IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

SEC. 1901. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS. (a) In General.— Section 6048 (relating to returns as to certain foreign trusts) is amended to read as follows: “SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS. “(a) Notice of Certain Events.— “(1) General rule.— On or before the 90th day (or such later day as the Secretary may prescribe) after any reportable event, the responsible party shall provide written notice of such event to the Secretary in accordance with paragraph (2). “(2) Contents of notice.— The notice required by paragraph (1) shall contain such information as the Secretary may prescribe, including— 110 STAT. 1905 “(A) the amount of money or other property (if any) transferred to the trust in connection with the reportable event, and “(B) the identity of the trust and of each trustee and beneficiary (or class of beneficiaries)of the trust. “(3) Reportable Event.— For purposes of this subsection— “(A) In general.— The term ‘reportable event’ means— “(i) the creation of any foreign trust by a United States person, “(ii) the transfer of any money or properly (directly or indirectly) to a foreign trust by a United States person, including a transfer by reason of death, and “(iii) the death of a citizen or resident of the United States if— “(I) the decedent was treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, or “(II) any portion of a foreign trust was included in the gross estate of the decedent. “(B) Exceptions.— “(i) Fair market value sales.— Subparagraph (A)(ii) shall not apply to 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 and the rules of section 679(a)(3) shall apply. “(ii) Deferred compensation and charitable trusts.— Subparagraph (A) shall not apply with respect to a trust which is— “(I) described in section 402(b), 404(a)(4), or 404A, or “(II) determined by the Secretary to be described in section 501(c)(3). “(4) Responsible party.— For purposes of this subsection, the term ‘responsible party’ means— “(A) the grantor in the case of the creation of an inter vivos trust, “(B) the transferor in the case of a reportable event described in paragraph (3)(A)(ii) other than a transfer by reason of death, and “(C) the executor of the decedent’s estate in any other case. “(b) United States Grantor of Foreign Trust.— “(1) In general.— If, at any time during any taxable year of a United States person, such person is treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, such person shall be responsible to ensure that— “(A) such trust makes a return for such year which sets forth a full and complete accounting of all trust activities and operations for the year, the name of the United States agent for such trust, and such other information as the Secretary may prescribe, and “(B) such trust furnishes such information as the Secretary may prescribe to each United States person (i) who110 STAT. 1906 is treated as the owner of any portion of such trust or (ii) who receives (directly or indirectly) any distribution from the trust. “(2) Trusts not having united states agent.— “(A) In general.— If the rules of this paragraph apply to any foreign trust, the determination of amounts required to be taken into account with respect to such trust by a United States person under the rules of subpart E of part I of subchapter J of chapter 1 shall be determined by the Secretary. “(B) United states agent required.— The rules of this paragraph shall apply to any foreign trust to which paragraph (1) applies unless such trust agrees (in such manner, subject to such conditions, and at such time as the Secretary shall prescribe) to authorize a United States person to act as such trust’s limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to— “(i) any request by the Secretary to examine records or produce testimony related to the proper treatment of amounts required to be taken into account under the rules referred to in subparagraph (A), or “(ii) any summons by the Secretary for such records or testimony. The appearance of persons or production of records by reason of a United States person being such an agent shall not subject such persons or records to legal process for any purpose other than determining the correct treatment under this title of the amounts required to be taken into account under the rules referred to in subparagraph (A). A foreign trust which appoints an agent described in this subparagraph shall not be considered to have an office or a permanent establishment in the United States, or to be engaged in a trade or business in the United States, solely because of the activities of such agent pursuant to this subsection. “(C) Other rules to apply.— Rules similar to the rules of paragraphs (2) and (4) of section 6038A(e) shall apply for purposes of this paragraph. “(c) Reporting by United States Beneficiaries of Foreign Trusts.— “(1) In general.— If any United States person receives (directly or indirectly) during any taxable year of such person any distribution from a foreign trust, such person shall make a return with respect to such trust for such year which includes— “(A) the name of such trust, “(B) the aggregate amount of the distributions so received from such trust during such taxable year, and “(C) such other information as the Secretary may prescribe. “(2) Inclusion in income if records not provided.