Take note: US beneficiaries of the above Foreign Trusts investigated by IRS agent/writer Daniel S. Holik are required to report trust income distributions on Form 3520A - but only on trust distributions of over $100,000.
Take note#2: Since only $100,000 distributions were reported to the IRS, the “REAL” (i.e, actual) amount of trust distributions to US taxpayers is certainly 5 to 10 times greater than the $1.3 billion reported (as much as $50 billion or more is my estimate). These are annual distributions, we are talking about.
Take note#3: The corpus held in these foreign trusts is more than likely 100 times (in size) the annual distribution numbers - or perhaps as much as 5 Trillion dollars. (Our speculation - even the IRS does not know). v What is a pound of information worth?
After 12 years of practice, I stumbled onto a "formula" (devise) of sorts. Hey, listen. They didn’t know everything about DNA 20 years ago either.
I can take a taxable U.S. estate tax liability of $200,000,000 to 0 using entirely legal applications, and knowledge from studies in international tax transactions and tax havens found in the Tax Code and college law libraries
In addition to the 100% marital deduction, the IRS Federal Estate tax law allows for a deductible devise. But, what is a dedutible "devise"?
No domestic tax planning competes or comes close to this type of tax planning, because domestic estates are subject to income taxes, whereas foreign estates domiciled in tax havens are not subject to income tax.
This formula (devise) can be integrated with domestic planning - including gifts to US foundations, philanthropy, etc. via (for example) capitalizations from non controlled foreign corporations.
De vis er (n) somebody who conceives of something and figures out how it will work.
De vise (vt) 1. to conceive of the idea for something and figure out how it will work.
2. to pass on property through a will.
Definitions from Microsoft Word dictionary
Editor’s note: The "formula" (devise) prescribed for the American taxpayer would likely work for a British member of the House of Lords or the Duke of Marlboro - just as well as it would work for Michel S. Dell (Dell Computer - net worth $30 billion ).
UK and US tax law run hand and hand in certain areas.
Call me at 242-327-7359 with your questions. - 9AM to 5PM - New York time zone is best.
Thomas Azzara
New Providence Estate Planners, Ltd.
(Consultants)
54 Sandyport Drive
P.O. Box CB 11552
Nassau, Bahamas
Fax/phone: (242) 327-7359
Are the kings of American industry avoiding the Federal Estate Tax? You can bet some of them are.
Want to know why and how the old monied Dupont Nemours and Roosevelt families were able to buy 4,000 acres of waterfront property on the island of Provindentcials in the tax free, crown colony (or "Overseas Territory") of the Turk and Caicos Islands for 1 cent an acre?
This 4,000 acre sale (now a marina and resort town - with an airport for jumbo jets (the $50,000,000 airport was donated by the UK government) went down in the 1970's - not the 1870's!?!?
Source: A Turks & Caicos Government 3 full-page advertisement in Investor's Daily (1985).
In 1970 the IRS issued the following "favorable" ruling to study...NOTE: This ruling was repealed in 2001.
While the ruling has been repealed, it is stil a good example of a IRS favorable revenue ruling.
Editor’s note: This ruling is just one of the “puzzle pieces”. This ruling does not eliminate the Federal Estate Tax – but tells you that trust distributions from a Foreign Grantor Trust can be received by a US beneficiary TAX FREE.
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 ruling was our own IRS].
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1985 2002
Bermuda 0% 0%
Cayman Islands * 0% 0%
Channel Islands * 0% 0%
Isle of Man * 0% 0%
Barbados ** 1% to 2-1/2% 1% to 2-1/2%
Vanuatu * 0% 0%
Bahamas ** 0% 0%
B.V.I. ** 0% 0%
Anguilla ** 0% 0%
Nevis ** 0% 0%
Hong Kong ¢FFGU 0% 0%
Panama ¢FFGU 0% 0%
Gibraltar ¢FFGU* 0% 0%
* "Exempted Companies"
** "International Business Corporations" (IBC)
¢FFGU no tax on "foreign source incomes"
Source: Tax Haven Reporter (2002)
The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave. N.Y.) (now UBS Warburg) has offices in 39 foreign countries - including the Bahamas, the tiny Cayman Islands, Hong Kong and the Channel Islands. Makes you wonder why, doesn't it?
Read on to bottom for all the details....
Non-resident foreign companies, trusts, banks and individuals can trade stocks, bonds, commodity contracts and options 100% free from U.S. capital gains taxes.
Under the U.S. Tax Code, only when a foreign company, foreign trust or nonresident alien individual takes up permanent residence within the United States will he be subject to U.S. capital gains taxes in the same way as domestic taxpayers. For a corporation permanent residence would be a U.S. office or warehouse. Capital gains realized by foreign corporations and other nonresidents "not engaged in a trade or business within the United States" are exempted from tax under IRC Section 871 and IRC Section 881 & IRC Section 897(c)(3). Moreover, U.S. Treasury Regulations Section 864-2(C)(1) & (2) provides an exception for what embodies being "engaged in a trade or business within the United States". Under U.S. regulations, a nonresident's Stock Market transactions carried-out through a U.S. stock broker, independent agent, or an employee are not considered to cause the nonresident to be "engaging in a trade or business within the United States".
Publicly traded stock market gains (from NYSE, NASDAQ or AMEX listed stocks and bonds) accruing to an offshore company are free of US capital gains taxes by the Internal Revenue Tax Code's statutes, but "US Shareholders" can have a tax liability (indirectly) if the offshore company is a "Controlled Foreign Corporation (CFC) (i.e., "more than 50% of voting and non-voting stock is owned by US SHAREHOLDERS). See sections 951 thru 958 of the IRC. See especially Code-Section 951(b) for the definition of US SHAREHOLDERS.
American taxpayers that use tax havens are taking more risks (generally) than a foreign non-resident alien (not a US citizen). Whether an American citizen taxpayer will have a tax liability on the offshore company profits depends on a lot of things - including what kind of income is produced by the company (i.e., Subpart F or non-Subpart F) and how many shares in the company you own, and whether the offshore company is a CFC - as defined in the Internal Revenue Code in Sections 957 and 958.
Non-Subpart F income: Where the services are actually performed is an important criteria too. If the services are performed from within the tax haven, the US shareholders (defined as 10% or more voting stock holders by the IRS in Section °±951(b)) of that foreign corporation will not have an immediate tax liability, but will owe taxes on dividend distributions from the offshore company (if they are distributed).
Call me at 242-327-7359 with your questions. - 9AM to 5PM - New York time zone is best.
Thomas Azzara
New Providence Estate Planners, Ltd.
(Consultants)
54 Sandyport Drive
P.O. Box CB 11552
Nassau, Bahamas
Fax/phone: (242) 327-7359
email: taxman@batelnet.bs
"They have no right to put their hands in my pockets." - General George Washington (1732 - 99)