Tag Archives: tax plan

3-D Printers — The Tax Havens Are Going Boom

tax haven, 3d printer, offshore tax planning, offshore manufacturing, saving taxes.

The Tax Havens are loving this Christmas. Meanwhile, the IRS is scared to death.

Staples’s $649  3-D printer is coming your way, and the IRS is not happy. Just as your state’s sales tax collector most likely is dreading the fiscal consequences of the new technology.

Shoes, bicycles, and guns are just a few of the items that can be “beamed” into your home. Scientists have already used 3-D printing to arrange human embryonic stem cells, according to an article in Science World Report. Artificial organs and tissues via 3-D printing may soon be next. The applications of 3-D printing have barely scratched the surface.

As an expert on international tax planning, my mind is spinning with ideas on how 3-D printing will impact tax strategies. The ancient tax laws of the United States are already severely behind on the times. The IRS code was designed in 1939 and has had no major changes to address the technological advances in commerce. Cloud business and e-commerce businesses are ages ahead of the tax code.

U.S. international tax laws are based on the shipping of tangible goods. If the foreign manufacturer has an office in the United States, then the IRS gets to tax the manufacturer’s U.S. profit on his U.S. sales.

Now consider for a moment the fundamental shift in business if 3-D printing became commonplace. What if retailers could sell without having an office in the United States? What if they could “beam” their products to their customers?

Mega tax savings through technology? Yummy.

Mega tax savings through technology? Yummy.

A Sweet Deal

Let’s take cookies as an example. We all love Mrs. Fields cookies. Let’s say that Mrs. Fields placed its server in the popular tax haven known as the Isle of Man; an island situated between Great Britain and Ireland. The server belongs to their business entity based there.

You’re a loyal customer living in Los Angeles, which is 5,175 miles away from the Isle of Man. So you visit the Mrs. Fields website and order a dozen of your favorite chocolate chip walnut cookies. Within 30 minutes, your 3-D laser printer spits out a warm batch of mouthwatering cookies. They taste fresh out of the oven.

Now this is perfect for you. You get “home-baked” cookies without ever breaking a sweat. Meanwhile, the Isle of Man company just earned U.S. source income tax-free.

The 3-D Printing Economy: Supply and Demand . . . and Competition

The sale price of goods and services is based upon supply versus demand. However, with product beaming, the supply is infinite. The seller saves money as the cost of products drop.

When a computer located outside the U.S. provides services, the income is foreign source and not U.S. taxable. With 3-D printing, the service sends commands to the end user’s 3-D printer—regardless of where they’re located.

In the 3-D printing economy, competition may ultimately become infinite, too. Theoretically, I could start Brian Dooley’s Cookies in the Isle of Man.  All I would need is the right software and boom! My cookies could be the next Mrs. Fields. (I can tell you that I make the best Irish Oatmeal cookies, and my prices will always be half those of Mrs. Fields.)

As 3-D printing becomes a dominant technology in multiple industries, what’s to stop U.S. businesses from transferring all their business to tax havens? Absolutely nothing.

More 3-D Printing Applications

Here are just a few more exciting developments in 3-D Printing:

  • NASA beams tools, such as adjustable wrenches, to the space station. 3-D Printers can also use plastic, cement, and metals to make their product.
  • Nokia has published the files necessary for people to 3-D print their Nokia Lumia 820 cases on this link. You merely go to the website and print a new case in the color you want.
  • Here’s a video of a group who made a working bicycle with a 3-D printer.

 

The Future of 3-D Printing and Tax Strategies

tax planning, international tax strategies, foreign tax strategies, foreign tax plan, international tax plan, offshore tax,

Learn how to save taxes with “International Taxation in America for the Entrepreneur” using tried and true methods.

Every day, there are new experiments on 3-D printing and for me, new ways to consider the impact on tax planning. Most business owners and their tax advisors aren’t taking advantage of the incredible tax saving opportunities in e-commerce and cloud-based businesses.

That’s why I wrote International Taxation in America for the Entrepreneur, available at Amazon on this link for $9.50. Business owners, entrepreneurs, and tax advisors: start thinking outside the box and learn about the major tax planning strategies many mega corporations have already implemented.

If you’re curious about tax  haven trusts, foreign corporations and proven, legal strategies to build wealth through tax planning, this book is for you.

Tax Court Bust Novice Tax Planner’s Management / Consulting Fee Income Shifting

tax planning, saving taxes, how to save taxes, tax court

Tax Court explains great tax planning in this case.

As you may know from my other blogs, I am a fan of Great Tax Planning.  Yet, so many highly educated individuals fall prey of novice tax planners.  Take Dr. Wiley Elick and his wife Sharon for example.  Dr. Elick is a successful pediatric dentist.

Of course, he wants to save taxes.  He was informed of the tax savings of an ESOP (a type of retirement plan funded by your corporation’s stock instead of money).  

His medical corporation could not have the ESOP. In many states, only doctors can own the shares of a medical corporation.  So, he formed a new corporation. The dental practice paid the new corporation a management fee. The Doctor wanted to move the profit from his dental practice to his management company.   The ESOP cost reduced the taxable income of the management company.

Novice tax planners use “management fee” method to shift income. They believe that if they have a written management agreement that a management fee is allowed.   They do not know that management service must occur. The tax court looks at the hours of management services.

(Update: recently it (management fee and consulting fee) tax planning went criminal. Here is what happen: Mr. Albert S.N. Hee was a successful businessman Hawaii. His corporation paid family members consulting and management fees for work they never did. His family members paid income tax on the fees. Mr. Hee is going to prison because his corporate tax return was false. Merely showing the management/consulting fee on the return was a crime.)

