IRS LTR 9332006
The use of an offshore testamentary trust to receive a U.S. person’s
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.
IRS Revenue Ruling 69-70, 1970
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”.
IRC § 672. Definitions and rules.
(5) Special rule where grantor is foreign
person. If -
(A) but for this subsection, a foreign person
would be treated as the owner of any portion of a trust, and
(B) such trust has a beneficiary who is a United
States person,
such beneficiary shall be treated as the grantor of such portion
to the extent such beneficiary has made (directly or indirectly)
transfers of property (other than in a sale for full and adequate
consideration) to such foreign person. For purposes of the preceding
sentence, any gift shall not be taken into account to the extent
such gift would be excluded from taxable gifts under section 2503(b).
IRC § 678. Person other than grantor treated as
substantial owner.
(a) General rule.
A person other than the grantor shall be treated as the owner of
any portion of a trust with respect to which:
(1) such person has a power exercisable solely
by himself to vest the corpus or the income therefrom in himself,
or
(2) such person has previously partially released
or otherwise modified such a power and after the release or modification
retains such control as would, within the principles of sections
671 to 677, inclusive, subject to grantor of a trust to treatment
as the owner thereof.
IRC § 679. Foreign trusts having one or more United
States beneficiaries.
(a) Transferor treated as owner.
(1) In general. A United States person who
directly or indirectly transfers property to a foreign trust (other
than a trust described in section 6048(a)(3)(B)(ii)) shall be
treated as the owner for his taxable year of the portion of such
trust attributable to such property if for such year there is
a United States beneficiary of any portion of such trust.
(2) Exceptions. Paragraph (1) shall not apply
-
(A) Transfers by reason of death. To any transfer
by reason of the death of the transferor.
(B) Transfers at fair market value To any transfer
of property to a trust in exchange for consideration of at least
the fair market value of the transferred property. For purposes
of the preceding sentence, consideration other than cash shall
be taken into account at its fair market value.
(3) Certain obligations not taken into account under
fair market value exception.
(A) In general. In determining whether paragraph
(2)(B) applies to any transfer by a person described in clause
(ii) or (iii) of subparagraph (C), there shall not be taken
into account -
(i) except as provided in regulations, any
obligation of a person described in subparagraph (C), and
(ii) to the extent provided in regulations,
any obligation which is guaranteed by a person described in
subparagraph (C).
(B) Treatment of principal payments on obligation.
Principal payments by the trust on any obligation referred to
in subparagraph (A) shall be taken into account on and after
the date of the payment in determining the portion of the trust
attributable to the property transferred.
(C) Persons described. The persons described
in this subparagraph are -
(i) the trust,
(ii) any grantor, owner, or beneficiary of
the trust, and
(iii) any person who is related (within the
meaning of section 643(i)(2)(B)) to any grantor, owner, or
beneficiary of the trust.
(4) Special rules applicable to foreign grantor who later
becomes a United States person.
(A) In general. If a nonresident alien individual
has a residency starting date within 5 years after directly
or indirectly transferring property to a foreign trust, this
section and section 6048 shall be applied as if such individual
transferred to such trust on the residency starting date an
amount equal to the portion of such trust attributable to the
property transferred by such individual to such trust in such
transfer.
(B) Treatment of undistributed income. For
purposes of this section, undistributed net income for periods
before such individual’s residency starting date shall
be taken into account in determining the portion of the trust
which is attributable to property transferred by such individual
to such trust but shall not otherwise be taken into account.
(C) Residency starting date. For purposes of
this paragraph, an individual’s residency starting date
is the residency starting date determined under section 7701(b)(2)(A).
(5) Outbound trust migrations. If -
(A) an individual who is a citizen or resident
of the United States transferred property to a trust which was
not a foreign trust, and
(B) such trust becomes a foreign trust while
such individual is alive,
then this section and section 6048 shall be applied as if such
individual transferred to such trust on the date such trust becomes
a foreign trust an amount equal to the portion of such trust attributable
to the property previously transferred by such individual to such
trust. A rule similar to the rule of paragraph (4)(B) shall apply
for purposes of this paragraph.
