Td 8633

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the provisions of this
December 31, 1996.

section

by

§1.482–7T [Removed]
Par. 4. Section 1.482–7T is removed.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 5. The authority for part 301
continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 6. Section 301.7701–3 is
amended by adding paragraph (e) to
read as follows:
§301.7701–3 Partnerships.
*

*

*

*

*

Section 671.—Trust Income,
Deductions, and Credit Attributable to
Grantors and Others as Substantial
Owners
26 CFR 1.671–4: Method of reporting.

T.D. 8633
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 25, 301, and 602
Grantor Trust Reporting Requirements
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.

*

(e) Qualified cost sharing arrangements. A qualified cost sharing arrangement that is described in §1.482–7
of this chapter and any arrangement
that is treated by the Service as a
qualified cost sharing arrangement under §1.482–7 of this chapter is not
classified as a partnership for purposes
of the Internal Revenue Code. See
§1.482–7 of this chapter for the proper
treatment of qualified cost sharing
arrangements.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 7. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 8. In §602.101, paragraph (c) is
amended by adding an entry to the
table in numerical order to read as
follows:
‘‘1.482–7 . . . . . . . . . . . . . 1545–1364’’.
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
Approved November 30, 1995.
Leslie Samuels,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 19, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 20, 1995, 60 F.R. 65553)

SUMMARY: This document contains
final regulations relating to the method
of reporting for trusts that are treated
as owned by grantors or other persons
under the provisions of subpart E
(section 671 and following), part I,
subchapter J, chapter 1 of the Internal
Revenue Code. These regulations are
intended to reduce the current filing
burden on trustees, to provide necessary information to grantors or other
persons treated as the owners of trusts,
to reduce any cases of duplicate filing,
and to provide more meaningful information to the IRS. These regulations
affect grantors and trustees of trusts
that are treated as owned by grantors or
other persons, as well as persons who
are required to file information returns
with respect to payments to these
trusts.
DATES: These regulations are effective
January 1, 1996.
For dates of applicability of these
regulations, see §1.671–4(h).
FOR FURTHER INFORMATION
CONTACT: Steven Schneider, (202)
622-3060 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545–1442. This infor-

20

mation is required by the IRS to insure
the proper reporting of income and
proceeds paid to a trust any portion of
which is treated as owned by the
grantor or another person.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
The estimated annual burden per
respondent is 30 minutes.
Comments concerning the accuracy
of this burden estimate and suggestions
for reducing this burden should be sent
to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer, T:FP,
Washington, DC 20224, and to the
Office of Management and Budget,
Attn: Desk Officer for the Department
of the Treasury, Office of Information
and Regulatory Affairs, Washington,
DC 20503.
Books or records relating to this
collection of information must be retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
On July 22, 1994, the IRS published
in the Federal Register a notice of
proposed rulemaking and notice of
public hearing (59 FR 37450 [PS–79–
93, 1994–2 C.B. 916]) proposing
amendments to the Income Tax Regulations (26 CFR part 1) under section
671 of the Internal Revenue Code
(Code) and to the Procedure and
Administration Regulations (26 CFR
part 301) under sections 6012 and 6109
of the Code.
Written comments responding to the
notice were received. A public hearing
was held on September 21, 1994,
pursuant to the notice published in the
Federal Register on July 22, 1994.
After consideration of all written and
oral comments regarding the proposed
amendments, those amendments are
adopted as revised by this Treasury
decision.
Explanation of provisions and
significant changes in the final
regulations
Subject to certain new limitations
under §1.671–4(b)(6) and (7), discussed

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below, §1.671–4(b) of the final regulations retains the optional alternative
methods of reporting contained in the
proposed regulations published on July
22, 1994.
Several comments were submitted requesting confirmation that the alternative methods of reporting described in
the proposed regulations are optional
and not mandatory. Section 1.671–4(b)
of the final regulations clarifies that the
trustee of a trust all of which is treated
as owned by one or more grantors or
other persons may, but is not required
to, report pursuant to one of the
alternative methods.
Certain commentators were unsure of
which persons are considered payors
for purposes of the alternative filing
methods. The final regulations define
the term payor as including any person
who is required by any provision of the
Code and the regulations thereunder to
make any type of information return
with respect to the trust for the taxable
year.
With respect to the alternative
methods of reporting, several commentators were unsure of the items and the
amounts of income that must be reported on any Forms 1099 required to
be filed by the trustee. Section 1.671–
4(b)(5) of the final regulations clarifies
that the amounts that must be included
on any Forms 1099 required to be filed
by the trustee do not include any
amounts that are reportable by the
payor on an information return other
than Form 1099.
For example, in the case of a trustee
who furnishes the name, TIN, and
address of the trust to all payors
pursuant to §1.671–4(b)(2)(i)(B) of the
final regulations, the trustee does not
include items of income attributable to
an interest in a partnership on any
Forms 1099 filed by the trustee because those items are reportable by the
partnership on Schedule K–1 of Form
1065 (reporting distributive shares to
members of a partnership). While the
statement furnished to the grantor or
other person treated as the owner of the
trust by the trustee will show all items
of income, deduction, and credit attributable to the partnership interest,
those items will not be reported to the
IRS by the trustee on any type of form.
Several commentators were unsure of
the dates by which a trustee must file
any required Forms 1099 and must
furnish any required statements to
grantors or other persons treated as

