1994 U.S. Code
Title 26 - INTERNAL REVENUE CODE
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter J - Estates, Trusts, Beneficiaries, and Decedents
PART I - ESTATES, TRUSTS, AND BENEFICIARIES
Subpart E - Grantors and Others Treated as Substantial Owners
Sec. 672 - Definitions and rules

View Metadata

§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 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) Special rule where grantor is foreign person (1) In general

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 transfers of property by gift (directly or indirectly) 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).

(2) Regulations

The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.

(Aug. 16, 1954, ch. 736, 68A Stat. 226; Oct. 22, 1986, Pub. L. 99–514, title XIV, §1401(a), 100 Stat. 2711; Nov. 10, 1988, Pub. L. 100–647, title I, §1014(a)(1), 102 Stat. 3559; Nov. 5, 1990, Pub. L. 101–508, title XI, §11343(a), 104 Stat. 1388–472.)

Amendments

1990—Subsec. (f). Pub. L. 101–508 added subsec. (f).

1988—Subsec. (e). Pub. L. 100–647 amended subsec. (e) generally. Prior to amendment, subsec. (e) read as follows: “For purposes of this subpart, if a grantor's spouse is living with the grantor at the time of the creation of any power or interest held by such spouse, the grantor shall be treated as holding such power or interest.”

1986—Subsec. (e). Pub. L. 99–514 added subsec. (e).

Effective Date of 1990 Amendment

Section 11343(b) of Pub. L. 101–508 provided that: “The amendments made by this section [amending this section] shall apply to—

“(1) any trust created after the date of the enactment of this Act [Nov. 5, 1990], and

“(2) any portion of a trust created on or before such date which is attributable to amounts contributed to the trust after such date.”

Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1986 Amendment

Section 1401(b) of Pub. L. 99–514 provided that: “The amendment made by this section [amending this section] shall apply with respect to transfers in trust made after March 1, 1986.”

Section Referred to in Other Sections

This section is referred to in sections 674, 675, 678 of this title.