(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 (if any) 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 portion of a trust if—
(i) the power to revest absolutely in the grantor title to the trust property to which such portion is attributable is exercisable solely by the grantor without the approval or consent of any other 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 portion (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 compensation for services rendered.
(3) Special rules
Except as otherwise provided in regulations prescribed by the Secretary—
(A) a controlled foreign corporation (as defined in section 957) shall be treated as a domestic corporation for purposes of paragraph (1), and
(B) paragraph (1) shall not apply for purposes of applying section 1297.
(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 appropriate to prevent the avoidance of the purposes of this subsection.
(5) Special rule where grantor is foreign person
(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 (directly or indirectly) transfers of property (other than in a sale for full and adequate consideration) to such foreign person. For purposes 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.
Amendments
1998—Subsec. (f)(3)(B). Pub. L. 105–206 substituted “section 1297” for “section 1296”.
1996—Subsec. (c). Pub. L. 104–188, § 1904(a)(2), inserted “subsection (f) and” before “sections 674” in closing provisions.
Subsec. (f). Pub. L. 104–188, § 1904(a)(1), amended subsec. (f) generally. Prior to amendment, subsec. (f) read as follows: “Special Rule Where Grantor is Foreign Person.—
“(1) In general.—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 purposes 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).
“(2) Regulations.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.”
1990—Subsec. (f). Pub. L. 101–508 added subsec. (f).
1988—Subsec. (e). Pub. L. 100–647 amended subsec. (e) generally. Prior to amendment, subsec. (e) read as follows: “For purposes of this subpart, if a grantor’s spouse is living with the grantor at the time of the creation of any power or interest held by such spouse, the grantor shall be treated as holding such power or interest.”
1986—Subsec. (e). Pub. L. 99–514 added subsec. (e).
Effective Date of 1998 Amendment
Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.
Effective Date of 1996 Amendment
Amendment by Pub. L. 104–188 effective Aug. 20, 1996, with exception for certain trusts, see section 1904(d) of Pub. L. 104–188, set out as a note under section 643 of this title.
Effective Date of 1990 Amendment
Pub. L. 101–508, title XI, § 11343(b), Nov. 5, 1990, 104 Stat. 1388–472, provided that:
“The amendments made by this section [amending this section] shall apply to—
“(1) any trust created after the date of the enactment of this Act [Nov. 5, 1990], and
“(2) any portion of a trust created on or before such date which is attributable to amounts contributed to the trust after such date.”
Effective Date of 1988 Amendment
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date of 1986 Amendment
Pub. L. 99–514, title XIV, § 1401(b), Oct. 22, 1986, 100 Stat. 2711, provided that:
“The amendment made by this section [amending this section] shall apply with respect to transfers in trust made after March 1, 1986.”