Category Archives: estate tax planning

Provocative International Tax News

offshore tax planning, offshore tax strategies, controlled foreign corporation,

Tax Planning Small Business Are Taxed at 14%

Government Report Shames Businesses Paying More than 14% in Taxes.    Hard to believe that Senator Bernie Sanders  (who paid tax at 13%) released the report.  It states that a business that plans its taxes are taxed at 14%. Here’s what’s going on.    

saving taxes, how to save taxes, tax planning,

Saving taxes with an IRS approved tax plan is called a private letter ruling.

International Gift Tax Plans with this IRS internal letter on this link. Fantastic legal tax avoidance for the foreign person with family in the U.S. is explained in this letter.

  • Avoiding state income taxes this new IRS  designer  Nevada trust.  IRS tells how to use your Nevada corporation as your trustee to legally stop paying state taxes on your investment income. Here’s what’s happeningon this link.

New- Department of the Treasury letter to the U.K. tax authorities on U.S.  tax planning for UK and EU companies. Here is the  this letter from the U.S. 

Tax planning, with the Supreme Court common tax laws

Tax planning with Supreme Court common tax laws

18th Century Supreme Court case destroys IRS tax penalty law. Using this case, the Tax Court gave the IRS a significant defeat.  Here is what happen.   The Supreme Court is the “Law of the Land.”  It rules over the IRS and Congress.   

It works both ways.  The blog on this link explains the most missed Supreme Court Doctrine use by the IRS to blow up this offshore plan.

international tax planning, international, tax, planning,

International tax planning and international tax savings with this Treasury Department report. 

The secret report on tax savings international tax plans that the IRS cannot stop was issued by the U.S. Department of the Treasury (a branch of the White House).

They reported the successful foreign tax plans of international businesses. We have obtained a copy.  It is on this link.   Here you will learn the legitimate foreign tax plans that Congress likes. 

offshore trust, foreign trust, nevada trust, estate planning trust, esbt,    Since the Middle Ages, the wealthy have capitalized on trusts to avoid paying taxes. During the Great Crusades, upon the death of a knight, his entire estate went to the king.    Nine hundred years later, things have not changed much except the ‘King” takes only half.

Trust are the most efficient tax tool. International tax planning should start with a Nevada trust to own the foreign company.  Learn trust tax planning and asset protection in this easy to read blog post.    It has the blueprint for successful trust tax planning.   IRS memo on asset protection and tax planning with an offshore trust.  Get it now on this blog post.

internet tax planning, saving taxes, cloud tax planning

Saving taxes with the cloud-based

Cloud tax planning. Learn how businesses are using the cloud to avoid taxes on this link.  E-commerce companies are avoiding state income taxes and in some cases deferring U.S. taxes.

Be an IRS tax wizard with our new custom Google search, on this link.  This custom Google app to read 300,000 pages deep inside the IRS’s website and the tax court’s website.

Is the U.S. a tax haven for citizens of the UK, Sweden, Belgium, Canada, Luxembourg, and Austria?  Yes, says the IRS in its Publication.  Learn the magic Tax Treaty words for these lucky citizens of The UK, Sweden, Belgium, Canada, Luxembourg, Austria on this link.

IRS Wipes Out “Penny Wise and Dollar Foolish” Self-prepared Form 3520 Reporting Foreign Gifts and Inheritance

form 3520, how to prepare from 3520, foreign gift, foreign inheritance, U.K. inheritance,

“Penny wise and dollar foolish” was one of my mother’s favorite saying. Doing the IRS Form 3520 yourself is foolish.

Another day and an another email from a poor soul preparing Form 3520.  This form is multipurpose.  One purpose is to track assets transferred to U.S. taxpayers.   The goal of the Form 3520 is to place a bullseye on you.

Most people hate reading instructions.  So, they just follow the form and ignore the instructions and the complex requirement found only in IRS regulations.    And there are even more deadly problems that make you an IRS target.

