IRS -LTR 9332006 Full Text

The use of an offshore testamentary trust to receive a U.S. persons assets only upon his death might afford some definite tax advantages, especially if the trusts assets are revocable by a nonresident alien individual or corporation. IRS LT. 9332006 confirms that upon his death, assets held in a foreign trust will no longer be subject to U.S. taxes, and not considered part of the U.S. person's U.S. estate, even if there are U.S. beneficiaries for the foreign trust.

LTR 9332006 -- ISSUE (4). UPON A SETTLOR'S DEATH, WILL THE PORTION OF THE TRUST TREATED AS OWNED BY THAT SETTLOR CEASE TO BE SO TREATED EVEN IF THEN TRUST BENEFICIARIES INCLUDE UNITED STATES PERSONS? Section 679(a)(2) (A) provides that the rules of section 679(a)(1) do not apply to "a transfer by reason of death of the transferor." While section 679(a)(2)(A) does not expressly address the tax consequences of the termination of foreign grantor trust status by reason of the grantor's death, the legislative history of the enactment of section 679 (H.R. Rep. No. 658, 94th Cong., 1st Sess. at 209 (1975); S. Rep. No. 938, 94th Cong., 2d Sess. at 218 (1976)) provides that "an inter vivos trust which is treated as owned by a U.S. person under [section 679] is not treated as owned by the estate of that person upon his death." Accordingly, any portion of the Trust that is treated as owned by a Settlor under the rules of section 679 shall cease to be so treated upon that Settlor's death.

In 1970 the IRS issued the following ruling to study...

Revenue Ruling 69-70 states: "An individual beneficiary who is resident of the United States is not taxable on a distribution from a foreign
trust considered to be owned by a nonresident alien grantor under subpart E of subchapter J of the Code" - these are the exact words of the Internal Revenue Service tax writers - i.e., tax lawyers working for the Treasury department writing your tax law. They are people from Harvard, Stanford, and other big name institutions.

FULL IRS TEXT of RULING FOLLOWS:

Rev-Rul 69-70: "Advice has been requested whether the income of a foreign trust, under the circumstances described below, is taxable to the beneficiary, an individual who is resident of the United States.

X, a nonresident alien individual, created a foreign trust for the benefit of a resident of the United States. Under the terms of the instrument, X reserves the absolute power to dispose of the beneficial enjoyment of both the income and the corpus of the trust. The trustees are nonresident aliens, and all the trust property had a situs outside the United States.

When income-producing property is placed in trust, the Federal income tax liability generally shifts from the grantor to the trust and beneficiaries in accordance with subparts A through D of part I, subchapter J, Chapter 1, subtitle A of the Internal Revenue Code of 1954 (sections 641 through 669).

However, where the grantor retains dominion and control over the income and corpus of the trust, subpart E of subchapter J (sections 671 through 678) rather than subparts A through D of subchapter J, is applicable. Since X, a nonresident alien grantor retained the absolute power to dispose of the beneficial enjoyment of both the income and corpus of the trust, he is treated as the owner of the trust under IRC §674(a) of the Code. Accordingly, an individual beneficiary who is a resident of the U.S. is not taxable on that portion of the income distributed to him from the foreign trust which is considered to be owned by the nonresident alien grantor under subpart E of subchapter J of the Code.

It should be noted that United States source income of a foreign trust considered to be controlled by a nonresident alien grantor is taxed to the grantor. If the grantor is a resident of a non-treaty country, the provisions of section 871 of the Code apply concerning the tax. However, if the grantor is a resident of a treaty country, the provisions of the treaty may determine the tax."

[Author of this now repealed revenue ruling is our own IRS]. Is there another avenue to achieve the same result?

DO YOU KNOW WHAT's A REVENUE RULING?

A Revenue Ruling is not a law passed by Congress; it is a proclamation by the Internal Revenue Service explaining the facts as they relate to a particular set of laws. Revenue Rulings are the published conclusions of the IRS concerning the application of tax law to an entire set of facts.

