Rev. Rul. 62-154

Advice has been requested whether Internal Revenue Service adheres to the positions taken in Revenue Ruling 57-245, C.B. 1957-1, 286, and Revenue Ruling 58-232, C.B. 1958-1, 261.

These Revenue Rulings involve the income taxation of estates of nonresident alien decedents which were subject to domiciliary administration in a foreign country and to ancillary administration in the United States. The question was asked because I .T. 1885, C.B. II-2, 164 (1923), which was referred to in Revenue Ruling 57-245 in support of the Service position, was modified by Revenue Ruling 60-181, C.B. 1960-1, 257, and because the result reached in Revenue Ruling 58-232 appears inconsistent with such modification of I.T. 1885.

The underlying question presented in Revenue Ruling 57-245 is whether the estate of a citizen of a foreign country domiciled in a foreign country at the date of his death is classified as a nonresident alien entity, even though the will of the decedent was admitted to original probate by a court in the United States because over 90 percent of his property was physically located in the United States at the date of his death. The ruling holds that ancillary administration in the United States of the estate of a nonresident alien decedent which is subject to domiciliary administration in a foreign country does not change the status of the estate for Federal income tax purposes from that of a nonresident alien entity; that the original probate of the estate in the United States was an ancillary proceeding in the technical sense; and that the estate is a nonresident alien entity.

Revenue Ruling 57-245 makes reference to I.T. 1885 to support its holding that the status of an executor as a resident or a nonresident alien is not controlling in determining the tax status of an estate as a resident or a nonresident entity.

In Revenue Ruling 58-232 the question is whether the estate of a nonresident alien, domiciled abroad at the time of his death, is taxable on capital gains to the extent provided in section 871(a)(2) of the Internal Revenue Code of 1954, where the ancillary and the domiciliary representative of such estate were present in the United States for more than 90 days during the taxable year in which such gains were realized. Neither the decedent nor the domiciliary administratrix, who was also a nonresident alien, was engaged in trade or business in the United States. The ancillary representative was a citizen and resident of the United States appointed by a state court to dispose of stock in United States corporations held in the estate.

The Revenue Ruling holds that appointment of an ancillary administrator within the United States for the estate of a nonresident alien decedent subject to domiciliary administration in a foreign country does not create a new taxable entity which may be treated as a domestic estate. Therefore, gains from the sale or exchange of the capital assets of such estate were held not to be subject to the tax imposed by section 871(a)(2) of the Code, irrespective of the presence in the United States of the ancillary and the domiciliary representative during the year in which such gains were realized.

The main question in I.T. 1885 is whether a trustee should be classed as a resident or nonresident fiduciary under the facts of the case. The fiduciary, a nonresident alien, was trustee of a trust created under the will of a nonresident alien who owned property in the foreign country and in the United States. The trustee maintained an office in the United States for the purpose of collecting the income from property located in the United States and appointed a resident agent in the United States whom he visited several times a week.

This ruling holds that the status of the fiduciary as a citizen or an alien, a resident or a nonresident, has nothing to do with the status of the trust. In the case of a trust which is treated as a taxable entity, the tax is imposed upon the income of the trust, not of the trustee. The ruling holds that the status of such a trust depends upon where it was created and that the trust under discussion is, therefore, a nonresident alien entity because it owes its existence to the laws of a foreign jurisdiction.

Reconsideration was given to this portion of I.T. 1885 in Revenue Ruling 60-181, because it appeared to be inconsistent with the decision in the case of B. W. Jones Trust v. Commissioner , 46 B.T.A. 531 (1942), affirmed, 132 Fed.(2d) 914 (1943).

The Jones case involved trusts created in England by a citizen and resident of that country for the benefit of English beneficiaries. The trusts had both English trustees and an American trustee, and 90 percent of the corpora of the trusts consisted of securities of corporations organized and doing business in the United States. During the taxable year in question, the trusts maintained an office in the United States and the trustee made several sales of securities in this country resulting in capital gains.

The Court of Appeals for the Fourth Circuit rejected the argument of the taxpayer's representatives that the status of the taxpayer as a resident or nonresident depended solely on where it was created. Recognizing the difficulty of determining the residence of a trust in some instances, the court stated, in part, as follows:

What is nonresidence on the part of a trust, within the statutory meaning, is a question which in some instances may be difficult of determination; but we feel no hesitation in saying that it cannot be predicated of a trust 90%of whose property consists of stocks and bonds of domestic corporations, held in this country in the possession of a trustee who is a citizen of the country, traded in by that trustee on the exchange of the country, and returning income which is collected by such trustee in the country and handled from an office maintained in the country for that purpose. No individual who was present and operating within the country as were these trusts could claim to be a nonresident, and no corporation whose affairs were so handled could deny that it was present within the country on a permanent basis so as to subject it to service of process and other exercise of governmental power.

Revenue Ruling 60-181 involves a testamentary trust created by an alien domiciliary under the laws of a foreign country for the benefit of nonresident aliens. During the tax years in question, the trustees were citizens and residents of the United States and the trust property consisted of securities of United States corporations which were traded in on a domestic exchange. Based on the Jones decision, the ruling holds that such a trust is a resident alien entity of the United States for Federal income tax purposes. It modifies I.T. 1885 `to the extent that it holds that the status of the fiduciary has nothing to do with the status of the trust and that the status of the trust depends upon where it was created.'

Section 641(a) of the Code does not make a distinction between the fiduciary of a trust and the fiduciary of an estate in imposing a tax on the income of estates and of trusts. No distinction is made between such fiduciaries in the provisions of section 1.871-2 of the Income Tax Regulations which includes a nonresident alien fiduciary in the term `nonresident alien individual.' It follows, therefore, that the criteria drawn from the Jones case and from Revenue Ruling 60-181 for determining whether a trust is domestic or foreign, resident or nonresident, have equal application to questions concerning alienage and residence of estates.

In view of the foregoing, it is held that the estate of a nonresident alien decedent which is subject to domiciliary administration abroad is not ipso facto a nonresident alien estate. In each case consideration should be given to all of the facts involved, including the appointment of an ancillary administrator who is a citizen or resident of the United States and the extent and duration of the activities of such ancillary administrator in the United States, in connection with the estate before determining whether the estate of a nonresident alien decedent is a resident or nonresident alien entity.

Presence in the United States means something less than residence. In the case of an individual, mere physical presence is the test for determining whether such individual is present in the United States at any time during the taxable year. It follows that where an ancillary administrator is appointed in the United States to dispose of stock in United States corporations held by a nonresident alien and does dispose of such stock, the estate of such decedent is present in the United States within the meaning of section 871(a)(2) of the Code during the year in which such gains are realized.

Revenue Ruling 57-245 is modified to remove therefrom the implication that the residence status of the estate of a nonresident alien decedent depends solely on the state in which it is subject to domiciliary administration and that such estate which is subject to domiciliary administration in a foreign country is in every case a nonresident alien estate. Revenue Ruling 58-232 is hereby superseded.

¹ Also released as Technical Information Release No. 395, dated August 29, 1962.