26 C.F.R. § 301.7701-7 Trusts - domestic and foreign.
(a) In general.
(1) A trust is a United States person if -
(i) A court within the United States is able to exercise primary supervision over the administration of the trust (court test); and
(ii) One or more United States persons have the authority to control all substantial decisions of the trust (control test).
(2) A trust is a United States person for purposes of the Internal Revenue Code (Code) on any day that the trust meets both the court test and the control test. For purposes of the regulations in this chapter, the term domestic trust means a trust that is a United States person. The term foreign trust means any trust other than a domestic trust.
(3) Except as otherwise provided in part I, subchapter J, chapter 1 of the Code, the taxable income of a foreign trust is computed in the same manner as the taxable income of a nonresident alien individual who is not present in the United States at any time. Section 641(b). Section 7701(b) is not applicable to trusts because it only applies to individuals. In addition, a foreign trust is not considered to be present in the United States at any time for purposes of section 871(a)(2), which deals with capital gains of nonresident aliens present in the United States for 183 days or more.
(b) Applicable law. The terms of the trust instrument and applicable law must be applied to determine whether the court test and the control test are met.
(c) The court test -
(1) Safe harbor. A trust satisfies the court test if -
(i) The trust instrument does not direct that the trust be administered outside of the United States;
(ii) The trust in fact is administered exclusively in the United States; and
(iii) The trust is not subject to an automatic migration provision described in paragraph (c)(4)(ii) of this section.
(c) The court test—(1) Safe harbor. A trust satisfies the court test if—
(i) The trust instrument does not direct that the trust be administered outside of the United States;
(ii) The trust in fact is administered exclusively in the United States; and
(iii) The trust is not subject to an automatic migration provision described in paragraph (c)(4)(ii) of this section.
(2) Example. The following example illustrates the rule of paragraph (c)(1) of this section:
Example. A
creates a trust for the equal benefit of A's two children, B and C. The trust instrument provides that DC, a State Y corporation, is the trustee of the trust. State Y is a state within the United States. DC administers the trust exclusively in State Y and the trust instrument is silent as to where the trust is to be administered. The trust is not subject to an automatic migration provision described in
paragraph (c)(4)(ii) of this section. The trust satisfies the safe harbor of paragraph (c)(1) of this section and the court test.
(3) Definitions. The following definitions apply for purposes of this section:
(i) Court. The term court includes any federal, state, or local court.
(ii) The United States. The term the United States is used in this section in a geographical sense. Thus, for purposes of the court test, the United States includes only the States and the District of Columbia. See section 7701(a)(9). Accordingly, a court within a territory or possession of the United States or within a foreign country is not a court within the United States.
(iii) Is able to exercise. The term is able to exercise means that a court has or would have the authority under applicable law to render orders or judgments resolving issues concerning administration of the trust.
(iv) Primary supervision. The term primary supervision means that a court has or would have the authority to determine substantially all issues regarding the administration of the entire trust. A court may have primary supervision under this paragraph (c)(3)(iv) notwithstanding the fact that another court has jurisdiction over a trustee, a beneficiary, or trust property.
(v) Administration. The term administration of the trust means the carrying out of the duties imposed by the terms of the trust instrument and applicable law, including maintaining the books and records of the trust, filing tax returns, managing and investing the assets of the trust, defending the trust from suits by creditors, and determining the amount and timing of distributions.
TITLE
26 > Subtitle
F > CHAPTER
79 > Sec. 7701.
Sec. 7701. -
Definitions
(a)(30) United States person
The term ''United States person'' means -
(A) a citizen or
resident of the United States,
(B) a domestic partnership,
(C) a domestic
corporation,
(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and
(E) any trust if -
(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
(ii) one or more United States persons have the authority to control all substantial decisions of the trust.
[EDITORIAL: The above "citizen of the United States" is used in its GEOGRAPHICAL and not POLITICAL sense. Although the POLITICAL sense is the principal sense according to the U.S. Supreme Court in Texas v. White, 74 U.S. 700 (1869), this statutory context instead is the GEOGRAPHICAL sense tied to domicile rather than nationality or political status because:
- Puerto Ricans are citizens of the United States in its political sense (Cf. 26 C.F.R. §1.1-1(c)) but they are not statutory "United States persons". Instead, they are called "nonresidents, not a citizen of the United States" for the purposes of title 26. See 26 U.S.C. §2209
- Additionally, a foreign national cannot be a resident of a body politic. They can only be resident within a geographical jurisdiction.
- Territories and possessions are foreign countries under 26 C.F.R. §301.7701(b)-2]