owners of the trust. Section 1.671–4(c)
of the final regulations provides that
the due date for any Forms 1099 required to be filed with the IRS by a
trustee is the due date otherwise in
effect for filing Forms 1099. Currently,
the due date is February 28 of the
following year.
Section 1.671–4(d) of the final regulations provides that the due date for
the statement required to be furnished
by a trustee to the grantor or other
person treated as an owner of the trust
is the date specified by section
6034A(a). Currently, the due date is
April 15 of the following year.
Comments were received requesting
clarification of the trustee’s obligation,
under the first of the alternative reporting methods, to furnish the name and
TIN of the grantor to all payors. The
final regulations provide that: (1) a
trustee may not report under the first
alternative reporting method unless the
grantor or other person treated as the
owner of the trust provides to the
trustee a complete Form W–9 or other
acceptable substitute form; (2) a trustee
reporting under the first alternative
reporting method acts as the agent of
the grantor or other person treated as
the owner of the trust for purposes of
furnishing backup withholding information to a payor; and (3) the payor may
rely on the name and TIN provided to
the payor by the trustee. If the Form
W–9 indicates that the grantor or other
person is subject to backup withholding, then the trustee must notify all
payors of reportable interest and dividend payments of the requirement to
backup withhold.
Comments were received requesting
clarification of the annuity and unitrust
payment dates under §25.2702–3 of the
Gift Tax Regulations for trusts electing
one of the alternative methods of reporting. The final regulations contain
conforming amendments to §25.2702–
3(b)(1)(i) and §25.2702–3(c)(1)(i).
One commentator noted the need for
more guidance concerning the reporting
requirements for widely held fixed
investment trusts. Because that guidance is outside the scope of this
regulation, the final regulations do not
provide special rules for these trusts.
However IRS and Treasury anticipate
providing guidance for these trusts in a
separate project and would welcome
comments from interested taxpayers
and practitioners regarding such
guidance.

21

Several of the comments received
with respect to the proposed regulations
emphasized the necessity of making the
trustee’s choice to report under one of
the alternative methods revocable. The
final regulations provide that a trustee
who has reported pursuant to one of the
alternative methods may report pursuant to the general rule requiring the
trustee to file a Form 1041 for any
subsequent taxable years of the trust,
provided that certain conditions are
met.
The final regulations provide that the
trustee of a trust all of which is treated
as owned by one grantor or one other
person that is an exempt recipient for
information reporting purposes may not
report under an alternative method.
However, if the trust is treated as
owned by two or more grantors or
other persons, the trustee may report
pursuant to the alternative method for
multiple grantors if (1) at least one
grantor or one other person who is
treated as an owner of the trust is a
person who is not an exempt recipient
for information reporting purposes and
(2) the trustee reports without regard to
whether any of the grantors or other
persons treated as owners of the trust
are exempt recipients for information
reporting purposes.
The final regulations also provide
that the trustee of a trust all of which is
treated as owned by one grantor or
other person whose taxable year is a
fiscal year may not report under an
alternative method. However, the
trustee of a trust that is treated as
owned by two or more grantors or
other persons may report pursuant to
the alternative method for multiple
grantors even though one or more of
the grantors or other persons treated as
an owner of the trust has a taxable year
that is the fiscal year.
In addition, the final regulations
provide that a trustee of a trust that is a
qualified subchapter S trust as defined
in section 1361(d)(3) may not report
under an alternative method.
The final regulations also provide
that the trustee of a trust may not
report under an alternative method if
any person who is treated as an owner
of the trust is not a United States
person.
Effective date and transition rule
The final regulations are effective for
taxable years beginning on or after

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January 1, 1996, subject to a requirement that certain trustees file a final
Form 1041 before adopting one of the
alternative methods of reporting. The
final regulations retain the transition
rule contained in the proposed regulations providing that, for taxable years
beginning prior to January 1, 1996, the
IRS will not challenge the manner of
reporting by trustees of certain trusts.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in EO
12866. Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not
apply to these regulations, and, therefore, a Regulatory Flexibility Analysis
is not required. Pursuant to section
7805(f) of the Code, the notice of
proposed rulemaking preceding these
regulations was submitted to the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these regulations is Robert Rio, formerly of the
Office of Assistant Chief Counsel
(Passthroughs and Special Industries),
IRS. However, other personnel from
the IRS and Treasury Department
participated in their development.
*

