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IRS guidance provides reporting exemption for certain foreign trusts

March 3, 2020 / 3 min read

With Rev. Proc. 2020-17, the IRS issued guidance that exempts certain U.S. citizens and residents from certain information reporting requirements for some foreign trusts.

The IRS has issued guidance that:

The guidance is effective as of the date the revenue procedure is published in the Internal Revenue Bulletin, and applies to all prior open tax years, subject to the limitations under Code Sec. 6511.

Information reporting on foreign trusts

Code Sec. 6048 generally requires annual information reporting of a U.S. person’s transfers of money or other property to, ownership of, and distributions from, foreign trusts. Reporting is not required, however, for transactions with foreign compensatory trusts described in Code Secs. 402(b), 404(a)(4), or 404A. Further, the IRS is authorized to suspend or modify any Code Sec. 6048 reporting requirement if the United States has no significant tax interest in obtaining the required information.

The Treasury Department and IRS have determined that U.S. individuals should be exempt from the Code Sec. 6048 reporting requirement for certain tax-favored foreign trusts.

Reporting relief

The Treasury Department and IRS have determined that U.S. individuals should be exempt from the Code Sec. 6048 reporting requirement for certain tax-favored foreign trusts because:

A foreign trust covered by this guidance is a trust established under a foreign jurisdiction’s law to operate exclusively or almost exclusively to provide, or earn income for the provision of, either pension or retirement benefits and ancillary or incidental benefits (i.e., a foreign retirement trust), or medical, disability, or educational benefits (i.e., a foreign nonretirement savings trust). To be eligible for coverage, the foreign trust must meet other requirements listed in the guidance that have been established by the laws of the trust’s jurisdiction.

An eligible individual:

Penalty relief

Eligible individuals who have been assessed a penalty for failing to comply with Code Sec. 6048 for an applicable tax-favored foreign trust and want relief must complete Form 843, Claim for Refund and Request for Abatement. The individual must write “Relief pursuant to Revenue Procedure 2020-17” on Line 7 of the form, and include an explanation of how the individual and the foreign trust meet the requirements set forth in the guidance. The form should be mailed to Internal Revenue Service, Ogden, UT 84201-0027.

Scope

This guidance does not affect:

Proposed regs

The Treasury Department and the IRS intend to issue proposed regulations that would modify the information reporting requirements to exclude eligible individuals’ transactions with, or ownership of, applicable tax-favored foreign trusts. The Treasury and IRS request comments about these and other similar types of foreign trusts that should be considered for an exemption from Code Sec. 6048 reporting.

The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.

©2020 CCH Incorporated and its affiliates. All rights reserved.

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