Section 679 and U.S. Transfers to Foreign Trusts
Section 679 can treat a U.S. transferor as owner of the portion of a foreign trust tied to transferred property. The rules also address possible benefits for a U.S. person, including interests that depend on a future event.
When Section 679 applies
Section 679 generally treats a U.S. transferor as owner of the trust portion attributable to property transferred when a U.S. beneficiary may benefit from any portion of the foreign trust. The regulation defines a U.S. transferor as a U.S. person who transfers property to a foreign trust. The ownership rule applies even if the transferor retains no power or interest described in Sections 673 through 677.[1]
The relevant portion is tied to the property transferred. The test applies to the extent trust income or corpus may benefit a U.S. person under the trust terms during the taxable year. It also includes the possibility that the trust terminates during that year.[2]
A U.S. beneficiary is not limited to someone who receives a distribution. The regulation's definition includes a person who may receive income or corpus, or for whose benefit it may be accumulated, directly or indirectly. It covers possible payment during the trust term or upon termination.[2]
How possible interests are counted
The determination looks at whether payment or accumulation may occur, not whether the U.S. person actually receives money or property during the year. The regulation also counts an interest that depends on a future event. A contingent interest therefore remains relevant to whether the trust may benefit a U.S. person.[2]
The trust terms may give a person discretion to distribute income or corpus. In that situation, the trust is treated as having a U.S. beneficiary unless the trust terms specifically identify the class of possible recipients and none of those persons is a U.S. person during the taxable year.[2]
A separate rule addresses arrangements connected to a transfer. If a U.S. person who directly or indirectly transfers property is involved in an agreement or understanding that may result in trust income or corpus benefiting a U.S. person, the agreement or understanding is treated as a trust term.[2]
The rule has exceptions. The ownership treatment applies unless an exception in Section 1.679-4 applies to the transfer.
What ownership means for U.S. reporting
Transfers by a U.S. person to a foreign trust are reported on Part I of Form 3520. The information helps the IRS determine whether the person is treated as an owner under Section 679. This reporting point is distinct from the ownership test itself.[2]
The rule also addresses overlap with another ownership provision. If another person would be treated as owner of the same trust portion under Section 678, the U.S. transferor is treated as its owner and the other person is not treated as owner of that portion.[1]
Questions and answers
Does a U.S. person need to receive a distribution for Section 679 to apply?
No. The determination asks whether trust income or corpus may be paid or accumulated for a U.S. person's benefit. It is made without regard to whether an actual distribution occurs during the year.[2]
Can a contingent interest count as a U.S. beneficiary interest?
Yes. An amount may be treated as accumulated for a U.S. person's benefit even when that person's interest depends on a future event. The possibility remains relevant to the Section 679 determination.[2]
Does the rule look at what happens if the trust ends during the year?
Yes. The test includes whether income or corpus could benefit a U.S. person if the trust were terminated during the taxable year. That possibility forms part of the determination.[2]
What portion of the trust can the transferor be treated as owning?
The regulation ties ownership to the portion attributable to the transferred property. It applies when there is a U.S. beneficiary of any portion, subject to an applicable exception.[1]
Where are U.S. transfers to foreign trusts reported?
A U.S. person's transfers to a foreign trust are reported on Part I of Form 3520. That information supports the IRS determination of ownership under Section 679.[2]
Related resources
Related glossary terms
- Power to control beneficial enjoyment: Section 674 describes when control over trust benefits causes a grantor to be treated as owner of a trust portion. The rule concerns beneficial enjoyment.
- Power to revoke: Section 676 defines a power to revest trust property in the grantor. When the power applies, the grantor is treated as owner of the covered trust portion.
- Grantor: Form 3520 describes a grantor as a person who creates a trust, transfers property to it without full value, or is treated as an owner under specified rules.
Related articles and guides
- 26 U.S.C. § 679, foreign trusts with U.S. beneficiaries: 26 U.S.C. § 679 sets an ownership rule for foreign trusts with U.S. beneficiaries, defines a U.S. beneficiary and is linked to section 6048 reporting.
- Grantor and nongrantor trust taxation: U.S. income tax rules distinguish grantor and nongrantor trusts for U.S. citizens. Sections 671 through 679 may assign ownership of all or part of a trust.
Tools and official documents
- Form 926: transfers of property to a foreign corporation: Form 926 reports a U.S. transferor's transfer of property to a foreign corporation: reporting scope, definitions, required information and filing timing.
Related pages
Sources and data notes
- law.cornell.edu, 26 CFR § 1.679-1, U.S. transferor treated as owner of foreign trust. https://www.law.cornell.edu/cfr/text/26/1.679-1. Retrieved .
- govinfo.gov, Federal Register, Volume 89 Issue 90 (Wednesday, May 8, 2024). https://www.govinfo.gov/content/pkg/FR-2024-05-08/html/2024-09434.htm. Retrieved .
- thetaxadviser.com, Keeping Up With Increasingly Mobile Clients: Navigating U.S. Tax Reporting for U.S. Persons With Ties to Foreign Trusts. https://www.thetaxadviser.com/issues/2014/oct/tax-clinic-02-oct-2014/. Retrieved .
- floridabar.org, Pre-Immigration Planning with the Foreign Trust: The Intersection of Income and Estate Tax, The Florida Bar. https://www.floridabar.org/the-florida-bar-journal/pre-immigration-planning-with-the-foreign-trust-the-intersection-of-income-and-estate-tax/. Retrieved .
- wiggin.com, U.S. Income Taxation of Foreign Trusts, Beware!, Wiggin and Dana LLP. https://www.wiggin.com/publication/u-s-income-taxation-of-foreign-trusts-beware/. Retrieved .
- picpa.org, Foreign Trusts: Income Tax and the U.S. Grantor. https://www.picpa.org/professional-resources/research-publications/cpa-now-blog-archive/cpa-now/2023/08/23/foreign-trusts-income-tax-and-grantors. Retrieved .
- withersworldwide.com, Bringing Home the (Canadian) Bacon: U.S. Tax and Canadian Retirement Plans | Withers. https://www.withersworldwide.com/en-gb/insight/read/bringing-home-the-canadian-bacon-u-s-tax-and-canadian-retirement-plans. Retrieved .
Dates in this block record when each source was read for this page.