulation by the Secretary.’’
(2) TECHNICAL
AMENDMENT.—Paragraph (1) of section
877(b) of such Code is amended by striking ‘‘subsection (c)’’
and inserting ‘‘subsection (d)’’.