(b) Trusts acquiring United States beneficiaries.
If -
(1) subsection (a) applies to a trust for the
transferor’s taxable year, and
(2) subsection (a) would have applied to the
trust for his immediately preceding taxable year but for the fact
that for such preceding taxable year there was no United States
beneficiary for any portion of the trust,
then, for purposes of this subtitle, the transferor shall be treated
as having income for the taxable year (in addition to his other
income for such year) equal to the undistributed net income (at
the close of such immediately preceding taxable year) attributable
to the portion of the trust referred to in subsection (a).
(c) Trusts treated as having a United States beneficiary.
(1) In general. For purposes of this section,
a trust shall be treated as having a United States beneficiary
for the taxable year unless -
(A) under the terms of the trust, no part
of the income or corpus of the trust may be paid or accumulated
during the taxable year to or for the benefit of a United States
person, and
(B) if the trust were terminated at any time
during the taxable year, no part of the income or corpus of
such trust could be paid to or for the benefit of a United States
person.
(2) Attribution of ownership. For purposes of
paragraph (1), an amount shall be treated as paid or accumulated
to or for the benefit of a United States person if such amount
is paid to or accumulated for a foreign corporation, foreign partnership,
or foreign trust or estate, and -
(A) in the case of a foreign corporation,
such corporation is a controlled foreign corporation (as defined
in section 957(a)),
(B) in the case of a foreign partnership, a
United States person is a partner of such partnership, or
(C) in the case of a foreign trust or estate,
such trust or estate has a United States beneficiary within
the meaning of paragraph (1)).
(3) Certain United States beneficiaries disregarded.
A beneficiary shall not be treated as a United States person in
applying this section with respect to any transfer of property
to foreign trust if such beneficiary first became a United States
person more than 5 years after the date of such transfer.
IRC § 674. Power to control beneficial enjoyment.
(a) General rule.
The grantor shall be treated as the owner of any portion of a trust
in respect of which the beneficial enjoyment of the corpus or the
income therefrom is subject to a power of disposition, exercisable
by the grantor or a non adverse party, or both, without the approval
or consent of any adverse party.
IRC § 675. Administrative powers.
The grantor shall be treated as the owner of any portion of a trust
in respect of which -
(1) Power to deal for less than adequate and full consideration.
A power exercisable by the grantor or a non adverse party, or both,
without the approval or consent of any adverse party enables the
grantor or any person to purchase, exchange, or otherwise deal with
or dispose of the corpus or the income therefrom for less than an
adequate consideration in money or money’s worth.
(2) Power to borrow without adequate interest or security.
A power exercisable by the grantor or a non adverse party, or both,
enables the grantor to borrow the corpus or income, directly or
indirectly, without adequate interest or without adequate security
except where a trustee (other than the grantor) is authorized under
a general lending power to make loans to any person without regard
to interest or security.
(3) Borrowing of the trust funds. The grantor has
directly or indirectly borrowed the corpus or income and has not
completely repaid the loan, including any interest, before the beginning
of the taxable year. The preceding sentence shall not apply to a
loan which provides for adequate interest and adequate security,
if such loan is made by a trustee other than the grantor and other
than a related or subordinate trustee subservient to the grantor.
For periods during which an individual is the spouse of the grantor
(within the meaning of section 672(e)(2)), any reference in this
paragraph to the grantor shall be treated as including a reference
to such individual.