I will discuss those problems below;  however, first, please hire a certified public accountant or an international tax attorney to prepare the Form.  Next, retrieve all of the information from the deceased’s estate.  An IRS audit occurs a few years after you file the Form and by then the information may be misplaced.

  1.   The IRS is hunting for hidden offshore taxable income with the Form 3520.

    Besides looking for gift taxes and estate taxes, the IRS is looking for the tax evader.   The IRS examines the recipient looking for disguise income.   Tax evaders often claim the money they receive is a gift from a “friend” or distant relative or a foreign corporation.

  2. The IRS is hunting for gift taxes and generation skipping taxes for gifts by non-resident (domiciled) aliens from a U.S. bank account.

    The alien does not have the $5.5 million dollar gift and estate tax exemption.   In fact, they have almost no exemption, at all.   Gifts of money can be taxable. Gifts of money to a grandchild can be taxable twice (the gift tax and the generation skipping tax).   If you report a gift made by a transfer from a U.S. bank account, expect an examination and expect to owed taxes.

  3. The IRS is hunting for estate taxes for assets owned by a foreign corporation by the non-resident alien.

    Once again, so many emails and phone calls from U.S. taxpayers inheriting a foreign corporation  (this week it seem to be Panama companies).   Assets owned by a foreign entity are owned by the shareholder (learn more on this link).

    You (and the foreign estate) do have tax planning options but you need an international tax professional to select the correct strategy.

    The non-resident alien’s U.S. estate tax exemption is less than $60,000 (unless an estate tax treaty applies).   If the foreign corporation owns shares of U.S. companies (including those on the stock market) or U.S. real estate, then taxes are due.

    You personally owed the estate taxes or gift taxes since you received the property.  This is known as “transferee liability”.  Besides owning the taxes, you will owe a tax penalty and also interest.   You should expect about fifty percent of the amount you received to be paid to the IRS.    Of course, you will need a professional to represent you.

    The typical fee for a Form 3520 preparation is about $5,000 unless your relative owned a foreign foundation.   If so, then you have the complex issue for a non-grantor foreign trust (learn more on this link).

 

Foreign Inheritance and Gift Tax Planning and Strategies

The IRS headline Aliens with any U.S. Assets Must File Estate Tax Returnsis shocking to their adult children.

And, it gets worse for those decedents owning foundations, foreign trusts, foreign companies, Stiftung, and Anstalts.   The heirs could owe the IRS both estate taxes and income taxes on their inheritance.

The label of the entity (such as trust) does not decide the entities IRS tax classification.     An entity labeled a “trust” can be classified for tax law a corporation.  Similarly, a foreign corporation can be categorized by the IRS as a trust.

Suzan’s father is a French citizen.  When he passed away, he was residing in Spain.  To avoid French and Spain taxes, he formed a Panama foundation.  In our telephone calls, Suzan labeled the foundation as a Panama trust.

As you expect, U.S. taxation of a foreign trust is very different from a foreign corporation.  Two factors differentiate corporations from trusts.  They are:
(1) the presence of associates; and
(2) the objective to carry on business and divide the gains.

One court case held that term “associates” does not mean plural.  The court held that a trust with a single beneficiary has associates.   Because of this case, the IRS seems to be focusing on the objective to carry on business.   An IRS legal opinion, on this link, highlights this.

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IRS Rescues Non-Resident Alien Owning U.S. Real Estate and Residences

International tax planning and strategy

Applying for an IRS ruling on your international tax planning will save you taxes in the long run.

The British Virgin Island (BVI) corporation is used by many non-residents aliens  (NRA) to own real estate and their personal residences in the U.S.

When the property is sold, an excessive tax is paid.   Instead of being taxed at 15% to 20%, the corporate income tax rate is 35%.  After paying the corporate income tax, a foreign corporation also pays the branch profits tax.  This tax is 30% of the net income.

Removing  the real estate from the corporation caused a “double taxation”.    A corporate (domestic or foreign) distribution of  property is taxed as if the corporation sold the property.  Second, when the shareholder receives the property, he or she is taxed as if they have received a dividend.

