Finding and Fixing Foreign Issues in a Domestic Trust - 2026

2 IRS CE/CTEC/NASBA CPE*

A trust the client and prior counsel have always treated as domestic can be a foreign trust under §7701(a)(30)(E) because of a single drafting choice or a routine succession event — a Canadian sister named as successor trustee, a removal-and-replace power held by a non-U.S. beneficiary, an automatic migration clause buried in an asset protection trust. Once the Court Test or Control Test fails and isn't cured within the 12-month window, the trust is foreign as of the day it failed, and the consequences run through throwback tax on UNI distributions, §1441 withholding exposure, and the reporting regime at §6048.

This program walks through how to spot the problem during return preparation and trust administration, the §7701 framework and its safe harbors, and the practical fixes — distribution sequencing to bleed off UNI, restructuring powers so non-U.S. persons participate without controlling, and using grantor trust status under §§671–679 to avoid foreign trust treatment while the grantor is alive. Reporting coverage includes Forms 3520 and 3520-A, the Rev. Proc. 2020-17 carve-outs for tax-favored foreign retirement and savings arrangements, the §6677 penalty regime in light of the IRS's 2024 retreat from automatic foreign-gift assessments and the ongoing §6038-series litigation, and how FBAR and Form 8938 obligations cascade to U.S. beneficiaries.

For experienced EAs, CPAs, and tax attorneys who prepare fiduciary returns or advise individuals with cross-border family, trustee, or asset exposure.

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*Self-Study recording not available for NASBA CPE credit.

NASBA Field of Study: Taxes

IRS Program #: 7Q3WU-T-
CTEC Course #: 6248-CE-