...we might decide that the attribution rule should not be applied so broadly, or so automatically. But how would such a system be devised by regulation? The attribution rule could be applied to trusts in which the discretion of the trustee is very limited and the beneficial interests so clearly ascertainable that the trust is, for all practicable purposes, transparent. That is, however, only a small universe of cases. This leads to the further conclusion that the attribution rule has to be applied based on a facts and circumstances determination of the beneficial interest in each case. Yet that seems the antithesis of an attribution rule, and the factual inquiry would necessarily require a thorough examination of governing trust law and corporate law in almost every case. That process would be difficult enough if it were Delaware law at issue. Applying non-U.S. trust law and non-U.S. corporate law would be much more cumbersome. Assessing the element of tax avoidance motivation in the structure in order to test the bona fide nature of the trustee's role would further add to the burden of the inquiry. The search for a satisfactory system seems fruitless.
Donald D. Kozusko and Stephen K. Vetter,
Respect for "Form" as "Substance" in U.S. Taxation of International Trusts,
32 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vjtl/vol32/iss3/6