FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES TO BE TAXED CURRENTLY TO GANTOR.

“SEC. 1013. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES TO BE TAXED CURRENTLY TO GANTOR. (a) Taxation of Income to Grantor of Trust.— Subpart E of part I of subchapter J of chapter 1 (relating to grantors and others treated as substantial owners) is amended by adding at the end thereof the following new section: “SEC. 679. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES. “(a) Transferor Treated as Owner.— “(1) In general.— A United States person who directly or indirectly transfer’s property to a foreign trust (other than a trust described in section 404(a)(4)) 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) Exceptions.— Paragraph (1) shall not apply— 90 STAT. 1615 “(A) Transits by reason of death.— To any transfer by reason of the death of the transferor. “(B) Transfers where gain is recognized to transferor.— To any sale or exchange of the property at its fair market value in a transaction in which all of the gain to the transferor is realized at the time of the transfer and is recognized either at such time or is returned as provided in section 453. “(b) Trusts Acquiring United States Beneficiaries.— If— “(1) subsection (a) applies to a trust for the transferor’s taxable year, and “(2) subsection (a) would have applied to the trust for his immediately preceding taxable year but for the fact that for such preceding taxable year there was no United States beneficiary for any portion of the trust, then, for purposes of this subtitle, the transferor shall be treated as having income for the taxable year (in addition to his other income for such year) equal to the undistributed net income (at the close of such immediately preceding taxable year) attributable to the portion of the trust referred to in subsection (a). “(c) Trusts Treated as Having a United States Beneficiary.— “(1) In general.— For purposes of this section, a trust shall be treated as having a United States beneficiary for the taxable year unless— “(A) under the terms of the trust, no part, of the income or corpus of the trust may be paid or accumulated during the taxable year to or for the benefit of a United States person, and “(B) if the trust were terminated at any time during the taxable year, no part of the income or corpus of such trust could be paid to or for the benefit of a United States person. “(2) Attribution of ownership.— For purposes of paragraph (1), an amount shall be treated as paid or accumulated to or for the benefit of a United States person if such amount is paid to or accumulated for a foreign corporation, foreign partnership, or foreign trust or estate, and— “(A) in the case of a foreign corporation, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of such corporation is owned (within the meaning of section 958(a)) or is considered to be owned (within the meaning of section 958(b)) by United States shareholders (as defined in section 951(b)), “(B) in the ease of a foreign partnership, a United States person is a partner of such partnership, or “(C) in the case of a foreign trust or estate, such trust or estate has a United States beneficiary (within the meaning of paragraph (1)) (b) Grantor To Be Treated as Owner.— Subsection (b) of section 678 (relating to persons other than grantors treated as substantial owners) is amended by striking out everything after “modified,” and inserting in lieu thereof “if the grantor of the trust or a transferor (to whom section 679 applies) is otherwise treated as the owner under the provisions of this subpart other than this section.”, (c) Treatment of Capital Gains and Losses of Certain Foreign Trusts.— (1) Foreign trusts created by united states persons treated like other foreign trusts.— Subparagraph (C) of section 643 90 STAT. 1616(a)(6) (relating to distributable net income in ease of foreign trusts) is amended by striking out “foreign trust created by a United States person” and inserting in lieu thereof “foreign trust” (2) Transitional rule for foreign trusts.— Section 643(a)(6) is amended by adding at the end thereof the following new subparagraph: “(D) Effective for distributions made in taxable years beginning after December 31, 1975, the undistributed net income of each foreign trust for each taxable year beginning on or before December 31, 1975, remaining undistributed at the close of the last taxable year beginning on or before December 31, 1975, shall be redetermined by taking into account the deduction allowed by section 1202.” (d) Returns for Foreign Trusts Having One or More United States Beneficiaries.— (1) Section 6048 (relating to returns as to creation of or transfers to certain foreign trusts) is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Annual Returns for Foreign Trusts Having One on More United States Beneficiaries.— Each taxpayer subject to tax under section 679 (relating to foreign trusts having one or more United States beneficiaries) for his taxable year with respect to any trust shall make a return with respect to such trust for such year at such time and in such manner, and setting forth such information, as the Secretary may by regulations prescribe”, (2) Section 6677(a) (relating to failure to file information returns with respect to certain foreign trusts) is amended by striking out “to a trust” and inserting in lieu thereof “to a trust (or, in the case of a failure with respect to section 6048(c), equal to 5 percent of the value of the corpus of the trust at the close of the taxable year)”. (e) Conforming Amendments.— (1) The table of sections for subpart E of part I of subchapter J of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 679. Foreign trusts having one or more United States benefeciaries.” (2) Subsection (d) of section 643 is hereby repealed. (3) Subsection (d) of section 6048 (as redesignated by subsection (d)) is amended to read as follows: “(d) Cross Reference.— “For provisions relating to penalties for violation of this section, see sections 6677 and 7203.” (4) The heading of section 6048 is amended to read as follows: “SEC. 6048. RETURNS AS TO CERTAIN FOREIGN TRUSTS.”. (5) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking out, the item relating to section 6048 and inserting in lieu thereof the following: “Sec. 6048. Retináis as to certain foreign trusts,” (f) Effective Dates.— (1) In general.— The amendments made by this section (other than subsection (c)) shall apply to taxable years ending after December 31, 1975, but only in the case of— 90 STAT. 1617 (A) foreign trusts created after May 21, 1974, and (B) transfers of property to foreign trusts after May 21, 1974. (2) Guanoes in capital gain rules for foreign trusts.— The amendments made by subsection (c) shall apply to taxable years beginning after December 31, 1975.