(4) General powers of administration. A power of
administration is exercisable in a non fiduciary capacity by any
person without the approval or consent of any person in a fiduciary
capacity. For purposes of this paragraph, the term “power
of administration” means any one or more of the following
powers: (A) a power to vote or direct the voting of stock or other
securities of a corporation in which the holdings of the grantor
and the trust are significant from the viewpoint of voting control;
(B) a power to control the investment of the trust funds either
by directing investments or reinvestments, or by vetoing proposed
investments or reinvestments, to the extent that the trust funds
consist of stocks or securities of corporations in which the holdings
of the grantor and the trust are significant from the viewpoint
of voting control; or (C) a power to reacquire the trust corpus
by substituting other property of an equivalent value.
IRC § 676. Power to revoke.
(a) General rule.
The grantor shall be treated as the owner of any portion of a trust,
whether or not he is treated as such owner under any other provision
of this part, where at any time the power to revest in the grantor
title to such portion is exercisable by the grantor or a non-adverse
party, or both.
(b) Power affecting beneficial enjoyment only after occurrence
of event.
Subsection (a) shall not apply to a power the exercise of which
can only affect the beneficial enjoyment of the income for a period
commencing after the occurrence of an event such that a grantor
would not be treated as the owner under section 673 if the power
were a reversionary interest. But the grantor may be treated as
the owner after the occurrence of such event unless the power is
relinquished.
IRC § 677. Income for benefit of grantor.
(a) General rule.
The grantor shall be treated as the owner of any portion of a trust,
whether or not he is treated as such owner under section 674, whose
income without the approval or consent of any adverse party is,
or, in the discretion of the grantor or a non adverse party, or
both, may be -
(1) distributed to the grantor or the grantor’s
spouse;
(2) held or accumulated for future distribution
to the grantor or the grantor’s spouse; or
(3) applied to the payment of premiums on policies
of insurance on the life of the grantor or the grantor’s
spouse (except policies of insurance irrevocably payable for a
purpose specified in section 170(c) (relating to definition of
charitable contributions)). This subsection shall not apply to
a power the exercise of which can only affect the beneficial enjoyment
of the income for a period commencing after the occurrence of
an event such that the grantor would not be treated as the owner
under section 673 if the power were a reversionary interest; but
the grantor may be treated as the owner after the occurrence of
the event unless the power is relinquished.
(b) Obligations of support.
Income of a trust shall not be considered taxable to the grantor
under subsection (a) or any other provision of this chapter merely
because such income in the discretion of another person, the trustee,
or the grantor acting as trustee or cotrustee, may be applied or
distributed for the support or maintenance of a beneficiary (other
than the grantor’s spouse) whom the grantor is legally obligated
to support or maintain, except to the extent that such income is
so applied or distributed. In cases where the amounts so applied
or distributed are paid out of corpus or out of other than income
for the taxable year, such amounts shall be considered to be an
amount paid or credited within the meaning of paragraph (2) of section
661(a) and shall be taxed to the grantor under section 662.
IRC § 673. Reversionary interests.
(a) General rule.
The grantor shall be treated as the owner of any portion of a trust
in which he has a reversionary interest in either the corpus or
the income therefrom, if, as of the inception of that portion of
the trust, the value of such interest exceeds 5 percent of the value
of such portion.
(b) Reversionary interest taking effect at death of minor
lineal descendant beneficiary.
In the case of any beneficiary who -
(1) is a lineal descendant of the grantor, and
(2) holds all of the present interests in any
portion of a trust, the grantor shall not be treated under subsection
(a) as the owner of such portion solely by reason of a reversionary
interest in such portion which takes effect upon the death of
such beneficiary before such beneficiary attains age 21.
(c) Special rule for determining value of reversionary
interest.
For purposes of subsection (a), the value of the grantor’s
reversionary interest shall be determined by assuming the maximum
exercise of discretion in favor of the grantor.
(d) Postponement of date specified for reacquisition.
Any postponement of the date specified for the reacquisition of
possession or enjoyment of the reversionary interest shall be treated
as a new transfer in trust commencing with the date on which the
postponement is effective and terminating with the date prescribed
by the postponement. However, income for any period shall not be
included in the income of the grantor by reason of the preceding
sentence if such income would not be so includable in the absence
of such postponement.
