Fair Market Value Transfer to Foreign Trust

§ 679. Foreign trusts having one or more United States beneficiaries(a) Transferor treated as owner(1) In generalA United States person who directly or indirectly transfers property to a foreign trust (other than a trust described in section 6048(a)(3)(B)(ii)) shall be treated as the owner for his taxable year of the portion of such trust attributable to such property if for such year there is a United States beneficiary of any portion of such trust. (2) ExceptionsParagraph (1) shall not apply—(A) Transfers by reason of deathTo any transfer by reason of the death of the transferor. (B) Transfers at fair market valueTo any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value. (3) Certain obligations not taken into account under fair market value exception(A) In generalIn determining whether paragraph (2)(B) applies to any transfer by a person described in clause (ii) or (iii) of subparagraph (C), there shall not be taken into account—(i) except as provided in regulations, any obligation of a person described in subparagraph (C), and (ii) to the extent provided in regulations, any obligation which is guaranteed by a person described in subparagraph (C). (B) Treatment of principal payments on obligationPrincipal payments by the trust on any obligation referred to in subparagraph (A) shall be taken into account on and after the date of the payment in determining the portion of the trust attributable to the property transferred. (C) Persons describedThe persons described in this subparagraph are—(i) the trust, (ii) any grantor, owner, or beneficiary of the trust, and (iii) any person who is related (within the meaning of section 643(i)(2)(B)) to any grantor, owner, or beneficiary of the trust. (4) Special rules applicable to foreign grantor who later becomes a United States person(A) In generalIf a nonresident alien individual has a residency starting date within 5 years after directly or indirectly transferring property to a foreign trust, this section and section 6048 shall be applied as if such individual transferred to such trust on the residency starting date an amount equal to the portion of such trust attributable to the property transferred by such individual to such trust in such transfer. (B) Treatment of undistributed incomeFor purposes of this section, undistributed net income for periods before such individual’s residency starting date shall be taken into account in determining the portion of the trust which is attributable to property transferred by such individual to such trust but shall not otherwise be taken into account. (C) Residency starting dateFor purposes of this paragraph, an individual’s residency starting date is the residency starting date determined under section 7701(b)(2)(A).