Contact UsAn irrevocable foreign trust (with US beneficiaries) owns 85% of a domestic US LLC. The LLC received dividends from a domestic US corporation. All the income from foreign trust is distributed to the US beneficiaries, and they ultimately pay tax on all the trust's income (incl. dividends received).
If all US beneficiaries of the foreign trust will pay tax on the income distributed by the trust, does the LLC need to withhold tax on the income allocated to the foreign trust under Section 1446; even though, the LLC's income will be paid by the US beneficiaries?
If this withholding is applicable, then how will the US beneficiaries claim the credit for the withholding taxes paid if the irrevocable foreign trust doesn't prepare a US tax return?
If this withholding is applicable, then how will the US beneficiaries claim the credit for the withholding taxes paid if the irrevocable foreign trust doesn't prepare a US tax return?
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Tax Professional Answers
William Rogers, CFP, MBA, EA
Foreign trust with U.S. owners and beneficiaries are required to file Form 3520-A. This is the annual trust tax return for a foreign trust. The trustee then issues a statement to the beneficiary (similar to a K1) allocating their share of income and deductions. The beneficiary will use that statement to report the applicable on their individual 1040.
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375 weeks ago