SECTION 3. TRUSTS ELIGIBLE TO

MAKE THE ELECTION

.01 Basic Rule. A trust that was in existence on August 20, 1996, and that was treated as a domestic trust on August 19, 1996, as provided in section 3.02, may elect to continue treatment as a domestic trust notwithstanding § 7701(a)(30)(E). This election is not available to a trust that was whollyowned by its grantor under subpart E, part I, subchapter J, chapter 1, of the Code on August 20, 1996. (Wholly-owned grantor trusts may, however, follow the procedures in Notice 96–65.) The election is available to a trust if only a portion of the trust was treated as owned by the grantor under subpart E on August 20, 1996. If a partially-owned grantor trust makes the election, the election is effective for the entire trust. Also, a trust may not make the election if the trust has made an election pursuant to § 1907(a)(3)(B) of the SBJP Act to apply the new trust criteria to the first taxable year of the trust ending after August 20, 1996, because that election, once made, is irrevocable.

.02 Determining Whether a Trust was Treated as a Domestic Trust on August 19, 1996 (1) Trusts Filing Form 1041 for the Taxable Year that Includes August 19, 1996 For purposes of the election, a trust is considered to have been treated as a do

mestic trust on August 19, 1996, if: (i) the trustee filed a Form 1041, U.S. Income Tax Return for Estates and Trusts, for the trust for the period that includes August 19, 1996 (and did not file a Form 1040NR, U.S. Nonresident Alien Income Tax Return, for that year); and (ii) the trust had a reasonable basis (within the meaning of § 6662) under the prior law for reporting as a domestic trust for that period.

(2) Trusts Not Filing a Form 1041 Some domestic trusts are not required to file Form 1041. For example, group trusts described in Rev. Rul. 81–100, 1981–1 C.B. 326, are not required to file Form 1041. Also, a domestic trust whose gross income for the taxable year is less than the amount required for filing an income tax return and that has no taxable income is not required to file a Form 1041. Section 6012(a)(4). For purposes of the election, a trust that filed neither a Form 1041 nor a Form 1040NR for the period that includes August 19, 1996, will be considered to have been treated as a domestic trust on August 19, 1996, if the trust had a reasonable basis (within the meaning of § 6662) under prior law (i) for being treated as a domestic trust for that period and (ii) for filing neither a Form 1041 nor a Form 1040NR for that period.