Revenue procedures are official statements of procedures that either affect the rights or duties of taxpayers or other members of the public, or should be a matter of public knowledge. The purpose of these rulings is to promote a uniform application of the tax laws, and therefore IRS employees must follow the rulings. While taxpayers can rely on the rulings, they can also appeal adverse return examination decisions based on the rulings to the Tax court or other Federal courts.

The statement above was written by the IRS. It was taken (word for word) from one of their own publications.

"They have no right to put their hands in my pockets." - General George Washington (1732 - 99)

Under US estate tax law, a nonresident alien individual that dies holding his US assets in his own name will be subject to US estate taxes at a rate of 37% to 55% - with no marital deduction allowed, and only a $1,500,000 exclusion. Foreigners that hold their US assets in offshore companies can avoid all US estate taxes. That's one reason why there are over 113,000 companies registered in the Bahamas alone - with another 400,000 in the BVI - another commonwealth country that does not tax these companies at all.

There are fewer loopholes for American citizens, yet 65% of the money on deposit in Cayman banks (according to a Cayman government release in 1988) came from the USA! There was not another country on their list that had more money invested in Cayman banks. The Caymans rank as the 4th or 5th largest financial center in the world. The Bahamas are in the top ten. There is more money on deposit in the Cayman banks alone, than in all the commercial banks in the State of California. That is a fact.

Again, bank secrecy seems to play an important role too. The IRS and other revenue agents cannot seize, lien on, freeze or investigate bank accounts in Anguilla, the Bahamas, Caymans and in other tax havens.

In the ten years I've lived on this island, I've never seen it happen.

One of the most effective applications of offshore trusts is in an ownership combination with a limited company. Richard Graham-Taylor, partner Ernst & Young, Grand Cayman (January 1990).

Isn't it amazing that people will spend hours cutting coupons in an effort to save a few dollars. Or will endlessly surf the Internet in search of a product that offers a slightly cheaper product? Perhaps a little money will be saved here and there. Ultimately, however we seem to totally disregard the biggest potential savings of all, Taxes!

Java applet

One of our largest budgetary expenses happens to be taxes. Income, capital gains, death taxes, the list continues with a multitude of taxes that, if truly considered, would have any sane person perplexed how it is possible to save any money at all. The good news is, due to its incredible complexity, the tax code can offer numerous ways for the average person to reduce their tax bill. In order to realize big tax savings, one must create a tax plan.

Start by auditing your life. Listing your expenses, hobbies, business activities and how you and your family spend your time. Listing short, intermediate, and long-range life and financial goals must also be listed. After these tasks are complete, an astute tax advisor should be able to find ways to reduce tax bills based on your objectives.

Examples of commonly missed tax reduction strategies might include:

Tax Reduction Strategies

Competent tax and accounting advise should always be sought before implementing any changes.

Click on any of the states below to connect to their Department of revenue and taxation.

NOTE:  Clicking on California will take you to their state specific site.

 
Map of United States Olympia Salem Sacramento Boise Carson City Phoenix Salt Lake City Santa Fe Denver Chyenne Helena Bismark Pierre Lincoln Topeka Oklahoma City Austin Baton Rouge Little Rock Jefferson City Des Moines St. Paul Jackson Nashville Frankfort Springfield Madison Lansing Lansing Indianapolis Montgomery Columbus Tallahasse Atlanta Columbia Raleigh Richmond Charleston Annapolis Annapolis Dover Dover Harrisburg Trenton Trenton Albany Albany Richmond Lansing Columbia Raleigh Juneau Juneau Juneau Juneau Juneau Honolulu Honolulu Honolulu Honolulu Honolulu Honolulu Honolulu Hartford Hartford Providence Providence Boston Boston Montpelier Montpelier Concord Concord Augusta

 

 

 BREAKING NEWS

Breaking Business News          POSTED AT 5:23 PM EST              Friday, Jun. 6, 2003

By CAROLYN LEITCH     From Saturday's Globe and Mail

Estate

       Don't let estate spark family feud

Julia Walker recently inherited her mother's treasured collection of jeweler. Now she has her mother's favorite pieces, but fears she will soon lose her brothers.

