Page:United States Statutes at Large Volume 110 Part 3.djvu/181

 PUBLIC LAW 104-188—AUG. 20, 1996 110 STAT. 1911 (1) Subsection (f) of section 672 (relating to special rule where grantor is foreign person) is amended to read as follows: "(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 apply- ing section 1296. "(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. —I f^ "(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

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