*

*

*

*

*

Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 25,
301, and 602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. Section 1.671–4 is revised to
read as follows:
§1.671-4 Method of reporting.
(a) Portion of trust treated as owned
by the grantor or another person.
Except as otherwise provided in para-

graph (b) of this section, items of
income, deduction, and credit attributable to any portion of a trust which,
under the provisions of subpart E
(section 671 and following), part I,
subchapter J, chapter 1 of the Internal
Revenue Code, is treated as owned by
the grantor or another person are not
reported by the trust on Form 1041, but
are shown on a separate statement to be
attached to that form.
(b) A trust all of which is treated as
owned by one or more grantors or
other persons—(1) In general. In the
case of a trust all of which is treated as
owned by one or more grantors or
other persons, and which is not described in paragraph (b)(6) or (7) of
this section, the trustee may, but is not
required to, report by one of the
methods described in this paragraph (b)
rather than by the method described in
paragraph (a) of this section. A trustee
may not report, however, pursuant to
paragraph (b)(2)(i)(A) of this section
unless the grantor or other person
treated as the owner of the trust
provides to the trustee a complete Form
W–9 or acceptable substitute Form W–
9 signed under penalties of perjury. See
section 3406 and the regulations thereunder for the information to include on,
and the manner of executing, the Form
W–9, depending upon the type of reportable payments made.
(2) A trust all of which is treated as
owned by one grantor or by one other
person—(i) In general. In the case of a
trust all of which is treated as owned
by one grantor or one other person, the
trustee reporting under this paragraph
(b) must either—
(A) Furnish the name and taxpayer
identification number (TIN) of the
grantor or other person treated as the
owner of the trust, and the address of
the trust, to all payors during the
taxable year, and comply with the
additional requirements described in
paragraph (b)(2)(ii) of this section; or
(B) Furnish the name, TIN, and address of the trust to all payors during
the taxable year, and comply with the
additional requirements described in
paragraph (b)(2)(iii) of this section.
(ii) Additional obligations of the
trustee when name and TIN of the
grantor or other person treated as the
owner of the trust and the address of
the trust are furnished to payors. (A)
Unless the grantor or other person
treated as the owner of the trust is the
trustee or a co-trustee of the trust, the

22

trustee must furnish the grantor or
other person treated as the owner of the
trust with a statement that—
(1) Shows all items of income,
deduction, and credit of the trust for
the taxable year;
(2) Identifies the payor of each item
of income;
(3) Provides the grantor or other
person treated as the owner of the trust
with the information necessary to take
the items into account in computing the
grantor’s or other person’s taxable
income; and
(4) Informs the grantor or other
person treated as the owner of the trust
that the items of income, deduction and
credit and other information shown on
the statement must be included in
computing the taxable income and
credits of the grantor or other person
on the income tax return of the grantor
or other person.
(B) The trustee is not required to file
any type of return with the Internal
Revenue Service.
(iii) Additional obligations of the
trustee when name, TIN, and address of
the trust are furnished to payors—(A)
Obligation to file Forms 1099. The
trustee must file with the Internal
Revenue Service the appropriate Forms
1099, reporting the income or gross
proceeds paid to the trust during the
taxable year, and showing the trust as
the payor and the grantor or other
person treated as the owner of the trust
as the payee. The trustee has the same
obligations for filing the appropriate
Forms 1099 as would a payor making
reportable payments, except that the
trustee must report each type of income
in the aggregate, and each item of
gross proceeds separately. See paragraph (b)(5) of this section regarding
the amounts required to be included on
any Forms 1099 filed by the trustee.
(B) Obligation to furnish statement.
(1) Unless the grantor or other person
treated as the owner of the trust is the
trustee or a co-trustee of the trust, the
trustee must also furnish to the grantor
or other person treated as the owner of
the trust a statement that—
(i) Shows all items of income, deduction, and credit of the trust for the
taxable year;
(ii) Provides the grantor or other
person treated as the owner of the trust
with the information necessary to take
the items into account in computing the
grantor’s or other person’s taxable
income; and

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(iii) Informs the grantor or other
person treated as the owner of the trust
that the items of income, deduction and
credit and other information shown on
the statement must be included in computing the taxable income and credits
of the grantor or other person on the
income tax return of the grantor or
other person.
(2) By furnishing the statement, the
trustee satisfies the obligation to furnish statements to recipients with respect to the Forms 1099 filed by the
trustee.
(iv) Examples. The following examples illustrate the provisions of this
paragraph (b)(2):

to G, as the owner of the trust, of $2,500; a
Form 1099–DIV on which T reports dividends
attributable to G, as the owner of the trust, of
$3,205; and a Form 1099-B on which T reports
gross proceeds from the sale of B stock
attributable to G, as the owner of the trust, of
$2,000. On or before April 15, 1997, T furnishes
a statement to G which lists the following items
of income and information necessary for G to
take the items into account in computing G’s
taxable income:

Example 1. G, a United States citizen, creates
an irrevocable trust which provides that the
ordinary income is to be payable to him for life
and that on his death the corpus shall be
distributed to B, an unrelated person. Except for
the right to receive income, G retains no right or
power which would cause him to be treated as an
owner under sections 671 through 679. Under the
applicable local law, capital gains must be added
to corpus. Since G has a right to receive income,
he is treated as an owner of a portion of the trust
under section 677. The tax consequences of any
items of capital gain of the trust are governed by
the provisions of subparts A, B, C, and D
(section 641 and following), part I, subchapter J,
chapter 1 of the Internal Revenue Code. Because
not all of the trust is treated as owned by the
grantor or another person, the trustee may not
report by the methods described in paragraph
(b)(2) of this section.
Example 2. (i)(A) On January 2, 1996, G, a
United States citizen, creates a trust all of which
is treated as owned by G. The trustee of the trust
is T. During the 1996 taxable year the trust has
the following items of income and gross
proceeds:

(C) T informs G that any items of income,
deduction and credit and other information
shown on the statement must be included in
computing the taxable income and credits of the
grantor or other person on the income tax return
of the grantor or other person.
(D) T has complied with T’s obligations under
this section.
(iii)(A) Same facts as paragraphs (i) and (ii) of
this Example 2, except that G contributed the B
stock to the trust on January 2, 1996. On or
before April 15, 1997, T furnishes a statement to
G which lists the following items of income and
information necessary for G to take the items
into account in computing G’s taxable income:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 3,205
Proceeds from sale of B stock . . . . . . . 2,000
(B) The trust has no items of deduction or
credit.
(ii)(A) The payors of the interest paid to the
trust are X ($2,000), Y ($300), and Z ($200).
The payors of the dividends paid to the trust are
A ($3,200), and D ($5). The payor of the gross
proceeds paid to the trust is D, a brokerage firm,
which held the B stock as the nominee for the
trust. The B stock was purchased by T for
$1,500 on January 3, 1996, and sold by T on
November 29, 1996. T chooses to report pursuant
to paragraph (b)(2)(i)(B) of this section, and
therefore furnishes the name, TIN, and address
of the trust to X, Y, Z, A, and D. X, Y, and Z
each furnish T with a Form 1099–INT showing
the trust as the payee. A furnishes T with a Form
1099–DIV showing the trust as the payee. D
does not furnish T with a Form 1099–DIV
because D paid a dividend of less than $10 to T.
D furnishes T with a Form 1099–B showing the
trust as the payee.
(B) On or before February 28, 1997, T files a
Form 1099–INT with the Internal Revenue
Service on which T reports interest attributable

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 3,205
Gain from sale of B stock . . . . . . . . . . . . 500
Information regarding sale of B stock:
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . $2,000
Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Date acquired . . . . . . . . . . . . . . . . . . 1/03/96
Date sold . . . . . . . . . . . . . . . . . . . . . 11/29/96

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 3,205
Information regarding sale of B stock:
Proceeds . . . . . . . . . . . . . . . . . . . . . . . . $2,000
Date sold . . . . . . . . . . . . . . . . . . . . . 11/29/96
(B) T informs G that any items of income,
deduction and credit and other information
shown on the statement must be included in
computing the taxable income and credits of the
grantor or other person on the income tax return
of the grantor or other person.
(C) T has complied with T’s obligations under
this section.
Example 3. On January 2, 1996, G, a United
States citizen, creates a trust all of which is
treated as owned by G. The trustee of the trust is
T. The only asset of the trust is an interest in C,
a common trust fund under section 584(a). T
chooses to report pursuant to paragraph
(b)(2)(i)(B) of this section and therefore furnishes the name, TIN, and address of the trust to
C. C files a Form 1065 and a Schedule K–1
(Partner’s Share of Income, Credits, Deductions,
etc.) showing the name, TIN, and address of the
trust with the Internal Revenue Service and
furnishes a copy to T. Because the trust did not
receive any amounts described in paragraph
(b)(5) of this section, T does not file any type of
return with the Internal Revenue Service. On or
before April 15, 1997, T furnishes G with a
statement that shows all items of income,
deduction, and credit of the trust for the 1996
taxable year. In addition, T informs G that any
items of income, deduction and credit and other
information shown on the statement must be
included in computing the taxable income and

23

credits of the grantor or other person on the
income tax return of the grantor or other person.
T has complied with T’s obligations under this
section.

