§ 672. Definitions and rules
(a)
Adverse party
For purposes of this subpart, the term “adverse party” means any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust. A person having a general power of appointment over the trust property shall be deemed to have a beneficial interest in the trust.
(b)
Nonadverse party
For purposes of this subpart, the term “nonadverse party” means any person who is not an adverse party.
(c)
Related or subordinate party
For purposes of this subpart, the term “related or subordinate party” means any nonadverse party who is—
(2)
any one of the following: The grantor’s father, mother, issue, brother or sister; an employee of the grantor; a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control; a subordinate employee of a corporation in which the grantor is an executive.
(d)
Rule where power is subject to condition precedent
A person shall be considered to have a power described in this subpart even though the exercise of the power is subject to a precedent giving of notice or takes effect only on the expiration of a certain period after the exercise of the power.
(e)
Grantor treated as holding any power or interest of grantor’s spouse
(f)
Subpart not to result in foreign ownership
(1)
In general
Notwithstanding any other provision of this subpart, this subpart shall apply only to the extent such application results in an amount (if any) being currently taken into account (directly or through 1 or more entities) under this chapter in computing the income of a citizen or resident of the United States or a domestic corporation.
(2)
Exceptions
(A)
Certain revocable and irrevocable trusts
Paragraph (1) shall not apply to any portion of a trust if—
(3)
Special rules
Except as otherwise provided in regulations prescribed by the Secretary—
(A)
a controlled foreign corporation (as defined in section
957) shall be treated as a domestic corporation for purposes of paragraph (1), and
(4)
Recharacterization of purported gifts
In the case of any transfer directly or indirectly from a partnership or foreign corporation which the transferee treats as a gift or bequest, the Secretary may recharacterize such transfer in such circumstances as the Secretary determines to be appropriate to prevent the avoidance of the purposes of this subsection.
(5)
Special rule where grantor is foreign person
If—
(A)
but for this subsection, a foreign person would be treated as the owner of any portion of a trust, and
such beneficiary shall be treated as the grantor of such portion to the extent such beneficiary has made (directly or indirectly) transfers of property (other than in a sale for full and adequate consideration) to such foreign person. For purposes of the preceding sentence, any gift shall not be taken into account to the extent such gift would be excluded from taxable gifts under section
2503
(b).