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US Internal Revenue Service: 10852200

US Internal Revenue Service: 10852200

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Published by: IRS on Nov 30, 2007
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06/07/2010

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4830-01-u]DEPARTMENT OF TREASURY26 CFR Part 1[REG-108522-00]RIN 1545-AY25Recognition of Gain on Certain Transfers to Certain ForeignTrusts and EstatesAGENCY: Internal Revenue Service (IRS), Treasury.ACTION: Notice of proposed rulemaking and notice of publichearing.SUMMARY: This document contains proposed regulations undersection 684 of the Internal Revenue Code relating to recognitionof gain on certain transfers to certain foreign trusts andestates. The proposed regulations affect United States personswho transfer property to foreign trusts and estates. Thisdocument also provides notice of a public hearing on theseproposed regulations.DATES: Written or electronic comments must be received byNovember 6, 2000. Requests to speak (with outlines of oralcomments to be discussed) at the public hearing scheduled forNovember 8, 2000
,
must be submitted by October 18, 2000.ADDRESSES: Send submissions to: CC:MSP:RU (REG-108522-00), room5226, Internal Revenue Service, PO Box 7604, Ben FranklinStation, Washington, DC 20044. Submissions may be hand deliveredMonday through Friday between the hours of 8 a.m. and 5 p.m. to:CC:MSP:RU (REG-108522-00), Courier’s Desk, Internal Revenue
 
2Service, 1111 Constitution Avenue, NW., Washington, DC.Alternatively, taxpayers may submit comments electronically via
the Internet by selecting the
Tax Regs
option on the IRS HomePage, or by submitting comments directly to the IRS Internet siteat: The publichearing will be held in Room
 
3313, Internal Revenue Building,1111 Constitution Ave., NW., Washington, DC.FOR FURTHER INFORMATION CONTACT: Concerning the regulations,Karen A. Rennie Quarrie at (202) 622-3880; concerning thesubmissions and hearing, Sonya M. Cruse at (202) 622-7180 (nottoll-free numbers).SUPPLEMENTARY INFORMATION:
Background
Section 684 of the Internal Revenue Code (Code) was added bySection 1131(b) of the Taxpayer Relief Act of 1997 (the Act),Public Law 105-34 (111 Stat. 788)(August 5, 1997). The additionaffects the transfer of property by United States persons tocertain foreign trusts and foreign estates.1. Prior LawPrior to the enactment of section 684, section 1491, withcertain exceptions, imposed a 35-percent excise tax on transfersof property by a United States person to a foreign trust orestate. Section 1491 applied to all transfers of appreciatedproperty whether or not at fair market value and whether or not
 
3the transfer was made with donative intent. The excise tax wasintended to curtail transfers of appreciated property to foreigntrusts, because a foreign trust could dispose of the property andinvest the proceeds of the sale outside the United States withoutincurring any U.S. tax. If the excise tax applied, the foreigntrust could not increase the basis of the property contributed tothe trust. Under section 1492(3), the U.S. transferor could makean election under section 1057 to treat a transfer of appreciatedproperty to a foreign trust as a sale or exchange of suchproperty and pay an income tax instead of an excise tax on thegain.2. Overview of ChangesSection 1131 of the Act repealed sections 1491 through 1494and section 1057 of the Code and enacted section 684. In sodoing, Congress eliminated the excise tax on transfers ofappreciated property to foreign trusts and foreign estates infavor of an income tax on transfers of appreciated property toforeign trusts and foreign estates. Unlike previous law,however, Congress provided explicit regulatory authority to makeexceptions to the mandatory tax on such transfers. Theseregulations explain the application of section 684 and providecertain exceptions from its application.Pursuant to section 684(a) of the Code, any transfer ofproperty by a U.S. person to a foreign trust or estate is treatedas a taxable disposition of the property, except to the extent

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