Treasury Regulations · 26 CFR

§ 1.684-3. Exceptions to general rule of gain recognition.

In effect eCFR current as of October 15, 2026

Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).

Regulation under 26 U.S.C. § 684

Cite as 26 CFR § 1.684-3

At a glance

Read from the text and its source citation. Not part of the regulation.

Status: In the current eCFR
Issued: July 20, 2001 by T.D. 8956
Last amended: January 19, 2017 by T.D. 9811
Issued under: 26 U.S.C. § 684
Length: 897 words · about 4 min to read
Cross-references: cites 5 Code sections and 5 regulations; cited by 4

¶(a) Transfers to grantor trusts. The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of property by a U.S. person to a foreign trust to the extent that any person is treated as the owner of the trust under section 671. Section 1.684-2(e) provides rules regarding a subsequent change in the status of the trust.

¶(b) Transfers to charitable trusts. The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of property to a foreign trust that is described in section 501(c)(3) (without regard to the requirements of section 508(a)).

¶(c) Certain transfers at death—

¶(1) Section 1014 basis. The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of property to a foreign trust or foreign estate or, in the case of a transfer of property by a U.S. transferor decedent dying in 2010, to a foreign trust, foreign estate, or a nonresident alien, by reason of death of the U.S. transferor, if the basis of the property in the hands of the transferee is determined under section 1014(a).

¶(2) Section 1022 basis election. For U.S. transferor decedents dying in 2010, the general rule of gain recognition under § 1.684-1 shall apply to any transfer of property by reason of death of the U.S. transferor if the basis of the property in the hands of the foreign trust, foreign estate, or the nonresident alien individual is determined under section 1022. The gain on the transfer shall be calculated as set out under § 1.684-1(a), except that adjusted basis will reflect any increases allocated to such property under section 1022.

¶(d) Transfers for fair market value to unrelated trusts. The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of property for fair market value to a foreign trust that is not a related foreign trust as defined in § 1.679-1(c)(5). Section 1.671-2(e)(2)(ii) defines fair market value.

¶(e) Transfers to which section 1032 applies. The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of stock (including treasury stock) by a domestic corporation to a foreign trust if the domestic corporation is not required to recognize gain on the transfer under section 1032.

¶(f) Certain distributions to trusts. For purposes of this section, a transfer does not include a distribution to a trust with respect to an interest held by such trust in an entity other than a trust or an interest in certain investment trusts described in § 301.7701-4(c) of this chapter, liquidating trusts described in § 301.7701-4(d) of this chapter, or environmental remediation trusts described in § 301.7701-4(e) of this chapter.

¶(g) Examples. The following examples illustrate the rules of this section. In all examples, A is a U.S. citizen and FT is a foreign trust. The examples are as follows:

¶Example 1. Transfer to owner trust.

In 2001, A transfers property which has a fair market value of 1000X and an adjusted basis equal to 400X to FT. At the time of the transfer, FT has a U.S. beneficiary within the meaning of § 1.679-2, and A is treated as owning FT under section 679. Under paragraph (a) of this section, § 1.684-1 does not cause A to recognize gain at the time of the transfer. See § 1.684-2(e) for rules that may require A to recognize gain if the trust is no longer owned by A.

¶Example 2. Transfer of property at death: Basis determined under section 1014(a).

(i) The initial facts are the same as Example 1.

(ii) A dies on July 1, 2004. The fair market value at A's death of all property transferred to FT by A is 1500X. The basis in the property is 400X. A retained the power to revoke FT, thus, the value of all property owned by FT at A's death is includible in A's gross estate for U.S. estate tax purposes. Pursuant to paragraph (c) of this section, A is not required to recognize gain under § 1.684-1 because the basis of the property in the hands of the foreign trust is determined under section 1014(a).

¶Example 3. Transfer of property at death: Basis not determined under section 1014(a).

(i) The initial facts are the same as Example 1.

(ii) A dies on July 1, 2004. The fair market value at A's death of all property transferred to FT by A is 1500X. The basis in the property is 400X. A retains no power over FT, and FT's basis in the property transferred is not determined under section 1014(a). Under § 1.684-2(e)(1), A is treated as having transferred the property to FT immediately before his death, and must recognize 1100X of gain at that time under § 1.684-1.

¶Example 4. Transfer of property for fair market value to an unrelated foreign trust. A

sells a house with a fair market value of 1000X to FT in exchange for a 30-year note issued by FT. A is not related to FT as defined in § 1.679-1(c)(5). FT is not treated as owned by any person. Pursuant to paragraph (d) of this section, A is not required to recognize gain under § 1.684-1.

[T.D. 8956, 66 FR 37899, July 20, 2001, as amended by T.D. 9811, 82 FR 6239, Jan. 19, 2017]

Cross-references

Computed from the citations in the text of 26 CFR.

Code sections it cites

Regulations it cites

Cited by 4 other regulations

Amendment history

From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.

January 19, 2017Amended by T.D. 9811 (82 FR 6239)
July 20, 2001Issued by T.D. 8956 (66 FR 37899)

Where it sits in 26 CFR

Subchapter A Income tax
Part 1 Income taxes
Miscellaneous

Nearby sections

§ 1.683-2 Exceptions.
§ 1.683-3 Application of the 65-day rule of the Internal Revenue Code of 1939.
§ 1.684-1 Recognition of gain on transfers to certain foreign trusts and estates.
§ 1.684-2 Transfers.
§ 1.684-3 Exceptions to general rule of gain recognition.
§ 1.684-4 Outbound migrations of domestic trusts.
§ 1.684-5 Effective/applicability dates.