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Tag Archive for Foreign Trusts

Treasury Should Be Proactive In Mitigating Prospective Foreign Trust And Other Form Problems

JOHN RICHARDSON On Foreign Trusts

What are the requirements for an arrangement to qualify as a “trust” under the Internal Revenue Code?

1. Definitions are found in Internal Revenue Code 7701.

2. Treasury Reg. 301.7701-4(a) defines a trust as for Internal Revenue Code purposes as:

“an arrangement created either by will or inter vivos declaration whereby trustees take title to property for the purpose of protecting and conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts . . . . Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit”

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Form 3520 And Substitute Form 3520-A For Foreign Trusts And Gifts From Nonresidents

Gary Carter Form 3520-A

Section 6048 of the Internal Revenue Code requires a United States person, as defined for FBAR reporting, (and the executor of the estate of a US decedent) to file Form 3520 to report:

  • Certain transactions with foreign trusts,
  • Ownership of foreign trusts, and
  • Receipt of certain large gifts or bequests from certain foreign persons.

Additionally, an owner of a foreign trust might be required to file a Substitute Form 3520-A if the foreign trust fails to file Form 3520-A (See SUBSTITUTE Form 3520-A below). Here is Form 3520 and Instructions.

What Is a Foreign Trust For Which Form 3520 Must Be Filed?

Although the Internal Revenue Code (IRC) refers to trusts in numerous sections, nowhere in the IRC is the term “trust” actually defined. There is a definition of foreign trust. IRC Section 7701(a)(31)(B) says: “The term ‘foreign trust’ means any trust other than a trust described in subparagraph (E) of paragraph (30).” Subparagraph (E) describes “any trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and (ii) one or more United States persons have the authority to control all substantial decisions of the trust.”

So a foreign trust is one that is not under the jurisdiction of United States courts or controlled by a United States person. But what is a “trust”?

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Foreign Trusts: IRS Penalty Notices For Late Forms 3520-A Traumatize Many Innocent Taxpayers!

It was early on a Monday morning, and I dragged myself in after a long weekend of reg. buzzing and Code section perusing. I was not looking forward to the day. I played a message on my answering machine that made me want to return home and crawl back into bed. It was left in the middle of the previous night by a crazed and panicked client living in Norway. She had just gotten a CP15 Notice from the IRS that said she had been charged a penalty in the amount of $10,000 under Section 6677 of the Internal Revenue Code (IRC) for failure to file Form 3520-A, under the requirements of IRC Section 6048(b).

The client was the owner of a foreign trust, and I knew we had properly filed Form 3520, “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.” Foreign trusts with U.S. owners have the responsibility to file Form 3520-A, “Annual Information Return of Foreign Trust With a U.S. Owner,” which few of them do. So since IRC Section 6048(b) requires the owner of a foreign trust to ensure that this happens, we attached “substitute” Form 3520-A to Form 3520, in accordance with the instructions to Form 3520. Form 3520 and the attached substitute Form 3520-A were filed in August, but we had filed an automatic extension for the client’s tax return, which, according to the instructions to Form 3520, also extended the filing date for Form 3520.

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Italy Institutes New Register For Trusts

Marco Rossi,

Under new anti-money laundering legislation due to become effective in Italy in 2017, all foreign trusts with tax effects in Italy shall have to be filed and registered on the Italian Register of Enterprises. They include trusts with Italian settlor, Italian beneficiaries, Italian assets, Italian source income or treated as Italian resident trust under Italian tax law.

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Foreign Trusts – Legal Risks – Act of State Doctrine

Introduction –

The use of Foreign Trusts in financial planning can provide significant benefits to a client. As was discussed in Foreign Trusts and Legal Risks, (1) particularly important benefits can be derived utilizing Offshore Financial Centers whose laws are crafted to facilitate shelter from potential judgments and penal revenue assessments. But these benefits that can be so beneficial to a client also must be scrutinized for financial risks, be it credit, legal, or market risks. The ability to assert legal jurisdiction upon a Foreign Trust and the fiduciary (2) formulate an aspect of legal risk that is a part of that analysis. That legal risk embraces the implications of enforcement jurisdiction and the concept of the doctrine of comity among sovereign nations. Coupled with enforcement jurisdictional notions of one sovereign that Read more

Foreign Trusts and Legal Risks

TaxConnections Blogger Virginia La Torre Jeker writes about offshre trusts
Introduction –

The purpose of this section is to provide a cursory view of foreign trusts and financial planning, the emphasis of which is asset protection from judgments. The basic taxation regime of a foreign trust can be reviewed in a previous writing, Income Taxation of Foreign Trusts and Beneficiaries, TaxConnections, November 25, 2013.

The focus here is the treatment by the United States taxing authority upon a foreign trust pertaining to the tax consequences subsequent to transfer. The points of relevance are the income tax treatment to the Settlor, beneficiary, and trust and the consequential use of the Read more