US Revenue Ruling 69-70 states that income from a foreign situs
grantor trust created by a foreign grantor for US beneficiaries
is taxable to the foreign grantor under the standard IRC §679
grantor trust rules even though those rules were designed to curtail
income tax evasion by the use of foreign trusts by US persons! This
raises, for the time being, the possibility for foreign persons
to create foreign trusts in tax-free jurisdictions that pay income
to US beneficiaries free of US tax on income or distributions from
the trust. Such a structure should not run foul of IRC §672(f)
as the US beneficiary will not have made a “gift” to
the grantor of the trust or to the trust directly.
Significantly, the TCA contains provisions that would seek to tax
the US beneficiaries of such a foreign trust on the trust income
received by them, so the use of this structure should contain a
means to account for the passage of the TCA or similar legislation.
Wisdom from World Leaders
On April 19, 1775, American patriots drove off the British at Lexington.
This was the "Shot heard 'round the world."
One year and eleven days later, on May 1, 1776, Adam Wisehaupt,
professor at Germany's Ingolstadt University, founded The Order
of the Illuminati. This man designed the very plan of world domination
that is still in use today to enslave the world's masses. Here is
what he had to say about it:
"The most wonderful thing of all is that the distinguished
Lutheran and Calvinist theologians who belong to our order really
believe that they see in it the true and genuine sense of Christian
religion. Oh mortal man, is there anything you cannot be made
to believe?"
Oh! You don't believe in a "conspiracy theory" spanning
over two hundred years? Try these quotations:
"The world is governed by very different personages from
what is imagined by those who are not behind the scenes."
 --Prime Minister
Benjamin Disraeli of England, in 1844.
"From the days of Sparticus Wisehaupt, Karl Marx, Trotski,
Belacoon, Rosa Luxenberg, and Ema Goldman, this world conspiracy
has been steadily growing. This conspiracy played a definite recognizable
role in the tragedy of the French Revolution. It has been the
mainspring of every subversive movement during the 19th century.
And now at last this band of extraordinary personalities from
the underworld of the great cities of Europe and America have
gripped the Russian people by the hair of their head and have
become the undisputed masters of that enormous empire."
--Prime Minister
Winston Churchill of England, in 1922.
"The real rulers in Washington are invisible and exercise
their power from behind the scenes."
-- Justice
Felix Frankfurter, U.S. Supreme Court.
"The real menace of our Republic is the invisible government
which like a giant octopus sprawls its slimy legs over our cities,
states and nation."
-- Mayor (1918-1925)
John F. Hylan of New York.
"The real truth of the matter is, as you and I know, that
a financial element in the large centers has owned the government
of the U.S. since the days of Andrew Jackson."
-- U.S. President
Franklin D. Roosevelt in a letter written Nov. 21, 1933 to Colonel
E. Mandell House.
"We operate here under directives which emulate (sic) from
the White House ... The substance of the directives under which
we operate is that we shall use our grant making power to alter
life in the United States so that we can comfortably be merged
with the Soviet Union."
-- Rowan Gaither,
President of the Ford Foundation, 1954. Ike was President at the
time.
"The Council on Foreign Relations (CFR) is the American Branch
of a society which originated in England ... (and) ... believes
national boundaries should be obliterated and one-world rule established."
-- Professor
of History Carroll Quigley, Georgetown University, in his book "Tragedy
and Hope".
According to his book, Quigley was totally dedicated to the One
World Government program. (President Clinton attended Georgetown
U. and has stated that his mentor, Prof.Quigley, taught him so many
wonderful things.)
"The Trilateral Commission is international ... (and) ...
is intended to be the vehicle for multinational consolidation
of the commercial and banking interests by seizing control of
the political government of the United States. The Trilateral
Commission represents a skillful, coordinated effort to seize
control and consolidate the four centers of of power: Political,
Monetary, Intellectual, and Ecclesiastical."
