foreign trust foreign currency contributions

Forum|Forum|1 year ago
August 7, 2024
1 reply
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Hello,

I am a US citizen, residing outside the USA.

I have a foreign trust, into which I have made a contribution of foreign currency.

I acquired the foreign currency earlier, and can determine the Section 988 outcome (a loss),

for the date when it was contributed into the foreign trust.

My Question: does Section 988 apply in these circumstances?

(If it matters, this is a Foreign Grantor Trust.)

(I don't want to claim a loss if S 988 doesn't actually apply.)

Thanks for any help you can provide!

Not A Product Question

pk12_2

Employee

@msosso51 whereas we lack some information as to the country where this Trust is registered and therefore the laws of such a country regarding trust ( Grantor trusts specifically ) and therefore treaty assertions ) the following excerpt from statute ( section 988 ) suggests that you are not subject to 988 regs because this is not a 988 transaction ----->

(1)Section 988 transaction

(A)In general The term “section 988 transaction” means any transaction described in subparagraph (B) if the amount which the taxpayer is entitled to receive (or is required to pay) by reason of such transaction—

(i) is denominated in terms of a nonfunctional currency, or

(ii) is determined by reference to the value of 1 or more nonfunctional currencies.

(B)Description of transactions

For purposes of subparagraph (A), the following transactions are described in this subparagraph:

(i) The acquisition of a debt instrument or becoming the obligor under a debt instrument.

(ii) Accruing (or otherwise taking into account) for purposes of this subtitle any item of expense or gross income or receipts which is to be paid or received after the date on which so accrued or taken into account.

(iii) Entering into or acquiring any forward contract, futures contract, option, or similar financial instrument.

The Secretary may prescribe regulations excluding from the application of clause (ii) any class of items the taking into account of which is not necessary to carry out the purposes of this section by reason of the small amounts or short periods involved, or otherwise. "

Is there more one of us can do for you ?

msosso51Author

Thanks very much for your response.

Maybe I'm being too restrictive, in trying to characterize the transaction as falling under sec 988?

If I contribute foreign currency into a foreign grantor trust, is there a realization event I can claim (ie, an ordinary loss)?

Thanks again for your earlier response.

pk12_2

Employee

@msosso51 , as I understand the definition of a section 988 transaction and hence the applicability of gain/loss recognition, your grantor trust, constituted under the laws of that Foreign country, is outside the regs of 988. This is more like a personal " savings " type of vehicle. And assuming that this is equivalent in characteristics to a US " Revocable " Trust then it is still your own asset. However, any income may need to recognized.

What I wanted to say is that it matters as to what the trust is for ( its charter ) whether it is domestic or foreign.

Also Treaty conditions may apply.

I am not an expert on Trusts ( domestic ) -- I will refer you to @M-MTax -- he deals with trusts. I deal with international / foreign tax issues.