Ms. Walker (not her real name) has been receiving increasingly nasty e-mails from her brothers demanding that she part with some of the jeweler or have her father compensate them for its value.

Last week, she appealed for advice to Les Kotzer, a lawyer at Fish & Associates in Thornhill, Ont., who sees this sort of thing all the time.

Indeed, wills and inheritances have become so increasingly fractious, Mr. Kotzer teamed with partner Barry Fish to write The Family Fight: Planning to Avoid It as a guide to maintaining harmony.

"I've seen terrible fighting over personal possessions," Mr. Kotzer says.

In the case of Ms. Walker, he suggests she might be better off to try to work out an agreement with her brothers before the family rift cannot be healed. He says the brothers' actions may look like bullying, but a court battle would be worse.

But he also points out that the mother, who made it clear to friends that she wanted her daughter to have her jeweler, does not appear to have explained her reasoning to her sons. Some of the bitterness might have been avoided if she had.

Mr. Kotzer says many people who do have wills focus on minimizing taxes in their estate planning instead of avoiding disputes. He knows that estate planning can be a difficult subject for many people to face, but he believes more people would tackle it if they knew how vicious family feuds can become.

"This is a very important thing to parents - that their kids not fight - and yet I see a lot of children fighting."

Mr. Kotzer adds that many people who are elderly now lived through the Great Depression and the Second World War in their youth.

They were the coupon-cutters and savers who often now have considerable assets.

[Continued on Next Page.]

 

The Tax Library - Home
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Through the power of the Internet you can benefit from this rich, tax-saving help absolutely free, right in your own home -- today's best ways to reduce your tax bill and boost your personal income.

 

2004 Tax Calendar

This Tax Calendar shows the due dates for filing tax returns and reporting tax information. Generally, if the due date falls on a Saturday, Sunday or legal holiday, the due date is the next business day. However, we recommend using the standard dates listed below to be on the safe side.

While these due dates are generally applicable, certain tax circumstances and specific situations may result in modification of these dates. Accordingly, if in doubt, you should verify the due date with your tax advisor.

 

