---
kind: "range"
citation: "26 C.F.R. §§ 1.679-1–1.679-7"
title: "26"
from: "1.679-1"
to: "1.679-7"
count: 7
url: "https://uscodex.org/cfr/26/1.679-1..1.679-7"
---

# §1.679-1. U.S. transferor treated as owner of foreign trust.

- (a) **In general.** A U.S. transferor who transfers property to a foreign trust is treated as the owner of the portion of the trust attributable to the property transferred if there is a U.S. beneficiary of any portion of the trust, unless an exception in [§ 1.679-4](/cfr/26/1.679-4.md) applies to the transfer.
- (b) **Interaction with sections 673 through 678.** The rules of this section apply without regard to whether the U.S. transferor retains any power or interest described in [sections 673 through 677](/cfr/26/673..677.md). If a U.S. transferor would be treated as the owner of a portion of a foreign trust pursuant to the rules of this section and another person would be treated as the owner of the same portion of the trust pursuant to [section 678](/cfr/26/678.md), then the U.S. transferor is treated as the owner and the other person is not treated as the owner.
- (c) **Definitions.** The following definitions apply for purposes of this section and [§§ 1.679-2 through 1.679-7](/cfr/26/1.679-2..1.679-7.md):
  - (1) **U.S. transferor.** The term U.S. transferor means any U.S. person who makes a transfer (as defined in [§ 1.679-3](/cfr/26/1.679-3.md)) of property to a foreign trust.
  - (2) **U.S. person.** The term U.S. person means a United States person as defined in [section 7701(a)(30)](/cfr/26/7701.md?p=a-30), a nonresident alien individual who elects under [section 6013(g)](/cfr/26/6013.md?p=g) to be treated as a resident of the United States, and an individual who is a dual resident taxpayer within the meaning of [§ 301.7701(b)-7(a)](/cfr/26/301.7701..7.md) of this chapter.
  - (3) **Foreign trust.** [Section 7701(a)(31)(B)](/cfr/26/7701.md?p=a-31-B) defines the term foreign trust. See also [§ 301.7701-7](/cfr/26/301.7701-7.md) of this chapter.
  - (4) **Property.** The term property means any property including cash.
  - (5) **Related person.** A person is a related person if, without regard to the transfer at issue, the person is—
    - (i) A grantor of any portion of the trust (within the meaning of [§ 1.671-2(e)(1)](/cfr/26/1.671-2.md?p=e-1));
    - (ii) An owner of any portion of the trust under [sections 671 through 679](/cfr/26/671..679.md);
    - (iii) A beneficiary of the trust; or
    - (iv) A person who is related (within the meaning of [section 643(i)(2)(B)](/cfr/26/643.md?p=i-2-B)) to any grantor, owner or beneficiary of the trust.
  - (6) **Obligation.** The term obligation means any bond, note, debenture, certificate, bill receivable, account receivable, note receivable, open account, or other evidence of indebtedness, and, to the extent not previously described, any annuity contract.
- (d) **Examples.** The following examples illustrate the rules of [paragraph (a)](#a) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's father, who is a resident alien, D is A's uncle, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:

# §1.679-2. Trusts treated as having a U.S. beneficiary.

- (a) **Existence of U.S. beneficiary—**
  - (1) **In general.** The determination of whether a foreign trust has a U.S. beneficiary is made on an annual basis. A foreign trust is treated as having a U.S. beneficiary unless during the taxable year of the U.S. transferor—
    - (i) No part of the income or corpus of the trust may be paid or accumulated to or for the benefit of, directly or indirectly, a U.S. person; and
    - (ii) If the trust is terminated at any time during the taxable year, no part of the income or corpus of the trust could be paid to or for the benefit of, directly or indirectly, a U.S. person.
  - (2) **Benefit to a U.S. person—**
    - (i) **In general.** For purposes of [paragraph (a)(1)](#a-1) of this section, income or corpus may be paid or accumulated to or for the benefit of a U.S. person during a taxable year of the U.S. transferor if during that year, directly or indirectly, income may be distributed to, or accumulated for the benefit of, a U.S. person, or corpus may be distributed to, or held for the future benefit of, a U.S. person. This determination is made without regard to whether income or corpus is actually distributed to a U.S. person during that year, and without regard to whether a U.S. person's interest in the trust income or corpus is contingent on a future event.
    - (ii) **Certain unexpected beneficiaries.** Notwithstanding [paragraph (a)(2)(i)](#a-2-i) of this section, for purposes of [paragraph (a)(1)](#a-1) of this section, a person who is not named as a beneficiary and is not a member of a class of beneficiaries as defined under the trust instrument is not taken into consideration if the U.S. transferor demonstrates to the satisfaction of the Commissioner that the person's contingent interest in the trust is so remote as to be negligible. The preceding sentence does not apply with respect to persons to whom distributions could be made pursuant to a grant of discretion to the trustee or any other person. A class of beneficiaries generally does not include heirs who will benefit from the trust under the laws of intestate succession in the event that the named beneficiaries (or members of the named class) have all deceased (whether or not stated as a named class in the trust instrument).
    - (iii) **Examples.** The following examples illustrate the rules of paragraphs [(a)(1)](#a-1) and [(2)](#a-2) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's daughter, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:
  - (3) **Changes in beneficiary's status—**
    - (i) **In general.** For purposes of [paragraph (a)(1)](#a-1) of this section, the possibility that a person that is not a U.S. person could become a U.S. person will not cause that person to be treated as a U.S. person for purposes of [paragraph (a)(1)](#a-1) of this section until the tax year of the U.S. transferor in which that individual actually becomes a U.S. person. However, if a person who is not a U.S. person becomes a U.S. person for the first time more than 5 years after the date of a transfer to the foreign trust by a U.S. transferor, that person is not treated as a U.S. person for purposes of applying [paragraph (a)(1)](#a-1) of this section with respect to that transfer.
    - (ii) **Examples.** The following examples illustrate the rules of [paragraph (a)(3)](#a-3) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's daughter, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:
  - (4) **General rules—**
    - (i) **Records and documents.** Even if, based on the terms of the trust instrument, a foreign trust is not treated as having a U.S. beneficiary within the meaning of [paragraph (a)(1)](#a-1) of this section, the trust may nevertheless be treated as having a U.S. beneficiary pursuant to [paragraph (a)(1)](#a-1) of this section based on the following—
      - (A) All written and oral agreements and understandings relating to the trust;
      - (B) Memoranda or letters of wishes;
      - (C) All records that relate to the actual distribution of income and corpus; and
      - (D) **All other documents that relate to the trust, whether or not of any purported legal effect.**
    - (ii) **Additional factors.** For purposes of determining whether a foreign trust is treated as having a U.S. beneficiary within the meaning of [paragraph (a)(1)](#a-1) of this section, the following additional factors are taken into account—
      - (A) If the terms of the trust instrument allow the trust to be amended to benefit a U.S. person, all potential benefits that could be provided to a U.S. person pursuant to an amendment must be taken into account;
