AICPA Comments and Requests to Testify on Foreign Trust Proposed Regulations

The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) and Treasury on proposed regulations regarding reporting transactions with foreign trusts, receiving large foreign gifts, and dealing with loans and property from foreign trusts. (REG-124850-08).

The submitted recommendations will simplify filing for taxpayers and practitioners, reduce the administrative burden on the IRS, and are consistent with and in addition to AICPA’s prior comments on foreign trust and foreign gift reporting issues. The AICPA has also requested to testify at the Aug. 21, 2024 IRS hearing on the proposed regulations.

The submitted comments cover the following issues:

1. Inbound foreign trust migration
2. Exception for treaty protected foreign pensions and similar accounts
3. Clarify that the section 6048 reporting exception for tax-favored foreign retirement trusts, nonretirement savings trusts, and de minimis savings trusts, shall apply retroactively to all years in the taxpayer’s holding period of that investment.
4. Actual calculation method and default calculation method
5. Original and extended due dates for Form 3520 
6. Provide that the deadline for Foreign Nongrantor Trust Beneficiary statements and Foreign-Owned Grantor Trust Beneficiary statements is the due date of the beneficiary’s income tax return.
7. Incorporate into the regulations or administrative procedures, administrative relief including mandating (i) review of reasonable cause prior to penalty assessment, and (ii) First Time Abate (FTA) for sections 6677 and 6039F penalties.
8. Provide guidance regarding the classification of certain foreign trusts and entities organized under the laws of a foreign or civil law jurisdiction.
9. Clarify how the spousal attribution rule in section 672(e) applies in the content of section 672(f).
10. Distributions, deemed distributions, and related party loan transactions
11. Valuing foreign gifts for purposes of international information reporting
12. Add an example to Prop. Reg. § 1.6048-6(a)(1) that reminds taxpayers that although reporting requirements are waived for the dual resident taxpayer, they are not waived for other taxpayers who have transactions with the same foreign trust.
13. Modify the regulations to exclude foreign trusts electing to be treated as an estate under section 645 from the filing requirements of section 6048.

“Practitioners have needed guidance in this area for more than 25 years,” said Eileen Sherr, AICPA’s director of Tax Policy & Advocacy. “The AICPA has been engaged in dialogue with IRS about foreign trust reporting and penalty issues for many years and plans to testify at the IRS hearing to further point out our thoughts on several important issues.”