26 U.S.C. § 685 — Treatment of funeral trusts

Page 1855 TITLE 26—INTERNAL REVENUE CODE § 685 Editorial Notes AMENDMENTS 1976—Pub. L. 94–455 substituted provisions relating to use of trust as an exchange fund for provisions setting forth rule that this part applies only to taxable years beginning after Dec. 31, 1953, and ending after the date of the enactment of this title and exceptions thereto. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1976 AMENDMENT Amendment of section by Pub. L. 94–455 effective on Apr. 8, 1976, in taxable years ending on or after such date, see section 2131(f)(6) of Pub. L. 94–455, set out as a note under section 584 of this title. § 684. Recognition of gain on certain transfers to certain foreign trusts and estates (a) In general Except as provided in regulations, in the case of any transfer of property by a United States person to a foreign estate or trust, for purposes of this subtitle, such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of— (1) the fair market value of the property so transferred, over (2) the adjusted basis (for purposes of deter- mining gain) of such property in the hands of the transferor. (b) Exception Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any person is treated as the owner of such trust under section 671. (c) Treatment of trusts which become foreign trusts If a trust which is not a foreign trust becomes a foreign trust, such trust shall be treated for purposes of this section as having transferred, immediately before becoming a foreign trust, all of its assets to a foreign trust. (Added Pub. L. 105–34, title XI, § 1131(b), Aug. 5, 1997, 111 Stat. 978; amended Pub. L. 107–16, title V, § 542(e)(1)(A)–(C), June 7, 2001, 115 Stat. 84, 85; Pub. L. 111–312, title III, § 301(a), Dec. 17, 2010, 124 Stat. 3300.) Editorial Notes CODIFICATION Another section 1131(b) of Pub. L. 105–34 amended sec- tions 367, 721, and 1035 of this title. AMENDMENTS 2010—Pub. L. 111–312 amended catchline, introductory provisions of subsec. (a), and subsec. (b) to read as if amendment by Pub. L. 107–16, § 542(e)(1)(A)–(C), had never been enacted. See 2001 Amendment note below. Prior to amendment, subsec. (b) read as follows: ‘‘EX- CEPTIONS.— ‘‘(1) TRANSFERS TO CERTAIN TRUSTS.—Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any United States person is treated as the owner of such trust under section 671. ‘‘(2) LIFETIME TRANSFERS TO NONRESIDENT ALIENS.— Subsection (a) shall not apply to a lifetime transfer to a nonresident alien.’’ 2001—Pub. L. 107–16, § 542(e)(1)(A)–(C), amended sec- tion by inserting ‘‘and nonresident aliens’’ after ‘‘es- tates’’ in section catchline and ‘‘or to a nonresident alien’’ after ‘‘or trust’’ in introductory provisions of subsec. (a) and amending subsec. (b) generally. Prior to amendment, text of subsec. (b) read as follows: ‘‘Sub- section (a) shall not apply to a transfer to a trust by a United States person to the extent that any person is treated as the owner of such trust under section 671.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–312 applicable to estates of decedents dying, and transfers made after Dec. 31, 2009, except as otherwise provided, see section 301(e) of Pub. L. 111–312, set out as an Effective and Termination Dates of 2010 Amendment note under section 121 of this title. EFFECTIVE DATE OF 2001 AMENDMENT Amendment by Pub. L. 107–16 applicable to transfers after Dec. 31, 2009, see section 542(f)(2) of Pub. L. 107–16, set out as a note under section 121 of this title. § 685. Treatment of funeral trusts (a) In general In the case of a qualified funeral trust— (1) subparts B, C, D, and E shall not apply, and (2) no deduction shall be allowed by section 642(b). (b) Qualified funeral trust For purposes of this subsection, the term ‘‘qualified funeral trust’’ means any trust (other than a foreign trust) if— (1) the trust arises as a result of a contract with a person engaged in the trade or business of providing funeral or burial services or prop- erty necessary to provide such services, (2) the sole purpose of the trust is to hold, invest, and reinvest funds in the trust and to use such funds solely to make payments for such services or property for the benefit of the beneficiaries of the trust, (3) the only beneficiaries of such trust are individuals with respect to whom such serv- ices or property are to be provided at their death under contracts described in paragraph (1), (4) the only contributions to the trust are contributions by or for the benefit of such beneficiaries, (5) the trustee elects the application of this subsection, and (6) the trust would (but for the election de- scribed in paragraph (5)) be treated as owned under subpart E by the purchasers of the con- tracts described in paragraph (1). A trust shall not fail to be treated as meeting the requirement of paragraph (6) by reason of the death of an individual but only during the 60-day period beginning on the date of such death. (c) Application of rate schedule Section 1(e) shall be applied to each qualified funeral trust