RESIDENCE OF TRUSTS, ETC.

SEC. 1907. RESIDENCE OF TRUSTS, ETC. (a) Treatment as United States Person.— (1) In general.— Paragraph (30) of section 7701(a) is amended by striking “and” at the end of subparagraph (C) and by striking subparagraph (D) and by inserting the following new subparagraphs: “(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and “(E) any trust if— “(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and “(ii) one or more United States fiduciaries have the authority to control all substantial decisions of the trust.”. (2) Conforming amendment.— Paragraph (31) of section 7701(a) is amended to read as follows: “(31) Foreign estate or trust.— “(A) Foreign estate.— The term ‘foreign estate’ means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A. “(B) Foreign trust.— The term ‘foreign trust’ means any trust other than a trust described in subparagraph (E) of paragraph (30).”. (3) Effective date.— The amendments made by this subsection 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.”. 110 STAT. 1917 (2) Effective date.— The amendment made by this subsection shall take effect on the date of the enactment of this Act.