-- U.S. Senator
Barry Goldwater (R-AZ) in his book "With No Apologies"
It is my understanding Senator Goldwater resigned from the Trilateral
Commission upon learning of its mission.
"Fundamental Bible-believing people do not have the right
to indoctrinate their children in their religious beliefs because
we, the state, are preparing them for the year 2000, when America
will be part of a one-world global society and their children
will not fit in."
--Nebraska
State Senator Peter Hoagland, speaking on radio in 1983.
"We are grateful to The Washington Post, The New York Times,
Time Magazine and other great publications whose directors have
attended our meetings and respected their promises of discretion
for almost forty years. It would have been impossible for us to
develop our plan for the world if we had been subject to the bright
lights of publicity during those years. But, the world is now
more sophisticated and prepared to march towards a world government.
The supranational sovereignty of an intellectual elite and world
bankers is surely preferable to the national autodetermination
practiced in past centuries."
-- David Rockefeller,
Internationalist, billionaire, Chairman of the CFR, and Founder
of the Trilateral Commission, addressing another New World Order
group, the "Bilderbergers".
Bill Clinton and V.P. Dan Quayle were there sucking up to the big
man HIMself.
"We shall have World Government, whether or not we like it.
The only question is whether World Government will be achieved
by conquest or consent."
--James Paul
Warburg, Foreign Agent of the Rothschild Dynasty and major player
in the Federal Reserve Act fraud, speaking before the United States
Senate on February 17, 1950.
"All of us will ultimately be judged on the effort we have
contributed to building a NEW WORLD ORDER."
--Robert Kennedy,
former U.S. Attorney-General, 1967.
"I believe that if the people of this nation fully understood
what Congress has done to them over the last 49 years, they would
move on Washington; they would not wait for an election....It
adds up to a preconceived plan to destroy the economic and social
independence of the United States!"
--George W.
Malone, U.S. Senator (Nevada), speaking before Congress in 1957.
"I believe that banking institutions are more dangerous to
our liberties than standing armies. Already they have raised up
a monied aristocracy that has set the government at defiance.
The issuing power (of money) should be taken away from the banks
and restored to the people to whom it properly belongs."
--Thomas Jefferson,
U.S. President.
"Whoever controls the volume of money in any country is absolute
master of all industry and commerce."
--James A. Garfield,
U.S. President.
"It is well enough that people of the nation do not understand
our banking and monetary system, for if they did, I believe there
would be a revolution before tomorrow morning."
--Henry Ford,
founder of the Ford Motor Company.
"We have in this country one of the most corrupt institutions
the world has ever known. I refer to the Federal Reserve Board
and the Federal Reserve Banks, hereinafter called the FED. They
are not government institutions. They are private monopolies which
pray upon the people of these United States for the benefit of
themselves and their foreign customers..."
-- Lewis McFadden,
U.S. Congressman.
"The invisible Money Power is working to control and enslave
mankind. It financed Communism, Fascism, Marxism, Zionism, Socialism.
All of these are directed to making the United States a member
of a World Government ..."
-- AMERICAN
MERCURY MAGAZINE, December 1957, pg. 92.
"Give me control of a nation's money and I care not who makes
the laws."
-- Mayer Amschel
Bauer, Godfather of the Rothschild Banking Cartel of Europe.
"The few who understand the system, will either be so interested
in its profits, or so dependent on its favors that there will
be no opposition from that class. The great body of people, mentally
incapable of comprehending the tremendous advantages will bear
its burden without complaint."
--Rothschild
Brothers of London, in a letter discussing their new banking scheme
with fellow conspirators on June 25, 1863 (long before the takeover
of the U.S. banking system.)
"By this means government may secretly and unobserved, confiscate
the wealth of the people, and not one man in a million will detect
the theft."