      - (B) If the terms of the trust instrument do not allow the trust to be amended to benefit a U.S. person, but the law applicable to a foreign trust may require payments or accumulations of income or corpus to or for the benefit of a U.S. person (by judicial reformation or otherwise), all potential benefits that could be provided to a U.S. person pursuant to the law must be taken into account, unless the U.S. transferor demonstrates to the satisfaction of the Commissioner that the law is not reasonably expected to be applied or invoked under the facts and circumstances; and
      - (C) If the parties to the trust ignore the terms of the trust instrument, or if it is reasonably expected that they will do so, all benefits that have been, or are reasonably expected to be, provided to a U.S. person must be taken into account.
    - (iii) **Examples.** The following examples illustrate the rules of [paragraph (a)(4)](#a-4) of this section. In these examples, A is a resident alien, B is A's son, who is a resident alien, C is A's daughter, who is a nonresident alien, and FT is a foreign trust. The examples are as follows:
- (b) **Indirect U.S. beneficiaries—**
  - (1) **Certain foreign entities.** For purposes of [paragraph (a)(1)](#a-1) of this section, an amount is treated as paid or accumulated to or for the benefit of a U.S. person if the amount is paid to or accumulated for the benefit of—
    - (i) A controlled foreign corporation, as defined in [section 957(a)](/cfr/26/957.md?p=a);
    - (ii) A foreign partnership, if a U.S. person is a partner of such partnership; or
    - (iii) A foreign trust or estate, if such trust or estate has a U.S. beneficiary (within the meaning of [paragraph (a)(1)](#a-1) of this section).
  - (2) **Other indirect beneficiaries.** For purposes of [paragraph (a)(1)](#a-1) of this section, an amount is treated as paid or accumulated to or for the benefit of a U.S. person if the amount is paid to or accumulated for the benefit of a U.S. person through an intermediary, such as an agent or nominee, or by any other means where a U.S. person may obtain an actual or constructive benefit.
  - (3) **Examples.** The following examples illustrate the rules of this [paragraph (b)](#b). Unless otherwise noted, A is a resident alien. B is A's son and is a resident alien. FT is a foreign trust. The examples are as follows:
- (c) **Treatment of U.S. transferor upon foreign trust's acquisition or loss of U.S. beneficiary—**
  - (1) **Trusts acquiring a U.S. beneficiary.** If a foreign trust to which a U.S. transferor has transferred property is not treated as having a U.S. beneficiary (within the meaning of [paragraph (a)](#a) of this section) for any taxable year of the U.S. transferor, but the trust is treated as having a U.S. beneficiary (within the meaning of [paragraph (a)](#a) of this section) in any subsequent taxable year, the U.S. transferor is treated as having additional income in the first such taxable year of the U.S. transferor in which the trust is treated as having a U.S. beneficiary. The amount of the additional income is equal to the trust's undistributed net income, as defined in [section 665(a)](/cfr/26/665.md?p=a), at the end of the U.S. transferor's immediately preceding taxable year and is subject to the rules of [section 668](/cfr/26/668.md), providing for an interest charge on accumulation distributions from foreign trusts.
  - (2) **Trusts ceasing to have a U.S. beneficiary.** If, for any taxable year of a U.S. transferor, a foreign trust that has received a transfer of property from the U.S. transferor ceases to be treated as having a U.S. beneficiary, the U.S. transferor ceases to be treated as the owner of the portion of the trust attributable to the transfer beginning in the first taxable year following the last taxable year of the U.S. transferor during which the trust was treated as having a U.S. beneficiary (unless the U.S. transferor is treated as an owner thereof pursuant to [sections 673 through 677](/cfr/26/673..677.md)). The U.S. transferor is treated as making a transfer of property to the foreign trust on the first day of the first taxable year following the last taxable year of the U.S. transferor during which the trust was treated as having a U.S. beneficiary. The amount of the property deemed to be transferred to the trust is the portion of the trust attributable to the prior transfer to which [paragraph (a)(1)](#a-1) of this section applied. For rules regarding the recognition of gain on transfers to foreign trusts, see [section 684](/cfr/26/684.md).
  - (3) **Examples.** The rules of this [paragraph (c)](#c) are illustrated by the following examples. A is a resident alien, B is A's son, and FT is a foreign trust. The examples are as follows:

# §1.679-3. Transfers.

- (a) **In general.** A transfer means a direct, indirect, or constructive transfer.
- (b) **Transfers by certain trusts—**
  - (1) **In general.** If any portion of a trust is treated as owned by a U.S. person, a transfer of property from that portion of the trust to a foreign trust is treated as a transfer from the owner of that portion to the foreign trust.
  - (2) **Example.** The following example illustrates this [paragraph (b)](#b):
- (c) **Indirect transfers—**
  - (1) **Principal purpose of tax avoidance.** A transfer to a foreign trust by any person (intermediary) to whom a U.S. person transfers property is treated as an indirect transfer by a U.S. person to the foreign trust if such transfer is made pursuant to a plan one of the principal purposes of which is the avoidance of United States tax.
  - (2) **Principal purpose of tax avoidance deemed to exist.** For purposes of [paragraph (c)(1)](#c-1) of this section, a transfer is deemed to have been made pursuant to a plan one of the principal purposes of which was the avoidance of United States tax if—
    - (i) The U.S. person is related (within the meaning of [paragraph (c)(4)](#c-4) of this section) to a beneficiary of the foreign trust, or has another relationship with a beneficiary of the foreign trust that establishes a reasonable basis for concluding that the U.S. transferor would make a transfer to the foreign trust; and
    - (ii) The U.S. person cannot demonstrate to the satisfaction of the Commissioner that—
      - (A) The intermediary has a relationship with a beneficiary of the foreign trust that establishes a reasonable basis for concluding that the intermediary would make a transfer to the foreign trust;
      - (B) The intermediary acted independently of the U.S. person;
      - (C) The intermediary is not an agent of the U.S. person under generally applicable United States agency principles; and
      - (D) **The intermediary timely complied with the reporting requirements of section 6048, if applicable.**
  - (3) **Effect of disregarding intermediary—**
    - (i) **In general.** Except as provided in [paragraph (c)(3)(ii)](#c-3-ii) of this section, if a transfer is treated as an indirect transfer pursuant to [paragraph (c)(1)](#c-1) of this section, then the intermediary is treated as an agent of the U.S. person, and the property is treated as transferred to the foreign trust by the U.S. person in the year the property is transferred, or made available, by the intermediary to the foreign trust. The fair market value of the property transferred is determined as of the date of the transfer by the intermediary to the foreign trust.
    - (ii) **Special rule.** If the Commissioner determines, or if the taxpayer can demonstrate to the satisfaction of the Commissioner, that the intermediary is an agent of the foreign trust under generally applicable United States agency principles, the property will be treated as transferred to the foreign trust in the year the U.S. person transfers the property to the intermediary. The fair market value of the property transferred will be determined as of the date of the transfer by the U.S. person to the intermediary.
    - (iii) **Effect on intermediary.** If a transfer of property is treated as an indirect transfer under [paragraph (c)(1)](#c-1) of this section, the intermediary is not treated as having transferred the property to the foreign trust.
  - (4) **Related parties.** For purposes of this [paragraph (c)](#c), a U.S. transferor is treated as related to a U.S. beneficiary of a foreign trust if the U.S. transferor and the beneficiary are related for purposes of [section 643(i)(2)(B)](/cfr/26/643.md?p=i-2-B), with the following modifications—
    - (i) For purposes of applying [section 267](/cfr/26/267.md) (other than [section 267(f)](/cfr/26/267.md?p=f)) and [section 707(b)(1)](/cfr/26/707.md?p=b-1), “at least 10 percent” is used instead of “more than 50 percent” each place it appears; and
    - (ii) The principles of [section 267(b)(10)](/cfr/26/267.md?p=b-10), using “at least 10 percent” instead of “more than 50 percent,” apply to determine whether two corporations are related.
