Rev. Rul. 60-181

Advice has been requested whether, under the circumstances described below, a certain trust established under the laws of a foreign jurisdiction is considered to be a resident or nonresident alien entity of the United States for Federal income tax purposes.

A testamentary trust, was established under the laws of a foreign country pursuant to the will of a deceased citizen and resident of that country. The trust beneficiaries are also citizens and residents of that country. The trust property consists principally of stocks and bonds of United States corporations. The trustees of the trust are citizens and residents of the United States.

During the taxable years in question, the trustees held the aforementioned trust securities in the United States and traded extensively in them on a domestic exchange, as they were empowered to do under the terms of the trust indenture. From these transactions, the trustees, in their fiduciary capacity, realized net long-term capital gains which were added to the trust corpus, as required by the terms of the trust.

Section 641(a) of the Internal Revenue Code of 1954 provides, in part, that the taxes imposed by chapter 1 of the Code on individuals shall apply to the taxable income of estates or of any kind of property held in trust, including income accumulated or held for future distribution under the terms of a will or trust.

Section 1.641(b)(-2 of the Income

Section 1.641(b)-2 of the Income the fiduciary is required to make and file the return and pay the tax on the taxable income of an estate or trust.

For purposes of the United States income tax, alien individuals, including fiduciaries, are divided generally into two classes, namely, resident aliens and nonresident aliens. Resident aliens are, in general, taxable the same as citizens of the United States; that is, a resident alien is taxable on income from all sources, except that exempted by statutory provision, including income from sources without the United States. Nonresident aliens are taxable only upon specified types of income from sources within the United States. An alien actually present in the United States who is not a mere transient or sojourner is a resident of the United States for purposes of income tax. Whether he is a transient is determined by his intentions with regard to the length and nature of his stay. If he lives in the United States and has no definite intention as to his stay, he is a resident. See sections 1.871-1 and 1.871-2 of the regulations.

In I.T. 1885, C.B. II-2, 164 (1923), a testator, a citizen and resident of Canada, devised and bequeathed all of his property, including property located in the United States, to three trustees. The sole surviving trustee, B , also a citizen and resident of Canada, maintained an office in the United States for convenience in collecting income from the property in this country. One issue presented was whether the trustee should be classed as a resident or nonresident fiduciary. In holding that the trust estate was a nonresident entity subject to Federal income tax only on income from sources within the United States, I.T. 1885 states, in part as follows:

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. * * * The status of such a trust depends upon where it was created. If it ownes its existence to the laws of a foreign country or of a political subdivision thereof, it is regarded as a nonresident alien entity.

The trust estate now under discussion is obviously a nonresident alien entity because it owes its existence to the laws of a foreign jurisdiction. * * *

However, in the case of B. W. Jones Trust v. Commissioner , 46 B.T.A. 531, affirmed, 132 Fed.(2d) 914, trusts were created by instruments executed in England by a citizen and resident of that country. Each trust was established in favor of an English beneficiary, and each was subject to the provision that income should be currently distributed to the beneficiary and capital gains added to corpus. During the tax years in question, 90 percent of the securities forming the corpora of the trusts were securities of corporations organized and doing business in the United States. These securities were held in the United States by a trustee of the trusts who was a citizen and resident of this country. The trusts maintained an office in New York City which was leased in the names of the trustees. During these years, the American trustee made several sales of securities in this country resulting in substantial capital gains. The United States Board of Tax Appeals held that the trusts were taxable as resident alien entities of the United States for Federal income tax purposes.

The Court of Appeals for the Fourth Circuit, in affirming the decision of the Board in the Jones case, 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 withing 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.

It is the conclusion of the Internal Revenue Service that the facts of the instant case are analogous to those presented in the Jones case. Under the rationable of the Jones decision, the trust in the instant case is considered a resident alien entity of the United States for Federal income tax purposes.

Accordingly, it is held that where the property of a trust, established under the laws of a foreign jurisdiction, consists principally of securities of United States corporations and such securities are held, controlled, and traded in the United States on a domestic exchange by a trustee who is a citizen and resident of this country, the trust is deemed to be a resident alien entity of the United States for Federal income tax purposes.

In view of the foregoing, I.T. 1885 is modified to the extent that it holds that the status of the fiduciary has nothing to do with the status of the turst and that the status of the trust depends upon where it was created.