(3) A trust all of which is treated as
owned by two or more grantors or
other persons—(i) In general. In the
case of a trust all of which is treated as
owned by two or more grantors or
other persons, the trustee must furnish
the name, TIN, and address of the trust
to all payors for the taxable year, and
comply with the additional requirements described in paragraph (b)(3)(ii)
of this section.
(ii) Additional obligations of
trustee—(A) Obligation to file Forms
1099. The trustee must file with the
Internal Revenue Service the appropriate Forms 1099, reporting the items of
income paid to the trust by all payors
during the taxable year attributable to
the portion of the trust treated as
owned by each grantor or other person,
and showing the trust as the payor and
each grantor or other person treated as
an owner of the trust as the payee. The
trustee has the same obligations for
filing the appropriate Forms 1099 as
would a payor making reportable payments, except that the trustee must
report each type of income in the
aggregate, and each item of gross
proceeds separately. See paragraph
(b)(5) of this section regarding the
amounts required to be included on any
Forms 1099 filed by the trustee.
(B) Obligation to furnish statement.
(1) The trustee must also furnish to
each grantor or other person treated as
an owner of the trust a statement that—
(i) Shows all items of income, deduction, and credit of the trust for the
taxable year attributable to the portion
of the trust treated as owned by the
grantor or other person;
(ii) Provides the grantor or other
person treated as an owner of the trust
with the information necessary to take
the items into account in computing the
grantor’s or other person’s taxable
income; and
(iii) Informs the grantor or other
person treated as the owner of the trust
that the items of income, deduction and
credit and other information shown on
the statement must be included in
computing the taxable income and
credits of the grantor or other person
on the income tax return of the grantor
or other person.
(2) Except for the requirements pursuant to section 3406 and the regula-

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tions thereunder, by furnishing the
statement, the trustee satisfies the obligation to furnish statements to recipients with respect to the Forms 1099
filed by the trustee.
(4) Persons treated as payors—(i) In
general. For purposes of this section,
the term payor means any person who
is required by any provision of the
Internal Revenue Code and the regulations thereunder to make any type of
information return (including Form
1099 or Schedule K–1) with respect to
the trust for the taxable year, including
persons who make payments to the
trust or who collect (or otherwise act as
middlemen with respect to) payments
on behalf of the trust.
(ii) Application to brokers and customers. For purposes of this section, a
broker, within the meaning of section
6045, is considered a payor. A customer, within the meaning of section
6045, is considered a payee.
(5) Amounts required to be included
on Forms 1099 filed by the trustee—(i)
In general. The amounts that must be
included on any Forms 1099 required
to be filed by the trustee pursuant to
this section do not include any amounts
that are reportable by the payor on an
information return other than Form
1099. For example, in the case of a
trust which owns an interest in a
partnership, the trust’s distributive
share of the income and gain of the
partnership is not includible on any
Forms 1099 filed by the trustee pursuant to this section because the
distributive share is reportable by the
partnership on Schedule K-1.
(ii) Example. The following example
illustrates the provisions of this paragraph (b)(5):
Example. (i)(A) On January 2, 1996, G, a
United States citizen, creates a trust all of which
is treated as owned by G. The trustee of the trust
is T. The assets of the trust during the 1996
taxable year are shares of stock in X, an S
corporation, a limited partnership interest in P,
shares of stock in M, and shares of stock in N. T
chooses to report pursuant to paragraph
(b)(2)(i)(B) of this section and therefore furnishes the name, TIN, and address of the trust to
X, P, M, and N. M furnishes T with a Form
1099–DIV showing the trust as the payee. N
does not furnish T with a Form 1099–DIV
because N paid a dividend of less than $10 to T.
X and P furnish T with Schedule K–1 (Shareholder’s Share of Income, Credits, Deductions,
etc.) and Schedule K–1 (Partner’s Share of
Income, Credits, Deductions, etc.), respectively,
showing the trust’s name, TIN, and address.
(B) For the 1996 taxable year the trust has the
following items of income and deduction:

Dividends paid by M . . . . . . . . . . . . . . . . . $12
Dividends paid by N . . . . . . . . . . . . . . . . . . . 6
Administrative expense . . . . . . . . . . . . . . . . $20
Items reported by X on Schedule K–1
attributable to trust’s shares of stock in X:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $20
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Items reported by P on Schedule K-1 attributable to trust’s limited partnership interest in P:
Ordinary income . . . . . . . . . . . . . . . . . . $300
(ii)(A) On or before February 28, 1997, T files
with the Internal Revenue Service a Form 1099DIV on which T reports dividends attributable to
G as the owner of the trust in the amount of $18.
T does not file any other returns.
(B) T has complied with T’s obligation under
paragraph (b)(2)(iii)(A) of this section to file the
appropriate Forms 1099.

