Reg. § 1.679-5 Pre-immigration trusts.
(a) In general If a nonresident alien individual becomes a U.S. person and the individual has a residency starting date (as determined under section ) within 5 years after directly or indirectly transferring property to a foreign trust (the original transfer), the individual is treated as having transferred to the trust on the residency starting date an amount equal to the portion of the trust attributable to the property transferred by the individual in the original transfer.
(b) Special rules
(1) Change in grantor trust status For purposes of of this section, if a nonresident alien individual who is treated as owning any portion of a trust under the provisions of subpart E of part I of subchapter J, chapter 1 of the Internal Revenue Code, subsequently ceases to be so treated, the individual is treated as having made the original transfer to the foreign trust immediately before the trust ceases to be treated as owned by the individual.
(2) Treatment of undistributed income For purposes of of this section, the property deemed transferred to the foreign trust on the residency starting date includes undistributed net income, as defined in section , attributable to the property deemed transferred. Undistributed net income for periods before the individual's residency starting date is taken into account only for purposes of determining the amount of the property deemed transferred.
(c) Examples The rules of this section are illustrated by the following examples:
Example 1. Nonresident alien becomes resident alien. On January 1, 2002, A, a nonresident alien individual, transfers property to a foreign trust, FT. On January 1, 2006, A becomes a resident of the United States within the meaning of section and has a residency starting date of January 1, 2006, within the meaning of section . Under of this section, A is treated as a U.S. transferor and is deemed to transfer the property to FT on January 1, 2006. Under of this section, the property deemed transferred to FT on January 1, 2006, includes the undistributed net income of the trust, as defined in section , attributable to the property originally transferred.
Example 2. Nonresident alien loses power to revest property. On January 1, 2002, A, a nonresident alien individual, transfers property to a foreign trust, FT. A has the power to revest absolutely in himself the title to such property transferred and is treated as the owner of the trust pursuant to sections and . On January 1, 2008, the terms of FT are amended to remove A's power to revest in himself title to the property transferred, and A ceases to be treated as the owner of FT. On January 1, 2010, A becomes a resident of the United States. Under of this section, for purposes of of this section A is treated as having originally transferred the property to FT on January 1, 2008. Because this date is within five years of A's residency starting date, A is deemed to have made a transfer to the foreign trust on January 1, 2010, his residency starting date. Under of this section, the property deemed transferred to the foreign trust on January 1, 2010, includes the undistributed net income of the trust, as defined in section , attributable to the property deemed transferred.
[T.D. 8955, 66 FR 37889, July 20, 2001]