In PLR 201532023 the Service made the following rulings  under the facts set forth below:

  • The trust in questions would be classified as a trust for federal tax purposes under Treas. Reg. Sec. 301.7701-4(a).
  • The  CFC in question will be treated as the owner of Trust for purposes of Code Sec. 671.

The facts set forth in PLR 201532023 are as follows:


X is a corporation organized under the laws of State A. As of Date 2, X is the owner of CFC, a limited company incor-porated in Jurisdiction 1 in Country A. CFC is a controlled foreign corporation within the meaning of section 957(a) of the Code. CFC is engaged in Business in Country A.

CFC established Trust by Trust Deed. Trust is governed by the laws of Jurisdiction 2 in Country A. Under Law, Trust is a validly created trust. Trust is required to file tax returns in Country A and has a Country A tax identification number.

CFC utilizes Trust to satisfy its requirements under Law to segregate, hold, and invest assets to ensure that CFC is able to meet its obligations with respect to Business. Trust and CFC are regulated by several government bodies in Country A, including Regulatory Body.

Trustee is the trustee of Trust. Trustee is a limited company incorporated in Jurisdiction 2 in Country A on Date 1. Trus-tee was formed for the main purpose of serving as the trustee of Trust. Under the Trust Deed, Trustee has broad powers to manage Trust assets, including the power to buy and sell assets. Trustee has a duty to preserve and protect the assets of Trust under Law. Trustee has an investment agreement with an external asset manager. The investment agreement provides that the investment policy of Trust is conservative and the objective of the investment strategy is to protect and conserve Trust assets for the benefit of CFC to ensure that it has adequate resources as required under Law.

The ownership of Trust is divided into units. Each unit represents an undivided beneficial interest in the assets of Trust. CFC has at all times been the sole unitholder of Trust. CFC may not unilaterally assign or transfer all or a portion of its interest in Trust without the consent of Trustee. X represents that, given the purpose of Trust, it is not contemplated that CFC would transfer its interest in Trust.

Under the Trust Deed, all of Trust’s net income is required to be distributed annually to CFC, as the sole unitholder of Trust. Trustee has discretion to distribute principal to CFC. CFC may redeem its interest in Trust at any time, although in certain cases, CFC may have to wait up to sixty days. CFC, as the sole unitholder, may also amend or revoke Trust.

Read full PLR at PLR 201532023.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.