--John Maynard
Keynes (the father of 'Keynesian Economics' which our nation now
endures) in his book "THE ECONOMIC CONSEQUENCES OF THE
PEACE" (1920).
"Capital must protect itself in every way...Debts must be
collected and loans and mortgages foreclosed as soon as possible.
When through a process of law the common people have lost their
homes, they will be more tractable and more easily governed by
the strong arm of the law applied by the central power of leading
financiers. People without homes will not quarrel with their leaders.
This is well known among our principal men now engaged in forming
an imperialism of capitalism to govern the world. By dividing
the people we can get them to expend their energies in fighting
over questions of no importance to us except as teachers of the
common herd."
-- Taken from
the Civil Servants' Year Book, "The Organizer" January
1934.
Wisdom on Asset Protection
Adrian Day, a London born U.S. Securities Exchange Commission investment
advisor says:
“Don’t believe it can’t happen here. Tax exiles
have had to leave England, though they left in a first-class aircraft
seat rather than hanging onto helicopter skids. It was prohibitive
taxes that made them go rather than Communist bullets. The same
is true of other “civilized” stable democracies.”
“It not only can happen here, it is happening here. Each
year many hundreds of Americans leave these shores never to return,
often quitting because of high taxes and increasing government interference
in private business. Their numbers are growing year by year. These
expatriots, if they have no tax liability, can legally take their
assets out with them, or even keep their assets in the United States
and send for them later.
(Make a note that the I.R.S. claims a ten year tax liability if
an individual is deemed to have given up his U.S. citizenship for
tax reasons and that citizen is now barred for life from ever returning
to their homeland !)
But the day may come in the not too distant future, when it won’t
be quite so easy for Americans to take their assets out of the country….in
the past twenty years the United States has made numerous attempts
to control this outward flow by various means – special taxes
on profits earned abroad, reporting requirements, travel limits,
and so forth (and all of that before the US Patriot Act !). It is
not at all inconceivable that within a few years it may be impossible
for a U.S. citizen to leave the country and take his assets with
him.”
-
Adrian Day U.S. S.E.C. investment advisor
Wisdom On Taxes
“In this world nothing can be said to be certain, except
death and taxes.”
- Benjamin Franklin
“The art of taxation consists in so plucking the goose as
to obtain the largest possible amount of feathers with the smallest
possible amount of hissing.
- Jean Baptiste Colbert
“It is a shame and a disgrace Mr. Speaker, that under our
system of taxation the poor laboring man and his wife and four or
five children to support, contributes more toward the expenses of
government than does the millionaire who is too proud to raise a
family and has no one to clothe and feed except a wife and a poodle
dog.”
- Rep. Adir – Indiana
“Knowledge of what the law allows is the essential element
of tax economy.”
- Tax Research Institute of America
The Courts on Taxes
“It is both the English and the American rule that doubts
in taxation statutes are resolved in favor of the taxpayer and that
laws imposing taxes are to be strictly construed and not extended
beyond the clear import of the language used. It is the duty of
taxing powers to make clear what is to be taxed and how. In Gould
vs. Gould , 245 US 151, 153, 38 S. Ct.53, 62 L.Ed. 211, the court
said: In the interpretation of statutes levying taxes it is the
established rule not to extend their provisions, by implications,
beyond the clear import of the language used, or to extend their
operations so as to embrace matters not specifically pointed out.
In case of doubt, they are construed most strongly against the government,
and in favor of the citizen.”
- Hellmich v.
Hellmich, 18 F 2d 239, 243
Wisdom on Life & Business
“We are not only responsible for what we do, but also for
what we do not do.”
- Moliere
“Confidence is the greatest asset of any enterprise. Nothing
useful can survive without it.”
- Albert Schweitzer
“A man’s feet should be planted in his country, but
his eyes should survey the world.”
- George Santayana
“A merchant has no country.”
- Thomas Jefferson
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