Rev. Rul. 82-193

ISSUE

Is a nonresident alien decedent's interest in a trust treated as property without the United States under section 2105(b) of the Internal Revenue Code, and thus excludable from the gross estate, when the trust funds are held in a bank certificate of deposit at the decedent's death?

FACTS

D was a citizen and resident of country X, which had not entered into an estate tax convention with the United States. D was not engaged in the conduct of any trade or business in the United States.

In 1977 D established a simple irrevocable trust described in section 651 of the Code under which all of the income of the trust was to be distributed to D's adult child for 10 years and 1 month. At the expiration of the trust term, the corpus was to revert to D, or D's estate in the event D died prior to the expiration of the trust. Under the terms of the trust agreement, BK, a United States bank, was designated as trustee. D died in 1981. At the date of D's death the trust corpus was invested in a BK certificate of deposit.

LAW AND ANALYSIS

Under section 2103 of the Code, the value of the gross estate of every nonresident alien is that part of the gross estate (as determined for decedents who are citizens or residents of the United States) that at the time of the decedent's death is situated in the United States.

The value of a reversionary interest in a trust owned by a decedent at death is includible in the gross estate under section 2033 of the Code. Adriance v. Higgins, 113 F.2d 1013 (2d Cir. 1940).

Under section 2105(b) of the Code, deposits with persons carrying on a banking business as described in section 861(c) are property without the United States if the interest on those deposits would be treated as income from sources without the United States under section 861(a)(1)(A) had the decedent received the interest at the time of death. Rev. Rul. 72-104, 1972-1 C.B. 209, provides that time certificates of deposit are bank deposits within the meaning of section 861(c).

Under section 861(a)(1)(A) of the Code, interest from bank deposits is treated as income from sources without the United States if the interest is received by a nonresident alien and if the interest is not effectively connected with the conduct of a trade or business within the United States.

Rev. Rul. 69-596, 1969-2 C.B. 179, in considering the application of section 2105(b) of the Code, distinguishes between bank deposits that are special deposits and those that are general deposits. It describes a general deposit as money paid to the bank, to the depositor's general credit, that must be repaid on the depositor's order or demand, that the bank may use in the banking business, and that gives rise to a debtor-creditor relationship. The ruling states that one of the characteristics of a general deposit is that the depositor has substantially unrestricted access to the funds. It states that a special deposit is made when property, including money, is transferred to a bank for a specific purpose, not contemplating a credit or general account, and may not be commingled with the general funds of the bank. Rev, Rul. 69-596 concludes that section 2105(b) applies only to general bank deposits.

Interest income earned by a simple trust on a deposit in a United States bank and received by a nonresident alien beneficiary should be treated in the same manner as interest income received directly by a nonresident alien beneficiary. Thus, under section 861 of the Code, this income is not United States source income. Isidro Martin-Montis Trust v. Commissioner, 75 T.C. 381 (1980), acq., 1981-2 C.B. 2; Rev. Rul. 81-244, 1981-2 C.B. 151. The interposition of the trust does not affect the underlying character of the bank deposit so as to change what would otherwise be regarded as a general deposit into a special deposit.

Thus, in the present situation, the deposit with BK retains its character as a general deposit and D's reversionary interest in the trust will be considered property situated outside the United States for purposes of section 2105(b) of the Code.

HOLDING

D's interest in the trust is treated as property without the United States and is thus excludable from D's gross estate.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 69-596 is clarified to the extent that it implies, without exception, that funds that are held by a bank as trustee or as custodian do not come within the scope of section 2105(b) of the Code. Under the facts of this ruling where the trust funds consist of a general deposit in a United States bank, the decedent's interest in the trust does come within the scope of section 2105(b).