As in this case, the Judge saw that the new corporation never provided any management services.   In other words, the management company did nothing.

It gets worse.  The amount of the management fee was decided by Doctor.  The fee was not based on hours spent or the value of the services.  I have a link to the case below.  The fee changed each year.  The fee was based on the profit of the dental practice.

 Here is a link to the court case.

To have a great tax plan, I suggest working with the IRS National Office.  They are pro small business.  If  Dr. Elick applied for an IRS private letter ruling, the National Office would have perfected his tax plan.   The ruling process reviews your plan. If it is not going to work, they IRS will guide you on how to perfect your tax plan.  Many people fear getting a ruling will cause a tax audit. None of my clients have had a tax audit because they applied for a ruling.  Learn more about our private letter ruling services with this link.

Want to take your tax planning to the next level, then contact me, Brian Dooley, CPA, MBT  at [email protected]

IRS Explains How to Not e-File your return and Avoid Identity Theft

irs super computer, robo audit, why file a paper,

The IRS super robot is fast and smart. It can read every e-filed tax return in less than one day.

Yikes. Another break-in at the IRS!  

Seems that the IRS is an easy mark for street gangs having “laptop parties.”  Good news… buying illegal drugs is harder because the gangs have social gatherings, called laptop parties,  where they steal your tax return.

Every year, the IRS has lost $5 billion dollars in e-files tax refunds from Identity Theft.   Trying to get your money back requires the help of your Congressman.

Solution:  Stop your e-filing and file paper income tax return.

But there is one more big reason.  Your chances of avoiding an  IRS audit are increased.  As my radio show explained, the IRS is relying on its supercomputer and its robot auditor (robot-audits).   The flaw is the robot auditor cannot read a paper return.

If you missed the 30-minute radio show on the IRS super computer and their robo-audits, then here is a link to  Blog Tax Talk radio shows.

The IRS website provides the following information.

16. Can my clients choose not to e-file?

“Yes. Even if you are a specified tax return preparer, your clients may independently choose to file on paper. Preparers should document each client’s choice to file in paper format and keep a signed copy of the statement on file. See FAQ 17 below for the statement. Do not send the statement to the IRS or attach it to the client’s tax return. Instead, specified tax return preparers should attach Form 8948,”

“Preparer Explanation for Not Filing Electronically, to your client’s paper return and check box 1. Include your PTIN on each tax return where requested. If your clients are filing a joint return, only one spouse’s signature is necessary on the choice statement.”

U.K. Inland Revenue Explains why a U.S. LLC is a Tax Haven

United Kingdom claims U.S. LLC is a tax haven company.

United Kingdom claims U.S. LLC is a tax haven company.

The United Kingdom’s HMRC (their IRS)  allows an American LLC to be a tax haven  company with possible tax treaty benefits.  

Below, in blue, is the Inland Revenue’s explanation of the U.S. LLC. In addition, at this link is a summary of a recent United Kingdom  appeals court case explaining how to save taxes with a tax haven company in the U.S.

 To read the UK’s explanation of how to save taxes with a dual resident corporation (which the best offshore tax plan for the American  small business),  please see this link.   Want to take your tax planning to the next level, then contact me, Brian Dooley, CPA, MBT  at [email protected]

This next paragraph is what the English have to say about our tax laws.

Generally speaking, the United States federal income tax is charged on the profits of United States limited liability companies (LLCs) on the basis that they are fiscally transparent, that is, a tax is imposed on the members of the LLC and not on the LLC itself.

However, for the purposes of United Kingdom tax we have taken the view in relation to those LLCs that we have so far considered that they should be regarded as taxable entities and not as fiscally transparent.

Accordingly, we tax a United Kingdom member of an LLC by reference to distributions of profits made by the LLC and not by reference to the income of the LLC as it arises.

If tax is paid in the United States on the profits of the LLC, we regard that tax as underlying tax (INTM164010)) and credit relief is available for it if the member is a United Kingdom company which controls, directly or indirectly, at least 10 percent of the voting power in the LLC.

As indicated in DT19851A, there is no difference in substance between Article 23(2)(b) of the old Agreement and Article 24(4)(b) in the new Agreement (tax treaty). Relief for underlying tax will continue only to be available to a UK company which has at least a 10% interest in the US LLC.

If an LLC derives income from the United Kingdom, the question arises of whether it is entitled to claim relief from United Kingdom tax under the agreement.

A key issue is whether, under the conditions laid down in the agreement, which in this respect does not follow the approach of the OECD Model (DT153), the LLC can be said to be a resident of the United States.

In our view an LLC cannot be said to be a resident of the United States within the terms of the agreement: it is not a United States corporation, nor is it a person resident in the United States for the purposes of United States tax (because the United States taxes the profits of an LLC not on the LLC itself but on its members).

However, we decided as a matter of practice that,  to relieve double taxation under the agreement where a tax would otherwise be imposed on the same income both in the United Kingdom and in the United States, we will accept claims to relief from United Kingdom tax under the agreement from an LLC.

However, only to the extent that the income in question is subject to United States tax in the hands of those members of the LLC who are residents of the United States. Subject to the same condition, we will pay a full tax credit to a United States LLC, less the 15 percent deduction provided for by Article 10(2)(a)(ii) of the agreement.

Under the new Agreement, this practice is formalised by Article 1(8). The provision provides that income derived through a person that is a fiscally transparent entity under the laws of either the US or the UK will be treated as the income of a resident of a contracting state if the taxation laws of either country treat it as such. In those circumstances, treaty benefits will be available to the resident of either the US or the UK, not the fiscally transparent entity.