(6) Trusts that cannot report under
this paragraph (b). The following
trusts cannot use the methods of
reporting described in this paragraph
(b)—
(i) A common trust fund as defined
in section 584(a);
(ii) A trust that has its situs or any
of its assets located outside the United
States;
(iii) A trust that is a qualified
subchapter S trust as defined in section
1361(d)(3);
(iv) A trust all of which is treated as
owned by one grantor or one other
person whose taxable year is a fiscal
year;
(v) A trust all of which is treated as
owned by one grantor or one other
person who is not a United States
person; or
(vi) A trust all of which is treated as
owned by two or more grantors or
other persons, one of whom is not a
United States person.
(7) Grantors or other persons who
are treated as owners of the trust and
are exempt recipients for information
reporting purposes—(i) Trust treated
as owned by one grantor or one other
person. The trustee of a trust all of
which is treated as owned by one
grantor or one other person may not
report pursuant to this paragraph (b) if
the grantor or other person is an
exempt recipient for information reporting purposes.
(ii) Trust treated as owned by two or
more grantors or other persons. The
trustee of a trust, all of which is treated
as owned by two or more grantors or
other persons, may not report pursuant
to this paragraph (b) if one or more

24

grantors or other persons treated as
owners are exempt recipients for information reporting purposes unless—
(A) At least one grantor or one other
person who is treated as an owner of
the trust is a person who is not an
exempt recipient for information reporting purposes; and
(B) The trustee reports without regard to whether any of the grantors or
other persons treated as owners of the
trust are exempt recipients for information reporting purposes.
(8) Husband and wife who make a
single return jointly. A trust all of
which is treated as owned by a husband
and wife who make a single return
jointly of income taxes for the taxable
year under section 6013 is considered
to be owned by one grantor for
purposes of this paragraph (b).
(c) Due date for Forms 1099 required to be filed by trustee. The due
date for any Forms 1099 required to be
filed with the Internal Revenue Service
by a trustee pursuant to this section is
the due date otherwise in effect for
filing Forms 1099.
(d) Due date and other requirements
with respect to statement required to be
furnished by trustee. The due date for
the statement required to be furnished
by a trustee to the grantor or other
person treated as an owner of the trust
pursuant to this section is the date
specified by section 6034A(a). The
trustee must maintain in its records a
copy of the statement furnished to the
grantor or other person treated as an
owner of the trust for a period of three
years from the due date for furnishing
such statement specified in this paragraph (d).
(e) Backup withholding requirements—(1) Trustee reporting under
paragraph (b)(2)(i)(A) of this section.
In order for the trustee to be able to
report pursuant to paragraph
(b)(2)(i)(A) of this section and to
furnish to all payors the name and TIN
of the grantor or other person treated as
the owner of the trust, the grantor or
other person must provide a complete
Form W–9 to the trustee in the manner
provided in paragraph (b)(1) of this
section, and the trustee must give the
name and TIN shown on that Form W–
9 to all payors. In addition, if the Form
W–9 indicates that the grantor or other
person is subject to backup withholding, the trustee must notify all payors
of reportable interest and dividend
payments of the requirement to backup

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withhold. If the Form W–9 indicates
that the grantor or other person is not
subject to backup withholding, the
trustee does not have to notify the
payors that backup withholding is not
required. The trustee should not give
the Form W–9, or a copy thereof, to a
payor because the Form W–9 contains
the address of the grantor or other
person and paragraph (b)(2)(i)(A) of
this section requires the trustee to
furnish the address of the trust to all
payors and not the address of the
grantor or other person. The trustee
acts as the agent of the grantor or other
person for purposes of furnishing to the
payors the information required by this
paragraph (e)(1). Thus, a payor may
rely on the name and TIN provided to
the payor by the trustee, and, if given,
on the trustee’s statement that the
grantor is subject to backup
withholding.
(2) Other backup withholding requirements. Whether a trustee is treated
as a payor for purposes of backup
withholding is determined pursuant to
section 3406 and the regulations
thereunder.
(f) Penalties for failure to file a
correct Form 1099 or furnish a correct
statement. A trustee who fails to file a
correct Form 1099 or to furnish a
correct statement to a grantor or other
person treated as an owner of the trust
as required by paragraph (b) of this
section is subject to the penalties
provided by sections 6721 and 6722
and the regulations thereunder.
(g) Changing reporting methods—
(1) Changing from reporting by filing
Form 1041 to a method described in
paragraph (b) of this section. If the
trustee has filed a Form 1041 for any
taxable year ending before January 1,
1996 (and has not filed a final Form
1041 pursuant to §1.671–4(b)(3) (as
contained in the 26 CFR part 1 edition
revised as of April 1, 1995)), or files a
Form 1041 for any taxable year thereafter, the trustee must file a final Form
1041 for the taxable year which ends
after January 1, 1995, and which
immediately precedes the first taxable
year for which the trustee reports
pursuant to paragraph (b) of this
section, on the front of which form the
trustee must write: ‘‘Pursuant to
§1.671–4(g), this is the final Form
1041 for this grantor trust.’’.
(2) Changing from reporting by a
method described in paragraph (b) of
this section to the filing of a Form