Estate Tax for the Non-Resident Alien owning U.S. property with a Foreign Corporation.

About 15 years ago, the IRS won estate tax cases using section 2036.  This law puts assets of a foreign corporation in the alien’s taxable estate if he can enjoy the corporate property or  the corporate income.    Since the estate tax exemption for the non-resident alien is $60,000 or less, a large estate tax is due.

Because of the foreign corporation owns the real estate,  the corporate income taxes described in the first paragraph can apply either in whole or in part.

The IRS has come up with a method to solve the income tax problems.   The method is called a “dual resident corporation.”

A dual resident corporation has two corporate charters.  One charter is issued by a foreign government.  The other charter is issued by a State.  For example, a BVI corporation owns a home.   The corporate files for a charter to be a Delaware corporation.  The corporation now has two corporate charters.

The IRS allows such a corporation (if owned by Americans and residents) to elect the be taxed under Subchapter S.  Thus, any gain on the sale of the property is taxed by the individual shareholders at the 15% or 20%  long-term capital gain rate.

The foreign corporation branch profits tax does not apply because the corporation has two corporate charters (one of which is American).

Once Caveat:  A foreign corporation converted to a Subchapter S corporation has to wait 7 years to sell its appreciated property to avoid the double taxation discussed in the first paragraph.

However, the double taxation applies only to the amount of appreciation of the real estate (also known as “built-in gain”) at the time of converting to an S-corporation.   For example, the BVI corporation purchased a home for $100,000.  A few years later it becomes an S-corporation.  At that time the home is worth $200,000.  A few years later, the home is sold for $400,000.

The gain of $300,000 is a long-term capital gain.  An additional tax is charged on the gain of $100,000 ($200,000 minus the cost of $100,000).

One of the hidden savings of the dual resident corporation is the low cost of a domestic tax return.  A foreign corporation owning U.S. real estate must file a complicated Form 1120F.  The cost of preparing a Form 1120F is three to four times the cost of a domestic corporation tax return.    In additionally, a foreign corporation has special reporting because of a tax law known is the Foreign Investor Real Property Tax Act (FIRPTA).

Treasury Department Leads the Way in Saving Taxes and Protecting Assets with a Foreign Trust

saving taxes, how to save taxes, tax planning,

Saving taxes by requesting a private letter ruling from the IRS National Office.

At the end of last century, the Department of the Treasury led the way in making foreign trust attractive.  The IRS issued a legal memorandum providing the blueprint for protecting assets and saving taxes. 

Nevada  provides unique asset protection for these trusts.  A new IRS regulation allows the Nevada trust to be classified as a foreign trust. 

The tax advantage of a foreign trust is its classification as a “grantor trust.”  This tax plan uses a special asset protection section of the tax code, section 679.

Unlike a domestic trust, all assets transferred to a foreign trust are allowed “grantor trust” status (with one tax planning exception explained below).  They are also excluded from the taxable estate of the settlor.

As a “grantor trust,” the tax law allows the transfers of assets to the trust to be income tax-free.  Thus, you can do what you want to protect your assets and reduce estate taxes without worrying about income taxation.  

This IRS blueprint on foreign trust tax planning is the explained in this episode of my radio show, Tax Talk below.

The play time is about 22 minutes.  Or, If you would like to brainstorm your tax planning, then please call me, Brian Dooley CPA, at 949-939-3414 for a consultation.

If you want to defer income taxes, then fund the foreign trust with a loan due within five years.  Such a loan is called a “qualified obligation.”  This makes the trust a tax deferral vehicle.  The tax deferral can last for more than a century.  This type of a trust is named “non-grantor foreign trust.” 

The IRS Form 3520-A (filed by the trustee) details the tax planning structure for a tax-deferred foreign trust.  You will want to use the “qualified obligation” found on page 3 of the Form 3520 (filed by the settlor).   

Learn the basics on offshore trust on this short video.  Be an expert with my easy to read book, International Taxation in America, available at Amazon.