— “(A) In general.— If adequate records are not provided to the Secretary to determine the proper treatment of any distribution from a foreign trust, such distribution shall be treated as an accumulation distribution includible in the gross income of the distributee under chapter 1. To110 STAT. 1907 the extent provided in regulations, the preceding sentence shall not apply if the foreign trust elects to be subject to rules similar to the rules of subsection (b)(2)(B). “(B) Application of accumulation distribution rules.— For purposes of applying section 668 in a case to which subparagraph (A) applies, the applicable number of years for purposes of section 668(a) shall be ½ of the number ofyears the trust has been in existence. “(d) Special Rules.— “(1) Determination of whether united states person makes transfer or receives distribution.— For purposes of this section, in determining whether a United States person makes a transfer to, or receives a distribution from, a foreign trust, the fact that a portion of such trust is treated as owned by another person under the rules of subpart E of part I of subchapter J of chapter 1 shall be disregarded. “(2) Domestic trusts with foreign activities.— To the extent provided in regulations, a trust which is a United States person shall be treated as a foreign trust for purposes of this section and section 6677 if such trust has substantial activities, or holds substantial property, outside the United States. “(3) Time and manner of filing information.— Any notice or return required under this section shall be made at such time and in such manner as the Secretary shall prescribe. “(4) Modification of return requirements.— The Secretary is authorized to suspend or modify any requirement of this section if the Secretary determines that the United States has no significant tax interest in obtaining the required information.”. (b) Increased Penalties.— Section 6677 (relating to failure to file information returns with respect to certain foreign trusts) is amended to read as follows: “SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS. “(a) Civil Penalty.— In addition to any criminal penalty provided by law, if any notice or return required to be filed by section 6048— “(1) is not filed on or before the time provided in such section, or “(2) does not include all the information required pursuant to such section or includes incorrect information, the person required to file such notice or return shall pay a penalty equal to 35 percent of the gross reportable amount. If any failure described in the preceding sentence continues for more than 90 days after the day on which the Secretary mails notice of such failure to the person required to pay such penalty, such person shall pay a penalty (in addition to the amount determined under the preceding sentence) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount. “(b) Special Rules for Returns Under Section 6048(B).— In the case of a return required under section 6048(b)— “(1) the United States person referred to in such section shall be liable for the penalty imposed by subsection (a), and 110 STAT. 1908 “(2) subsection (a) shall be applied by substituting ‘5 percent’ for ‘35 percent’. “(c) Gross Reportable Amount.— For purposes of subsection (a), the term ‘gross reportable amount’ means— “(1) the gross value of the property involved in the event (determined as of the date of the event) in the case of a failure relating to section 6048(a), “(2) the gross value of the portion of the trust’s assets at the close of the year treated as owned by the United States person in the case of a failure relating to section 6048(b)(1), and “(3) the gross amount of the distributions in the case of a failure relating to section 6048(c). “(d) Reasonable Cause Exception.— No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause. “(e) Deficiency Procedures Not to Apply.— Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).”. (c) Conforming Amendments.— (1) Paragraph (2) of section 6724(d) is amended by striking “or” at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting “, or”, and by inserting after subparagraph (T) the following new subparagraph: “(U) section 6048(b)(1)(B) (relating to foreign trust reporting requirements).”. (2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6048 and inserting the following new item: “Sec. 6048. Information with respect to certain foreign trusts.”. (3) The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6677 and inserting the following new item: “Sec. 6677. Failure to file information with respect to certain foreign trusts.”. (d) Effective Dates.— (1) Reportable events.— To the extent related to subsection (a) of section 6048 of the Internal Revenue Code of 1986, as amended by this section, the amendments made by this section shall apply to reportable events (as defined in such section 6048) occurring after the date of the enactment of this Act. (2) Grantor trust reporting.— To the extent related to subsection (b) of such section 6048, the amendments made by this section shall apply to taxable years of United States persons beginning after December 31, 1995. (3) Reporting by united states beneficiaries.— To the extent related to subsection (c) of such section 6048, the amendments made by this section shall apply to distributions received after the date of the enactment of this Act.