1041. The trustee of a trust who
reported pursuant to paragraph (b) of
this section for a taxable year may
report pursuant to paragraph (a) of this
section for subsequent taxable years. If
the trustee reported pursuant to paragraph (b)(2)(i)(A) of this section, and
therefore furnished the name and TIN
of the grantor to all payors, the trustee
must furnish the name, TIN, and address of the trust to all payors for such
subsequent taxable years. If the trustee
reported pursuant to paragraph
(b)(2)(i)(B) or (b)(3)(i) of this section,
and therefore furnished the name and
TIN of the trust to all payors, the
trustee must indicate on each Form
1096 (Annual Summary and Transmittal of U.S. Information Returns) that it
files (or appropriately on magnetic
media) for the final taxable year for
which the trustee so reports that it is
the final return of the trust.
(3) Changing between methods described in paragraph (b) of this
section—(i) Changing from furnishing
the TIN of the grantor to furnishing the
TIN of the trust. The trustee of a trust
who reported pursuant to paragraph
(b)(2)(i)(A) of this section for a taxable
year, and therefore furnished the name
and TIN of the grantor to all payors,
may report pursuant to paragraph
(b)(2)(i)(B) of this section, and furnish
the name and TIN of the trust to all
payors, for subsequent taxable years.
(ii) Changing from furnishing the
TIN of the trust to furnishing the TIN
of the grantor. The trustee of a trust
who reported pursuant to paragraph
(b)(2)(i)(B) of this section for a taxable
year, and therefore furnished the name
and TIN of the trust to all payors, may
report pursuant to paragraph (b)(2)(i)(A) of this section, and furnish the
name and TIN of the grantor to all
payors, for subsequent taxable years.
The trustee, however, must indicate on
each Form 1096 (Annual Summary and
Transmittal of U.S. Information Returns) that it files (or appropriately on
magnetic media) for the final taxable
year for which the trustee reports
pursuant to paragraph (b)(2)(i)(B) of
this section that it is the final return of
the trust.
(4) Example. The following example
illustrates the provisions of paragraph
(g) of this section:
Example. (i) On January 3, 1994, G, a United
States citizen, creates a trust all of which is
treated as owned by G. The trustee of the trust is
T. On or before April 17, 1995, T files with the

25

Internal Revenue Service a Form 1041 with an
attached statement for the 1994 taxable year
showing the items of income, deduction, and
credit of the trust. On or before April 15, 1996,
T files with the Internal Revenue Service a Form
1041 with an attached statement for the 1995
taxable year showing the items of income,
deduction, and credit of the trust. On the Form
1041, T states that ‘‘pursuant to §1.671-4(g), this
is the final Form 1041 for this grantor trust.’’ T
may report pursuant to paragraph (b) of this
section for the 1996 taxable year.
(ii) T reports pursuant to paragraph
(b)(2)(i)(B) of this section, and therefore furnishes the name, TIN, and address of the trust to
all payors, for the 1996 and 1997 taxable years.
T chooses to report pursuant to paragraph (a) of
this section for the 1998 taxable year. On each
Form 1096 (Annual Summary and Transmittal of
U.S. Information Returns) which T files for the
1997 taxable year (or appropriately on magnetic
media), T indicates that it is the trust’s final
return. On or before April 15, 1999, T files with
the Internal Revenue Service a Form 1041 with
an attached statement showing the items of
income, deduction, and credit of the trust. On the
Form 1041, T uses the same TIN which T used
on the Forms 1041 and Forms 1099 it filed for
previous taxable years. T has complied with T’s
obligations under paragraph (g)(2) of this
section.

(h) Effective date and transition
rule—(1) Effective date. The trustee of
a trust any portion of which is treated
as owned by one or more grantors or
other persons must report pursuant to
this section for taxable years beginning
on or after January 1, 1996.
(2) Transition rule. For taxable years
beginning prior to January 1, 1996, the
Internal Revenue Service will not challenge the manner of reporting of—
(i) A trustee of a trust all of which
is treated as owned by one or more
grantors or other persons who did not
report in accordance with §1.671–4(a)
(as contained in the 26 CFR part 1
edition revised as of April 1, 1995) as
in effect for taxable years beginning
prior to January 1, 1996, but did report
in a manner substantially similar to one
of the reporting methods described in
paragraph (b) of this section; or
(ii) A trustee of two or more trusts
all of which are treated as owned by
one or more grantors or other persons
who filed a single Form 1041 for all of
the trusts, rather than a separate Form
1041 for each trust, provided that the
items of income, deduction, and credit
of each trust were shown on a statement attached to the single Form 1041.
(i) Cross-reference. For rules relating to employer identification numbers,
and to the obligation of a payor of
income or proceeds to the trust to
furnish to the payee a statement to
recipient, see §301.6109–1(a)(2) of this
chapter.

