26 U.S.C. § 672 : US Code - Section 672: Definitions and rules

Search 26 U.S.C. § 672 : US Code - Section 672: Definitions and rules

(a) Adverse party
For purposes of this subpart, the term "adverse party" means any
person having a substantial beneficial interest in the trust which
would be adversely affected by the exercise or nonexercise of the
power which he possesses respecting the trust. A person having a
general power of appointment over the trust property shall be
deemed to have a beneficial interest in the trust.
(b) Nonadverse party
For purposes of this subpart, the term "nonadverse party" means
any person who is not an adverse party.
(c) Related or subordinate party
For purposes of this subpart, the term "related or subordinate
party" means any nonadverse party who is -
(1) the grantor's spouse if living with the grantor;
(2) any one of the following: The grantor's father, mother,
issue, brother or sister; an employee of the grantor; a
corporation or any employee of a corporation in which the stock
holdings of the grantor and the trust are significant from the
viewpoint of voting control; a subordinate employee of a
corporation in which the grantor is an executive.
For purposes of subsection (f) and sections 674 and 675, a related
or subordinate party shall be presumed to be subservient to the
grantor in respect of the exercise or nonexercise of the powers
conferred on him unless such party is shown not to be subservient
by a preponderance of the evidence.
(d) Rule where power is subject to condition precedent
A person shall be considered to have a power described in this
subpart even though the exercise of the power is subject to a
precedent giving of notice or takes effect only on the expiration
of a certain period after the exercise of the power.
(e) Grantor treated as holding any power or interest of grantor's
spouse
(1) In general
For purposes of this subpart, a grantor shall be treated as
holding any power or interest held by -
(A) any individual who was the spouse of the grantor at the
time of the creation of such power or interest, or
(B) any individual who became the spouse of the grantor after
the creation of such power or interest, but only with respect
to periods after such individual became the spouse of the
grantor.
(2) Marital status
For purposes of paragraph (1)(A), an individual legally
separated from his spouse under a decree of divorce or of
separate maintenance shall not be considered as married.
(f) Subpart not to result in foreign ownership
(1) In general
Notwithstanding any other provision of this subpart, this
subpart shall apply only to the extent such application results
in an amount (if any) being currently taken into account
(directly or through 1 or more entities) under this chapter in
computing the income of a citizen or resident of the United
States or a domestic corporation.
(2) Exceptions
(A) Certain revocable and irrevocable trusts
Paragraph (1) shall not apply to any portion of a trust if -
(i) the power to revest absolutely in the grantor title to
the trust property to which such portion is attributable is
exercisable solely by the grantor without the approval or
consent of any other person or with the consent of a related
or subordinate party who is subservient to the grantor, or
(ii) the only amounts distributable from such portion
(whether income or corpus) during the lifetime of the grantor
are amounts distributable to the grantor or the spouse of the
grantor.
(B) Compensatory trusts
Except as provided in regulations, paragraph (1) shall not
apply to any portion of a trust distributions from which are
taxable as compensation for services rendered.
(3) Special rules
Except as otherwise provided in regulations prescribed by the
Secretary -
(A) a controlled foreign corporation (as defined in section
957) shall be treated as a domestic corporation for purposes of
paragraph (1), and
(B) paragraph (1) shall not apply for purposes of applying
section 1297.
(4) Recharacterization of purported gifts
In the case of any transfer directly or indirectly from a
partnership or foreign corporation which the transferee treats as
a gift or bequest, the Secretary may recharacterize such transfer
in such circumstances as the Secretary determines to be
appropriate to prevent the avoidance of the purposes of this
subsection.
(5) Special rule where grantor is foreign person
If -
(A) but for this subsection, a foreign person would be
treated as the owner of any portion of a trust, and
(B) such trust has a beneficiary who is a United States
person,
such beneficiary shall be treated as the grantor of such portion
to the extent such beneficiary has made (directly or indirectly)
transfers of property (other than in a sale for full and adequate
consideration) to such foreign person. For purposes of the
preceding sentence, any gift shall not be taken into account to
the extent such gift would be excluded from taxable gifts under
section 2503(b).
(6) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations providing that paragraph (1)
shall not apply in appropriate cases.