Proposed section 671 regulations relating to application of grantor trust rules to nonexempt employee trusts.

On February 13, 1997, Tax Executives Institute submitted the following comment to the Internal Revenue Service on proposed regulations under section 671 of the Internal Revenue Code, relating to the application of the grantor trust rules to nonexempt employee trusts, including trusts established to provide retirement benefits to foreign-based employees. The comments were developed under the aegis of TEI's International Tax Committee, whose chair is Joseph S. Tann, Jr. of Ameritech Corporation, and its Federal Tax Committee, whose chair is David L. Klausman of Westinghouse Corporation. The following members of the Institute contributed to the development of the Institute's position: Derek A. Terenzi of General Motors Corporation and Raymond Haas of Marsh & McLennan Companies.

On September 26, 1996, the U.S. Department of the Treasury and the Internal Revenue Service issued proposed regulations under section 671 of the Internal Revenue Code, relating to the application of the grantor trust rules to nonexempt employee trusts. The proposed regulations were published in the Federal Register on September 27, 1996 (61 Fed. Reg. 50778) and in the Internal Revenue Bulletin on October 15, 1996 (1996-42 I.R.B. 10).(1)

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our 5,000 members represent more than 2,700 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and that taxpayers can comply with in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations under section 671 of the Internal Revenue Code, relating to the application of the grantor trust rules to nonexempt employee trusts.

Subchapter J of the income tax law sets forth the rules for the income taxation of estates, trusts, beneficiaries, and decedents. Subpart E of that subchapter provides the rules for determining when a grantor is treated as the owner of trust assets and...