SECTION 3. GENERAL ASSET

ACCOUNT ELECTION

.01 Subject to section 3.02 of this revenue procedure, a taxpayer may elect to apply the general asset account rules in § 1.168(i)–1 for any item of property: (1) depreciated by the taxpayer under § 168; (2) placed in service by the taxpayer after December 31, 1986, in any taxable year ending before October 11, 1994; (3) for which the taxpayer has not previously made a general asset account election; and (4) held by the taxpayer as of the beginning of the year of change.

.02 This election may be made only if the taxpayer has records that establish: (1) the taxable year in which the property was placed in service by the taxpayer; (2) the applicable depreciation method, recovery period, and convention under § 168 for the property; (3) the unadjusted depreciable basis (as defined in § 1.168(i)–1(b)(1)) of the property as of the beginning of the year of change; and (4) the depreciation allowed or

volving the trust. For purposes of this paragraph, a transfer of property does not include a nongratuitous transfer. See § 671–2(e)(4)(ii). In addition, a gift shall not be taken into account to the extent such gift would not be characterized as a taxable gift under section 2503(b). For a definition of U.S. benefi- ciary, see section 679.

(2) Examples . The following examples illustrate the rules of this section:

Example 1. A, a nonresident alien, contributes property to FC, a foreign corporation that is wholly owned by A. FC creates a foreign trust, FT, for the benefit of A and his children. FT is revocable by FC without the approval or consent of any other person. FC funds FT with the property received from A. A and his family move to the United States. Under paragraph (a)(1) of this section, A is treated as the owner of FT.

Example 2. B, a U.S. citizen, makes a gratuitous transfer of $1 million to his uncle, C, a nonresident alien. C creates a foreign trust, FT, for the benefit of B and his children. FT is revocable by C without the approval or consent of any other person. C funds FT with the property received from B. Under paragraph (a)(1) of this section, B is treated as the owner of FT. (B also would be treated as the owner of FT as a result of section 679.) (b) Different taxable years . If a person has a different taxable year (as defined in section 7701(a)(23)) from the taxable year of the trust, an amount is currently taken into account in computing the income of such person for purposes of § 1.672(f)–1 if the amount is taken into account for the taxable year of such person that includes the last day of the taxable year of the trust.

(c) Entity characterization . Entities generally shall be characterized under U.S. income tax principles. See §§ 301.7701–1 through 301.7701–4 of this chapter. However, for purposes of § 1.672(f)–4, a transferor that is a wholly owned business entity shall be treated as a corporation, separate from its single owner. See § 301.7701– 2(c)(2)(iii) of this chapter. (d) Effective date . The rules of this section are generally applicable as of August 20, 1996. However, the rules in paragraph (c) of this section shall not be applicable until [date of publication as a final regulation in the Federal Regis- ter ].

PART 301—PROCEDURE AND ADMINISTRATION

Par. 5. The authority citation for part 301 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 - * *

Section 301.7701–2(c)(2)(iii) also issued under 26 U.S.C. 643(a)(7), 672(f)(4) and (6).

Par. 6. Section 301.7701–2 is amended by adding paragraph (c)(2)(iii) to read as follows:

§ 301.7701–2 Business entities; defini- tions.

- - - - (c) - * *

(2) - * * (iii) Special rule for foreign business entities that make purported gifts . For the purposes of applying the rules of section 672(f)(4), a wholly owned business entity shall be treated as a corporation, separate from its single owner.

- - - -

Michael P. Dolan, Acting Commissioner of Internal

Revenue.

(Filed by the Office of the Federal Register on June 4, 1997, 8:45 a.m., and published in the issue of the Federal Register for June 5, 1997, 62 F.R. 30785)

26 CFR 601.204: Changes in accounting periods and in methods of accounting. (Also Part I, §§ 168, 446, 481; 1.168(i)–1, 1.446– 1.)

Rev. Proc. 97–30