by treating each beneficiary’s in- terest in each such trust as a separate trust. (d) Treatment of amounts refunded to purchaser on cancellation No gain or loss shall be recognized to a pur- chaser of a contract described in subsection Page 1856 TITLE 26—INTERNAL REVENUE CODE § 691 (b)(1) by reason of any payment from such trust to such purchaser by reason of cancellation of such contract. If any payment referred to in the preceding sentence consists of property other than money, the basis of such property in the hands of such purchaser shall be the same as the trust’s basis in such property immediately be- fore the payment. (e) Simplified reporting The Secretary may prescribe rules for sim- plified reporting of all trusts having a single trustee and of trusts terminated during the year. (Added Pub. L. 105–34, title XIII, § 1309(a), Aug. 5, 1997, 111 Stat. 1042; amended Pub. L. 105–206, title VI, § 6013(b), July 22, 1998, 112 Stat. 820; Pub. L. 110–317, § 9(a), (b), Aug. 29, 2008, 122 Stat. 3530.) Editorial Notes AMENDMENTS 2008—Subsecs. (c) to (f). Pub. L. 110–317 redesignated subsecs. (d) to (f) as (c) to (e), respectively, and struck out former subsec. (c), which related to dollar limita- tion on contributions to qualified funeral trusts. 1998—Subsec. (b). Pub. L. 105–206, § 6013(b)(1), inserted concluding provisions. Subsec. (f). Pub. L. 105–206, § 6013(b)(2), inserted ‘‘and of trusts terminated during the year’’ before period at end. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2008 AMENDMENT Pub. L. 110–317, § 9(c), Aug. 29, 2008, 122 Stat. 3530, pro- vided that: ‘‘The amendments made by this section [amending this section] shall apply to taxable years be- ginning after the date of the enactment of this Act [Aug. 29, 2008].’’ EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title. EFFECTIVE DATE Pub. L. 105–34, title XIII, § 1309(c), Aug. 5, 1997, 111 Stat. 1043, provided that: ‘‘The amendments made by this section [enacting this section] shall apply to tax- able years ending after the date of the enactment of this Act [Aug. 5, 1997].’’ PART II—INCOME IN RESPECT OF DECEDENTS Sec. 691. Recipients of income in respect of decedents. 692. Income taxes of members of Armed Forces, astronauts, and victims of certain terrorist attacks on death. Editorial Notes AMENDMENTS 2003—Pub. L. 108–121, title I, § 110(a)(3)(B), Nov. 11, 2003, 117 Stat. 1342, inserted ‘‘, astronauts,’’ after ‘‘Forces’’ in item 692. 2002—Pub. L. 107–134, title I, § 101(c)(2), Jan. 23, 2002, 115 Stat. 2429, substituted ‘‘Income taxes of members of Armed Forces and victims of certain terrorist attacks on death’’ for ‘‘Income taxes of members of Armed Forces on death’’ in item 692. § 691. Recipients of income in respect of dece- dents (a) Inclusion in gross income (1) General rule The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior pe- riod (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year when received, of: (A) the estate of the decedent, if the right to receive the amount is acquired by the de- cedent’s estate from the decedent; (B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s es- tate from the decedent; or (C) the person who acquires from the dece- dent the right to receive the amount by be- quest, devise, or inheritance, if the amount is received after a distribution by the dece- dent’s estate of such right. (2) Income in case of sale, etc. If a right, described in paragraph (1), to re- ceive an amount is transferred by the estate of the decedent or a person who received such right by reason of the death of the decedent or by bequest, devise, or inheritance from the de- cedent, there shall be included in the gross in- come of the estate or such person, as the case may be, for the taxable period in which the transfer occurs, the fair market value of such right at the time of such transfer plus the amount by which any consideration for the transfer exceeds such fair market value. For purposes of this paragraph, the term ‘‘trans- fer’’ includes sale, exchange, or other disposi- tion, or the satisfaction of an installment obli- gation at other than face value, but does not include transmission at death to the estate of the decedent or a transfer to a person pursu- ant to the right of such person to receive such amount by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent. (3) Character of income determined by ref- erence to decedent The right, described in paragraph (1), to re- ceive an amount shall be treated, in the hands of the estate of the decedent or any person who acquired such right by reason of the death of the decedent, or by bequest, devise, or in- heritance from the decedent, as if it had been acquired by the estate or such person in the transaction in which the right to receive the income was originally derived and the amount includible in gross income under paragraph (1) or (2) shall be considered in the hands of the estate or such person to have the character which it would have had in the hands of the decedent if the decedent had lived and re- ceived such amount.