  - (5) **Examples.** The rules of this [paragraph (c)](#c) are illustrated by the following examples:
- (d) **Constructive transfers—**
  - (1) **In general.** For purposes of [paragraph (a)](#a) of this section, a constructive transfer includes any assumption or satisfaction of a foreign trust's obligation to a third party.
  - (2) **Examples.** The rules of this [paragraph (d)](#d) are illustrated by the following examples. In each example, A is a U.S. citizen and FT is a foreign trust. The examples are as follows:
- (e) **Guarantee of trust obligations—**
  - (1) **In general.** If a foreign trust borrows money or other property from any person who is not a related person (within the meaning of [§ 1.679-1(c)(5)](/cfr/26/1.679-1.md?p=c-5)) with respect to the trust (lender) and a U.S. person (U.S. guarantor) that is a related person with respect to the trust guarantees (within the meaning of [paragraph (e)(4)](#e-4) of this section) the foreign trust's obligation, the U.S. guarantor is treated for purposes of this section as a U.S. transferor that has made a transfer to the trust on the date of the guarantee in an amount determined under [paragraph (e)(2)](#e-2) of this section. To the extent this paragraph causes the U.S. guarantor to be treated as having made a transfer to the trust, a lender that is a U.S. person shall not be treated as having transferred that amount to the foreign trust.
  - (2) **Amount transferred.** The amount deemed transferred by a U.S. guarantor described in [paragraph (e)(1)](#e-1) of this section is the guaranteed portion of the adjusted issue price of the obligation (within the meaning of [§ 1.1275-1(b)](/cfr/26/1.1275-1.md?p=b)) plus any accrued but unpaid qualified stated interest (within the meaning of [§ 1.1273-1(c)](/cfr/26/1.1273-1.md?p=c)).
  - (3) **Principal repayments.** If a U.S. person is treated under this [paragraph (e)](#e) as having made a transfer by reason of the guarantee of an obligation, payments of principal to the lender by the foreign trust with respect to the obligation are taken into account on and after the date of the payment in determining the portion of the trust attributable to the property deemed transferred by the U.S. guarantor.
  - (4) **Guarantee.** For purposes of this section, the term guarantee—
    - (i) Includes any arrangement under which a person, directly or indirectly, assures, on a conditional or unconditional basis, the payment of another's obligation;
    - (ii) Encompasses any form of credit support, and includes a commitment to make a capital contribution to the debtor or otherwise maintain its financial viability; and
    - (iii) Includes an arrangement reflected in a comfort letter, regardless of whether the arrangement gives rise to a legally enforceable obligation. If an arrangement is contingent upon the occurrence of an event, in determining whether the arrangement is a guarantee, it is assumed that the event has occurred.
  - (5) **Examples.** The rules of this [paragraph (e)](#e) are illustrated by the following examples. In all of the examples, A is a U.S. resident and FT is a foreign trust. The examples are as follows:
- (f) **Transfers to entities owned by a foreign trust—**
  - (1) **General rule.** If a U.S. person is a related person (as defined in [§ 1.679-1(c)(5)](/cfr/26/1.679-1.md?p=c-5)) with respect to a foreign trust, any transfer of property by the U.S. person to an entity in which the foreign trust holds an ownership interest is treated as a transfer of such property by the U.S. person to the foreign trust followed by a transfer of the property from the foreign trust to the entity owned by the foreign trust, unless the U.S. person demonstrates to the satisfaction of the Commissioner that the transfer to the entity is properly attributable to the U.S. person's ownership interest in the entity.
  - (2) **Examples.** The rules of this [paragraph (f)](#f) are illustrated by the following examples. In all of the examples, A is a U.S. citizen, FT is a foreign trust, and FC is a foreign corporation. The examples are as follows:

# §1.679-4. Exceptions to general rule.

- (a) **In general.** [Section 1.679-1](/cfr/26/1.679-1.md) does not apply to—
  - (1) Any transfer of property to a foreign trust by reason of the death of the transferor;
  - (2) Any transfer of property to a foreign trust described in sections [402(b)](/cfr/26/402.md?p=b), [404(a)(4)](/cfr/26/404.md?p=a-4), or [404A](/cfr/26/404A.md);
  - (3) Any transfer of property to a foreign trust described in [section 501(c)(3)](/cfr/26/501.md?p=c-3) (without regard to the requirements of [section 508(a)](/cfr/26/508.md?p=a)); and
  - (4) **Any transfer of property to a foreign trust to the extent the transfer is for fair market value.**
- (b) **Transfers for fair market value—**
  - (1) **In general.** For purposes of this section, a transfer is for fair market value only to the extent of the value of property received from the trust, services rendered by the trust, or the right to use property of the trust. For example, rents, royalties, interest, and compensation paid to a trust are transfers for fair market value only to the extent that the payments reflect an arm's length price for the use of the property of, or for the services rendered by, the trust. For purposes of this determination, an interest in the trust is not property received from the trust. For purposes of this section, a distribution to a trust with respect to an interest held by such trust in an entity other than a trust or an interest in certain investment trusts described in [§ 301.7701-4(c)](/cfr/26/301.7701-4.md?p=c) of this chapter, liquidating trusts described in [§ 301.7701-4(d)](/cfr/26/301.7701-4.md?p=d) of this chapter, or environmental remediation trusts described in [§ 301.7701-4(e)](/cfr/26/301.7701-4.md?p=e) of this chapter is considered to be a transfer for fair market value.
  - (2) **Special rule—**
    - (i) **Transfers for partial consideration.** For purposes of this section, if a person transfers property to a foreign trust in exchange for property having a fair market value that is less than the fair market value of the property transferred, the exception in [paragraph (a)(4)](#a-4) of this section applies only to the extent of the fair market value of the property received.
    - (ii) **Example.** This [paragraph (b)](#b) is illustrated by the following example:
- (c) **Certain obligations not taken into account.** Solely for purposes of this section, in determining whether a transfer by a U.S. transferor that is a related person (as defined in [§ 1.679-1(c)(5)](/cfr/26/1.679-1.md?p=c-5)) with respect to the foreign trust is for fair market value, any obligation (as defined in [§ 1.679-1(c)(6)](/cfr/26/1.679-1.md?p=c-6)) of the trust or a related person (as defined in [§ 1.679-1(c)(5)](/cfr/26/1.679-1.md?p=c-5)) that is not a qualified obligation within the meaning of [paragraph (d)(1)](#d-1) of this section shall not be taken into account.
- (d) **Qualified obligations—**
  - (1) **In general.** For purposes of this section, an obligation is treated as a qualified obligation only if—
    - (i) The obligation is reduced to writing by an express written agreement;
    - (ii) The term of the obligation does not exceed five years (for purposes of determining the term of an obligation, the obligation's maturity date is the last possible date that the obligation can be outstanding under the terms of the obligation);
    - (iii) All payments on the obligation are denominated in U.S. dollars;
    - (iv) The yield to maturity is not less than 100 percent of the applicable Federal rate and not greater that 130 percent of the applicable Federal rate (the applicable Federal rate for an obligation is the applicable Federal rate in effect under [section 1274(d)](/cfr/26/1274.md?p=d) for the day on which the obligation is issued, as published in the Internal Revenue Bulletin (see [§ 601.601(d)(2)](/cfr/26/601.601.md?p=d-2) of this chapter));
    - (v) The U.S. transferor extends the period for assessment of any income or transfer tax attributable to the transfer and any consequential income tax changes for each year that the obligation is outstanding, to a date not earlier than three years after the maturity date of the obligation (this extension is not necessary if the maturity date of the obligation does not extend beyond the end of the U.S. transferor's taxable year for the year of the transfer and is paid within such period); when properly executed and filed, such an agreement is deemed to be consented to for purposes of [§ 301.6501(c)-1(d)](/cfr/26/301.6501..1.md) of this chapter; and
    - (vi) The U.S. transferor reports the status of the loan, including principal and interest payments, on Form 3520 for every year that the loan is outstanding.
  - (2) **Additional loans.** If, while the original obligation is outstanding, the U.S. transferor or a person related to the trust (within the meaning of [§ 1.679-1(c)(5)](/cfr/26/1.679-1.md?p=c-5)) directly or indirectly obtains another obligation issued by the trust, or if the U.S. transferor directly or indirectly obtains another obligation issued by a person related to the trust, the original obligation is deemed to have the maturity date of any such subsequent obligation in determining whether the term of the original obligation exceeds the specified 5-year term. In addition, a series of obligations issued and repaid by the trust (or a person related to the trust) is treated as a single obligation if the transactions giving rise to the obligations are structured with a principal purpose to avoid the application of this provision.
  - (3) **Obligations that cease to be qualified.** If an obligation treated as a qualified obligation subsequently fails to be a qualified obligation (e.g., renegotiation of the terms of the obligation causes the term of the obligation to exceed five years), the U.S. transferor is treated as making a transfer to the trust in an amount equal to the original obligation's adjusted issue price (within the meaning of [§ 1.1275-1(b)](/cfr/26/1.1275-1.md?p=b)) plus any accrued but unpaid qualified stated interest (within the meaning of [§ 1.1273-1(c)](/cfr/26/1.1273-1.md?p=c)) as of the date of the subsequent event that causes the obligation to no longer be a qualified obligation. If the maturity date is extended beyond five years by reason of the issuance of a subsequent obligation by the trust (or person related to the trust), the amount of the transfer will not exceed the issue price of the subsequent obligation. The subsequent obligation is separately tested to determine if it is a qualified obligation.
  - (4) **Transfers resulting from failed qualified obligations.** In general, a transfer resulting from a failed qualified obligation is deemed to occur on the date of the subsequent event that causes the obligation to no longer be a qualified obligation. However, based on all of the facts and circumstances, the Commissioner may deem a transfer to have occurred on any date on or after the issue date of the original obligation. For example, if at the time the original obligation was issued, the transferor knew or had reason to know that the obligation would not be repaid, the Commissioner could deem the transfer to have occurred on the issue date of the original obligation.
  - (5) **Renegotiated loans.** Any loan that is renegotiated, extended, or revised is treated as a new loan, and any transfer of funds to a foreign trust after such renegotiation, extension, or revision under a pre-existing loan agreement is treated as a transfer subject to this section.
  - (6) **Principal repayments.** The payment of principal with respect to any obligation that is not treated as a qualified obligation under this paragraph is taken into account on and after the date of the payment in determining the portion of the trust attributable to the property transferred.
  - (7) **Examples.** The rules of this [paragraph (d)](#d) are illustrated by the following examples. In the examples, A and B are U.S. residents and FT is a foreign trust. The examples are as follows:

# §1.679-5. Pre-immigration trusts.

- (a) **In general.** If a nonresident alien individual becomes a U.S. person and the individual has a residency starting date (as determined under [section 7701(b)(2)(A)](/cfr/26/7701.md?p=b-2-A)) within 5 years after directly or indirectly transferring property to a foreign trust (the original transfer), the individual is treated as having transferred to the trust on the residency starting date an amount equal to the portion of the trust attributable to the property transferred by the individual in the original transfer.
- (b) **Special rules—**
  - (1) **Change in grantor trust status.** For purposes of [paragraph (a)](#a) of this section, if a nonresident alien individual who is treated as owning any portion of a trust under the provisions of [subpart E](/cfr/26/subpartE.md) of part I of subchapter J, chapter 1 of the Internal Revenue Code, subsequently ceases to be so treated, the individual is treated as having made the original transfer to the foreign trust immediately before the trust ceases to be treated as owned by the individual.
  - (2) **Treatment of undistributed income.** For purposes of [paragraph (a)](#a) of this section, the property deemed transferred to the foreign trust on the residency starting date includes undistributed net income, as defined in [section 665(a)](/cfr/26/665.md?p=a), attributable to the property deemed transferred. Undistributed net income for periods before the individual's residency starting date is taken into account only for purposes of determining the amount of the property deemed transferred.
- (c) **Examples.** The rules of this section are illustrated by the following examples:

# §1.679-6. Outbound migrations of domestic trusts.

- (a) **In general.** Subject to the provisions of [paragraph (b)](#b) of this section, if an individual who is a U.S. person transfers property to a trust that is not a foreign trust, and such trust becomes a foreign trust while the U.S. person is alive, the U.S. individual is treated as a U.S. transferor and is deemed to transfer the property to a foreign trust on the date the domestic trust becomes a foreign trust.
- (b) **Amount deemed transferred.** For purposes of [paragraph (a)](#a) of this section, the property deemed transferred to the trust when it becomes a foreign trust includes undistributed net income, as defined in [section 665(a)](/cfr/26/665.md?p=a), attributable to the property previously transferred. Undistributed net income for periods prior to the migration is taken into account only for purposes of determining the portion of the trust that is attributable to the property transferred by the U.S. person.
- (c) **Example.** The following example illustrates the rules of this section. For purposes of the example, A is a resident alien, B is A's son, who is a resident alien, and DT is a domestic trust. The example is as follows:

# §1.679-7. Effective dates.

- (a) **In general.** Except as provided in [paragraph (b)](#b) of this section, the rules of §§ [1.679-1](/cfr/26/1.679-1.md), [1.679-2](/cfr/26/1.679-2.md), [1.679-3](/cfr/26/1.679-3.md), and [1.679-4](/cfr/26/1.679-4.md) apply with respect to transfers after August 7, 2000.
- (b) **Special rules.**
  - (1) The rules of § [1.679-4(c)](/cfr/26/1.679-4.md?p=c) and [(d)](/cfr/26/1.679-4.md?p=d) apply to an obligation issued after February 6, 1995, whether or not in accordance with a pre-existing arrangement or understanding. For purposes of the rules of § [1.679-4(c)](/cfr/26/1.679-4.md?p=c) and [(d)](/cfr/26/1.679-4.md?p=d), if an obligation issued on or before February 6, 1995, is modified after that date, and the modification is a significant modification within the meaning of [§ 1.1001-3](/cfr/26/1.1001-3.md), the obligation is treated as if it were issued on the date of the modification. However, the penalty provided in [section 6677](/cfr/26/6677.md) applies only to a failure to report transfers in exchange for obligations issued after August 20, 1996.
  - (2) The rules of [§ 1.679-5](/cfr/26/1.679-5.md) apply to persons whose residency starting date is after August 7, 2000.
  - (3) The rules of [§ 1.679-6](/cfr/26/1.679-6.md) apply to trusts that become foreign trusts after August 7, 2000.