Information reporting on transactions with foreign trusts and large foreign gifts, transactions with foreign trusts

KPMG observation

• The proposed regulations generally implement rules set forth in Notice 97-34, Rev. Proc. 2015-55, and Rev. Proc. 2020-17, with certain additions and other modifications. For example, the proposed regulations generally follow the exceptions provided under Rev. Proc. 2020-17, but have modified these rules to address comments received concerning the applicable contribution limitation thresholds and rules for tax-favored foreign retirement trusts that may allow limited contributions of unearned income, and have expanded this exception to apply to “tax-favored foreign de minimis savings trust.”      
• Similar to the regulations under section 6038D, the proposed regulations provide special rules for a “dual resident taxpayer” (a foreign national who is considered a resident of the United States pursuant to the internal laws of the United States and also a resident of a treaty country pursuant to the treaty partner's internal laws who computes U.S. income tax liability as a nonresident alien and complies with certain filing requirements). Under the proposed regulations, a dual resident taxpayer is generally not treated as a U.S. person for any portion of the year the dual status taxpayer is treated as a nonresident alien.
• The proposed regulations include the rules under Notice 97-34 that U.S. persons are required to report a foreign gift from a foreign individual or estate only if the aggregate amount of foreign gifts from that foreign individual or foreign estate exceeds $100,000 during the U.S. person’s tax year, but consistent with the general rule under sections 6039F(a) and (d), U.S. persons must report foreign gifts from a foreign corporation or partnership if the aggregate value of such gifts during any tax year exceeds $10,000, as modified by cost-of-living adjustments. Unlike Notice 97-34, however, the proposed regulations would adjust the $100,000 threshold for reporting foreign gifts from foreign individuals or estates for cost-of-living adjustments.