PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 979 "SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO CER- TAIN FOREIGN TRUSTS AND ESTATES. "(a) IN GENERAL. —Except as provided in regulations, in the case of any transfer of property by a United States person to a foreign estate or trust, for purposes of this subtitle, such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of— "(1) the fair market value of the property so transferred, over "(2) the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor. "(b) EXCEPTION.— Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any person is treated as the owner of such trust under section 671, " (c) TREATMENT OF TRUSTS WHICH BECOME FOREIGN TRUSTS. — If a trust which is not a foreign trust becomes a foreign trust, such trust shall be treated for purposes of this section as having transferred, immediately before becoming a foreign trust, all of its assets to a foreign trust.". (b) OTHER ANTI-AVOIDANCE PROVISIONS REPLACING REPEALED EXCISE TAX.— (1) GAIN RECOGNITION ON EXCHANGES INVOLVING FOREIGN PERSONS.— Section 1035 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: "(c) EXCHANGES INVOLVING FOREIGN PERSONS.—To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person.". (2) TRANSFERS TO FOREIGN CORPORATIONS.—Section 367 is amended by adding at the end the following new subsection: "(f) OTHER TRANSFERS. —To the extent provided in regulations, if a United States person transfers property to a foreign corporation as paid-in surplus or as a contribution to capital (in a transaction not otherwise described in this section), such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of— "(1) the fair market value of the property so transferred, over "(2) the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor.". (3) CERTAIN TRANSFERS TO PARTNERSHIPS.— Section 721 is amended by adding at the end the following new subsection: " (c) REGULATIONS RELATING TO CERTAIN TRANSFERS TO PART- NERSHIPS.— The Secretary may provide by regulations that subsection (a) shall not apply to gain realized on the transfer of property to a partnership if such gain, when recognized, will be includible in the gross income of a person other than a United States person.". (4) REPEAL OF U.S. SOURCE TREATMENT OF DEEMED ROYAL- TIES.— Subparagraph (C) of section 367(d)(2) is amended to read as follows: " (C) AMOUNTS RECEIVED TREATED AS ORDINARY INCOME. —For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income.".
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