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Par. 3. Section 1.6012–3 is amended
by revising paragraph (a)(9) to read as
follows:
§1.6012–3 Returns by fiduciaries.
(a) * * *
(9) A trust any portion of which is
treated as owned by the grantor or
another person pursuant to sections
671 through 678. In the case of a trust
any portion of which is treated as
owned by the grantor or another person
under the provisions of subpart E
(section 671 and following) part I,
subchapter J, chapter 1 of the Internal
Revenue Code see §1.671–4.
*

*

*

*

*

*

PART 25—GIFT TAX; GIFTS
MADE AFTER DECEMBER 31,
1954
Par. 4. The authority citation for part
25 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 5. Section 25.2702–3 is
amended by adding a sentence to the
end of paragraphs (b)(1)(i) and
(c)(1)(i), respectively, to read as
follows:
§25.2702–3 Qualified interests.
*

*

*

*

*

*

(b) * * *
(1) * * * (i) * * * If the trustee
reports for the taxable year pursuant to
§1.671–4(b) of this chapter, the annuity
payment must be made no later than
the date by which the trustee would
have been required to file the Federal
income tax return of the trust for the
taxable year (without regard to extensions) had the trustee reported pursuant
to §1.671–4(a) of this chapter.
*

*

*

*

*

*

(c) * * *
(1) * * * (i) * * * If the trustee
reports for the taxable year pursuant to
§1.671–4(b) of this chapter, the unitrust
payment must be made no later than
the date by which the trustee would
have been required to file the Federal
income tax return of the trust for the
taxable year (without regard to extensions) had the trustee reported pursuant
to §1.671–4(a) of this chapter.
*

*

*

*

*

*

PART 301—PROCEDURE AND
ADMINISTRATION
Par. 6. The authority citation for part
301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805. * * *
Par. 7. Section 301.6109–1 is
amended by revising paragraph (a)(2)
to read as follows:
§301.6109–1 Identifying numbers.
(a) * * *
(2) A trust all of which is treated as
owned by the grantor or another person pursuant to sections 671 through
678—(i) Obtaining a taxpayer identification number. If a trust does not
have a taxpayer identification number
and the trustee furnishes the name and
taxpayer identification number of the
grantor or other person treated as the
owner of the trust and the address of
the trust to all payors pursuant to
§1.671–4(b)(2)(i)(A) of this chapter,
the trustee need not obtain a taxpayer
identification number for the trust until
either the first taxable year of the trust
in which all of the trust is no longer
owned by the grantor or another person, or until the first taxable year of
the trust for which the trustee no longer
reports pursuant to §1.671–4(b)(2)(i)(A) of this chapter. If the trustee has
not already obtained a taxpayer identification number for the trust, the
trustee must obtain a taxpayer identification number for the trust as
provided in paragraph (d)(2) of this
section in order to report pursuant to
§1.671–4(a), (b)(2)(i)(B), or (b)(3)(i) of
this chapter.
(ii) Obligations of persons who make
payments to certain trusts. Any payor
that is required to file an information
return with respect to payments of income or proceeds to a trust must show
the name and taxpayer identification
number that the trustee has furnished to
the payor on the return. Regardless of
whether the trustee furnishes to the
payor the name and taxpayer identification number of the grantor or other
person treated as an owner of the trust,
or the name and taxpayer identification
number of the trust, the payor must
furnish a statement to recipients to the
trustee of the trust, rather than to the
grantor or other person treated as the
owner of the trust. Under these circumstances, the payor satisfies the obligation to show the name and taxpayer

26

identification number of the payee on
the information return and to furnish a
statement to recipients to the person
whose taxpayer identification number is
required to be shown on the form.
(iii) Persons treated as payors. For
purposes of this paragraph (a)(2), the
term payor means a person described in
§1.671–4(b)(4) of this chapter.
*

*

*

*

*

*

PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 8. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 9. In §602.101, paragraph (c) is
amended in the table by revising the
entry for 1.671–4 to read ‘‘1.671–4
. . . . 1545–1442’’.
Margaret Milner Richardson,
Commissioner of
Internal Revenue.
Approved December 5, 1995.
Leslie Samuels,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 20, 1995, 8:45 a.m., and published
in the issue of the Federal Register for
December 21, 1995, 60 F.R. 66085)

Section 703.— Partnership
Computations
26 CFR 1.703–1: Partnership Computations
If a partnership makes a charitable contribution of property, are the partners’ bases in their
partnership interests decreased to reflect the
contribution. See Rev. Rul. 96–11, page 28.

Section 705.—Determination of Basis
in Partner’s Interest
26 CFR 1.705–1: Determination of basis of
partner’s interest.
(Also §§ 267, 707; 1.267(d)–1, 1.707–1.)

Basis of partner’s interest; sale
between partnerships. Partners’ bases
in their partnership interests are decreased to reflect losses on the sale of
partnership property to a related partnership that are disallowed under section 707(b)(1) of the Internal Revenue
Code. Partners’ bases in their part-