n-00-61.pdf

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Part III - Administrative, Procedural, and Miscellaneous
Trusts Not Considered Individuals for Purposes of Section 935
Notice 2000-61
The Internal Revenue Service and the Treasury Department have become aware of
certain types of transactions that are being marketed to taxpayers for the avoidance of
federal income taxes. The promoters of these transactions claim that section 935
applies to a trust as part of a scheme in which the trust seeks effectively to avoid both
U.S. and Guamanian tax liability. As explained below, section 935 applies to individuals
only and not to trusts. These transactions may also be subject to challenge on other
grounds. In addition, such transactions are hereby designated as “listed transactions”
for purposes of sections 6011, 6111 and 6112.
Prior to 1973, U.S. citizens who were residents of Guam, and whose citizen status did
not derive from birth or naturalization in Guam, were required to file both U.S. and
Guamanian tax returns. H.R. Rep. No. 92-1479, 92d Cong., 2d Sess. 1 (1972); see
also Section 31 of the Organic Act of Guam, 48 U.S.C. § 1421 et seq. In addition, most
other individuals who derived income from both Guam and the United States had to file
tax returns with both jurisdictions. Id.
Section 935 was enacted, effective for tax years beginning after 1972, to permit such
individuals to file a single income tax return, in Guam, thus eliminating the
administrative burdens associated with the filing of two income tax returns. It was
recognized that the foreign tax credit generally eliminated the tax liability to one of the
jurisdictions and, therefore, that section 935 generally would not affect the amount of
tax ultimately due. See H.R. Rep. No. 92-1479, 92d Cong., 2d Sess. 1 (1972). Section
935 was repealed by P.L. 99-514, sec. 1272(d)(2) (1986), but the repeal takes effect
only if (and for so long as) an implementing agreement under P.L. 99-514, section
1271, is in force between the United States and Guam. No such implementing
agreement is in force, and thus section 935 remains in effect.
The single filing rule contained in section 935 applies solely to individuals who are
resident in Guam, individuals who are citizens of Guam and are not otherwise citizens
of the United States, individuals who are U.S. citizens or residents and have income
derived from Guam, and individuals who file joint returns with any of these persons.
Nothing in the language of section 935, its legislative history, or the policy behind its
enactment indicates that a trust is to be considered an individual for purposes of section
935. The fact that under section 641(b) the taxable income of a trust is generally
determined in the same manner as the taxable income of an individual has no bearing
on whether a trust is an individual for purposes of section 935. Section 935 does not

relieve a trust from any obligation it may have to file an income tax return for the taxable
year with the United States and to pay to the United States any tax due.
Transactions in which it is claimed that section 935 applies to a trust as part of a
scheme in which the trust seeks effectively to avoid both U.S. and Guamanian tax
liability may also be subject to challenge on other grounds.
The Service may impose penalties on participants in transactions subject to this Notice,
or, as applicable, on persons who participate in the promotion or reporting of these
transactions, including the accuracy-related penalty under section 6662, the return
preparer penalty under section 6694, the promoter penalty under section 6700, and the
aiding and abetting penalty under section 6701. Failure to file penalties under section
6651 on the trust may also be appropriate.
In addition, transactions subject to this Notice are hereby identified as “listed
transactions” for the purposes of § 1.6011-4T(b)(2) of the Temporary Income Tax
Regulations, to the extent applicable, and § 301.6111-2T(b)(2) of the Temporary
Procedure and Administration Regulations. See also § 301.6112-1T, A-4. It should be
noted that independent of their classification as “listed transactions” for purposes of §§
1.6011-4T(b)(2) and 301.6111-2T(b)(2), such transactions may already be subject to
the tax shelter registration and list maintenance requirements of sections 6111 and
6112 under the regulations issued in February 2000 (§§ 301.6111-2T and 301.6112-1T,
A-4). Persons required to register these tax shelters who have failed to register the
shelters may be subject to the penalty under section 6707(a) and to the penalty under
section 6708(a) if the requirements of section 6112 are not satisfied.
The principal author of this notice is Karen A. Rennie-Quarrie of the Office of Associate
Chief Counsel (International). For further information regarding this notice contact Ms.
Rennie-Quarrie at (202) 622-3880 (not a toll-free call).