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| Revenue Ruling 69-70 repealed in 2001 after 31 years. OH Shucks! | DO YOU KNOW WHAT A REVENUE RULING IS? |
| The investment banking firm of Warburg, Dillion Read (on Park Ave. N.Y.) have offices in 39 foreign countries - including the Bahamas, the tiny Cayman Islands, Hong Kong and the the Channel Islands. Makes you wonder why, doesn't it? One good reason is.... foreign non-resident alien individuals, offshore companies, offshore trusts and offshore banks avoid all US capital gains taxes on their stock market trades because the U.S. has never taxed the capital gains of non-resident entities that do not have an office or are "doing business inside the United Stated". The other good reason is none of these tax haven countries tax the capital gains of companies and banks domiciled there. Bank confidentiality seems to play an important role offshore. It remains good in the Bahamas, and in the other tax havens. The IRS and other revenue agents cannot seize, lien on, freeze bank accounts in the Bahamas, Caymans and in other tax havens. In the fourteen years I've lived on this island, I've never seen it happen. But there are some still some great LEGAL tax loopholes left for the American taxpayer venturing offshore. IRS letter ruling 9332006 gives some "hints" and is not repealed. Rev-Rul 69-70 is now repealed, but it's repeal is not the "end all" for tax planners. In fact, it is a new beginning. 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. REPEALED IN 2001: In 1970, the IRS issued Revenue Ruling 69-70 for taxpayers to study... Revenue Ruling 69-70 has just recently been repealed in 2001, but the same "wanted" results can be gotton by other efforts! 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": 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 is our own IRS]. REPEALED IN 2001 CAN AN FOREIGN ESTATE TAX PLAN STILL FUNCTION WITHOUT THIS LONG STANDING RULING? THE ANSWER IS YES? IT'S CALLS FOR A STRAIGHT UP CAPITALIZATION - AND THE END RESULTS ARE THE SAME. GOT QUESTIONS? http://www.bahamasbahamas.com/ Try a 12 month subscription to our newsletter the TAX HAVEN REPORTER ($200/12 issues) and receive FREE a copy of our 310 page NEW, 8th Edition of TAX HAVENS OF THE WORLD ($90). To order the book and newsletter, send check or money order or travelers chacks (or cash) for $200 to: Call me at 242-327-7359 if you have some questions. Tom Azzara New Providence Estate Planners, Ltd. (Lawyers and Consultants) 54 Sandyport Drive P.O. Box CB 11552 Nassau, Bahamas Fax/phone: (242) 327-7359 email: taxman@batelnet.bs website: http://www.bahamasbahamas.com/ Customers ordering from outside the United States, Canada and Mexico, please add $30 shipping for global priority delivery service (5 to 6 days). |
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. Got questions? Email the "Tax Haven Reporter" at taxman@batelnet.bs |
| "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 55% - with no marital deduction allowed, and only a $60,000 exclusion. Foreigners that hold their US assets in offshore companies can avoid all US estate taxes. That's one reason why there are over 123,000 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 fourteen years I've lived on this island, I've never seen it happen. http://www.bahamasbahamas.com/ UPDATE: Manhattan Prosecutor Criticizes Caymans Tax Pact By DAVID CAY JOHNSTON - December 8, 2001 New York Times "Federal Reserve data show that $800 billion is being held in Cayman Islands accounts for Americans, an amount equal to roughly one-third of all domestic bank deposits." Robert M. Morgenthau, the Manhattan district attorney, is critical of the agreement that Treasury Secretary Paul H. O'Neill signed last week with the Cayman Islands to share information that would help the United States track down suspected income tax evaders, calling it "a sham." Manhattan District Attorney Robert Morgenthau told senators recently that about $800 billion in U.S. dollars is on deposit at some 600 banks licensed in the Cayman Islands -- more than twice the amount deposited in all New York City banks combined. UPDATE #2: Enron had approximately 600 subsidiaries registered in Cayman. None of them were listed in the local telephone directory and it is likely that they comprised little more than pieces of paper in filing cabinets at the offices of the Cayman law firm of Hunter & Hunter, which provided registered agent services to Enron. Source Offshore Alert (2-11-2002)(email "FlashNews") |
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