AICPA Comments and Requests for Testimony on Proposed Foreign Trust Rule

The American Institute of Public Accountants (AICPA) submitted comments to the Internal Revenue Service (IRS) and the Treasury Department on proposed regulations regarding the reporting of foreign trust transactions, the receipt of large foreign gifts, and the treatment of loans and assets from foreign trusts. (REG-124850-08).

The recommendations presented will simplify filing for taxpayers and practitioners, reduce the administrative burden on the IRS, and are consistent with prior AICPA commentaries on reporting issues related to foreign trusts and foreign gifts. The AICPA has also requested testimony at an IRS hearing on the proposed regulations on August 21, 2024.

The comments submitted concern the following issues:

1. Migration of incoming foreign trust
2. Exception for Foreign Pensions and Similar Treaty-Protected Accounts
3. Clarify that the exception to section 6048 reporting for foreign tax-advantaged pension funds, nonpension savings funds, and de minimis savings funds applies retroactively to all years during which the taxpayer holds the investment.
4. Actual calculation method and default calculation method
5. Original and extended payment dates for Form 3520
6. Establish that the due date for filing the statements for a foreign beneficiary of a non-beneficiary trust and for a foreign beneficiary of a trust for corporate beneficiaries who are beneficiaries of a corporate trust is the due date for the beneficiary’s tax return.
7. Introduce administrative relief into regulations or procedures, including requiring (i) a just cause review prior to assessing a penalty and (ii) a first abatement (FTA) for section 6677 and 6039F penalties.
8. Providing guidance on the classification of certain foreign trusts and entities organized under foreign or civil law.
9. Explain how the spousal attribution rule in section 672(e) applies to the contents of section 672(f).
10. Distributions, deemed distributions and related party lending transactions
11. Valuation of Foreign Gifts for International Information Reporting Purposes
12. Add an example to Prop. Reg. § 1.6048-6(a)(1) that reminds taxpayers that although the reporting requirements are waived for dual resident taxpayers, they are not waived for other taxpayers that enter into transactions with the same foreign trust.
13. Amending the regulations to exempt foreign trusts that elect to be treated as estates under section 645 from the filing requirement under section 6048.

“Practitioners have been seeking guidance in this area for more than 25 years,” said Eileen Sherr, director of tax policy and advocacy at the AICPA. “The AICPA has been in dialogue with the IRS on foreign trust reporting and penalty issues for many years and plans to testify at the IRS hearing to further emphasize our thinking on several important issues.”