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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”

Great News For IRS Form 3520-A Filers Effecting Thousands Of Taxpayers

Be Form Warned And Form Armed: The Easiest Way To Receive A Form 3520A Penalty Would Be To File A Form 3520

Have a question? Contact John Richardson.

 

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The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

One thought on “Treasury Should Be Proactive In Mitigating Prospective Foreign Trust And Other Form Problems

  1. Perhaps this comment could be added to the post. My point is a simple one. It is clear that Treasury has and exercises the authority to make regulations concerning matters of trusts. On the one hand, Treasury has made clear that in order to qualify as a trust, the entity must have certain characteristics. It is also clear that there is a great deal of confusion concerning matters of what is and what is not a trust (and therefore a foreign trust). The confusion has led to all kinds of “protective filings of 3520s” which has led to the necessity of the 3520A which has led (as discussed primarily by Gary Carter) to all kinds of ridiculous and completely unjustifiable penalties assessed against (primarily) Americans abroad.

    Now, if Treasury can define what trust is, surely Treasury can and should define what a trust is not. All that Treasury need (and should) do is this:

    Look to all the Model 1 FATCA IGAs. Find the section that describes which kinds of accounts are not reportable under those FATCA IGAs. (These are primarily retirement and tax deferred savnigs accounts.) Then, make a clear statement that anything that is not reportable under FATCA does NOT constitute a trust for the purposes of 3520 and 3520A reporting.

    Easy peasy – assuming that Treasury really wants to solve this problem!

    Note (in anticipation of the criticism), I am NOT suggesting that the only things that are NOT trusts are those identified in the Model 1 IGAs. But, I am saying that to begin with this would be:

    – easy

    – mindless

    – a great start

    – a mechanism to solve most of these problems.

    What do you think?

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