January
10th Report tip income for December, if $20 or more, to your employer (use Form 4070).
15th Pay fourth quarter estimated tax payment for preceding year. If you miss this deadline, you may avoid a penalty by filing your final return for 2003 and paying the balance of your 2003 tax by January 31, 2004 (March 1, 2004 for farmers and fishermen).
31st If you have employees (including household employees), provide them with Form W-2. If you are an employee, you should be receiving these forms. If you do not have yours by mid-February, contact your employer.
31st Provide recipients with their copy of Form 1099 if you have paid interest, dividends or reportable miscellaneous income. If you are a recipient, you should be receiving these forms. If you do not have yours by mid-February contact the payer.
31st If you did not pay owed estimated tax on January 15, file your personal income tax return and pay tax due to avoid penalties for underpaying estimated taxes.
31st If you're an employer, report income tax withholding and FICA taxes for the last quarter of 2003 (use Form 941) and file annual return of federal unemployment taxes (use Form 940). If taxes are fully deposited on time, filings can be deferred to February 10.
February
10th Report tip income for January, if $20 or more, to your employer (use Form 4070).
10th File deferred Forms 940, 941 (See January 31)
15th File Form W-4 to claim exemption from withholding.
28th File any required Forms 1099 for interest, dividends and miscellaneous payments described under January 31 (electronic filers can defer filing W-2s to March 31). 
28th If you are an employer, file Forms W-2(Copies A)and transmittal Form W-3 with the Social Security Administration (electronic filers can defer filing to March 31).
March
1st File your personal income tax return to avoid penalties for underpaying estimated taxes (if you are a farmer and fisherman).
10th Report tip income for February, if $20 or more, to your employer (use Form 4070).
15th File calendar year corporate returns (use Form 1120, 1120-A or 1120S) or file for an automatic six-month extension (use Form 7004).
 31st Electronic filers file Forms W-2 and 1099.
April
10th Report tip income for March, if $20 or more, to your employer (use Form 4070).
15th File your personal tax return (Form 1040, Form 1040A or 1040EZ) or file for an automatic four-month extension (use Form 4868).
15th Household employers who paid wages of $1,400 or more in 2003 file Schedule H (Form 1040).
15th File income tax returns for calendar-year partnerships (use Form 1065) or request an automatic three-month extension (use Form 8736).
15th File income tax returns for calendar-year trusts and estates (use Form 1041) or file for an automatic three-month extension for trusts (use Form 8736). [Estates seeking an extension must submit an application on Form 2758 in time for it to be processed by the filing date. The application should state the period of extension needed.]
15th Pay the first estimated tax payment for individuals (use Form 1040-ES).
15th Deposit the first estimated tax payment for calendar year corporations.
30th If you're an employer, report income tax withholding and FICA taxes for the first quarter of 2004 (use Form 941). If taxes are fully deposited on time, filing Form 941 can be deferred to May 10.
May
10th Report tip income for April, if $20 or more, to your employer (use Form 4070).
10th File deferred Form 941 (see April 30)
15th Due date for information returns of calendar year exempt organizations (Forms 990, 990-EZ, 990-PF and 990-T).
June
10th Report tip income for May, if $20 or more, to your employer (use Form 4070).
15th File your individual tax return if you were living outside of the United States, or file for a 2-month extension (use Form 4868).
15th Pay the second estimated tax payment for individuals (use Form 1040-ES).
15th Deposit the second estimated tax payment for calendar year corporations.
July
10th Report tip income for June, if $20 or more, to your employer (use Form 4070).
15th File calendar year partnership and trust returns (use Form 1065 or Form 1041, respectively) for which an extension was obtained. Partnerships and trusts can file for a further 3-month extension (file Form 8800).
31st File information returns of calendar-year retirement plans such as Keogh plans (Form 5500, 5500EZ).
31st If you're an employer, report income tax withholding and FICA taxes for the second quarter of 2004 (use Form 941). If taxes are fully deposited on time, filing Form 941 can be deferred to August 10.
August
10th Report tip income for July, if $20 or more, to your employer (use Form 4070). File deferred Form 941 (see July 31).
15th File your individual income tax returns (Form 1040, 1040A or 1040EZ) if you have a filing extension. You may request a further extension until October 15. File Form 2688 in time for your request to be acted on before August 15..
September
10th Report tip income for August, if $20 or more, to your employer (use Form 4070).
15th Pay the third estimated tax payment for individuals (use Form 1040-ES).
15th Deposit 80% of the amount otherwise due as the third estimated tax payment for calendar year corporations.
15th File extended calendar-year corporation returns (use Form 1120, 1120-A or 1120S).
October
1st Deposit balance of the amount otherwise due as the third estimated tax payment for calendar year corporations.
 10th Report tip income for September, if $20 or more, to your employer (use Form 4070).
 15th File your individual tax return (use Form 1040) if you have a second extension.
 15th File a calendar-year partnership or trust return (use Form 1065 or Form 1041, respectively) if you have a second extension.
 31st If you're an employer, report income tax withholding and FICA taxes for the third quarter of 2004 (use Form 941). If taxes are fully deposited on time, filing Form 941 can be deferred to November 10.
November
10th Report tip income for October, if $20 or more, to your employer (use Form 4070).
10th File deferred Form 941 (see October 31)
December
10th Report tip income for November, if $20 or more, to your employer (use Form 4070).
15th Pay the fourth estimated tax payment (for calendar-year corporations).

 

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