International Asset Protection

International Tax Compliance - Definition of U.S. Person

admin — Mon, 16 Jun 2008 18:51:07 +0000

“Each year, in the United States alone, offshore tax evasion produces an estimated $100 billion in unpaid taxes that could help pay for health care, education, and more. It’s time to put an end to offshore tax dodging that robs the U.S. Treasury of needed funds.” —Statement of Senators Carl Levin (D-Mich.) Norm Coleman (R-Minn.), March 6, 2008.
The threshold question is whether the taxpayer is a “U.S. Person.” A “U.S. Person” is generally defined as a U.S. citizen or resident or domestic entity (corporation, partnership, estate, trust). IRC §7701(a)(30).
There are two types of U.S. residents. The first type is the lawful permanent resident, which is a foreign person who has received a U.S. green card. The second type is the substantially present resident. This is a person who is present in the United States for 183 days either (1) during the current year, or (2) over 122 days per year, over the past three years based on the following formula: (A) number of days present during the current year, plus (B) number of days present in prior year multiplied by 1/3, plus (C) number of days present two years ago multiplied by 1/6.
For taxpayers who disclaimed their U.S. citizenship or terminated their residency, they are subject to foreign-interest reporting rules. Regardless of their status under immigration law, a taxpayer is still treated as a U.S. citizen or resident for tax purposes until proper notice is given to both the Department of State (or Homeland Security) and the IRS.

International Tax Compliance - Foreign Corporation/Foreign Partnership

admin — Fri, 13 Jun 2008 19:09:22 +0000

Foreign Corporation (Form 5471)/Foreign Partnership (Form 8865)

Control Rules
Any U.S. Person who controls a foreign corporation or foreign partnership during the tax year must file a Form 5471 (for a corporation) or Form 8865 (for a partnership). (IRC §6038.) These forms must be filed with the U.S. Person’s timely filed federal tax return (including extensions).
For foreign corporations, control means ownership (direct or indirect) of more than 50 percent of the outstanding stock or voting power for at least 30 consecutive days during the year. Treas. Reg. §1.6038-2. For foreign partnerships, control means direct or indirect ownership of a more than 50 percent interest in partnership profits, capital, or deductions or losses. It also includes certain groups of U.S. Persons, who collectively own more than a 50 percent and individually own more than a 10 percent interest in the foreign partnership.
Attribution and constructive ownership rules apply (a taxpayer with no direct ownership in the foreign corporation or partnership could potentially have a reporting obligation).
The check-the-box regulations provide default corporate status for certain foreign limited liability entities. A U.S. Person’s involvement with a foreign entity that does not resemble a corporation under local law may trigger a foreign corporation reporting obligation.
Penalties
A violation of the Control Rule-, (i.e., failure to timely file a Form 5471 or Form 8865) has a double-penalty impact. First, the U.S. Person’s foreign tax amount used to compute the foreign tax credit is reduced by 10 percent. Second, the U.S. Person is subject to a flat $10,000 penalty.
Additional penalties apply if the violation continues for 90 days after IRS notice: (i) the foreign tax reduction increases by five percent for each three-month period, and (ii) there are additional $10,000 penalties for each 30-day period, up to $60,000 ($10,000 initial penalty and $50,000 maximum additional penalties). When both penalties apply, however, the foreign-tax penalty is reduced by the amount of the fixed-dollar penalty imposed.
The IRS must follow deficiency procedures and issue a notice of deficiency to the taxpayer with respect to the foreign tax credit reduction. The IRS may summarily assess the other penalties and collect them upon notice and demand.
These penalties may be avoided when the taxpayer proves that the failure was due to reasonable cause and not willful neglect.
Special Rules For Officers And Directors
Special rules apply for directors and officers of foreign corporations. A U.S. Person who becomes an officer or director of a foreign corporation, and owns at least 10 percent of the corporation’s stock (by value or vote), must also file a Form 5471. (IRC §6046.) Constructive stock ownership rules apply, although this rule generally requires that the U.S. Person directly own some amount of stock. The Form 5471 must be filed with the U.S. Person’s timely filed federal tax return, including extensions. In the absence of reasonable cause, the penalty for failure to timely file is $ 10,000, with additional penalties up to $50,000 for failure to cure the violation after IRS notice.
Rules For Property Transfers
Subject to certain exceptions, transfers of property by U.S. Persons to foreign corporations must be reported to the IRS. IRC §6038B. The U.S. Person must file a Form 926 with its timely filed income tax return for the year in which the transfer occurred. Transfers of cash to a foreign corporation are also reportable, provided that (i) immediately after the transfer the U.S. Person owns 10 percent (by vote or value) of the corporation, or (ii) the amount of cash transferred by the U.S. Person during the preceding 12 months collectively exceeds $ 100,000.
A reportable transfer by a partnership to a foreign corporation must be reported by each individual partner. The partnership cannot file a single Form 926 and satisfy this obligation on all the partners’ behalf.
Transfers by U.S. Persons to foreign partnerships are subject to reporting. A reportable transfer occurs when (1) immediately after the transfer, the person holds, directly or constructively, a 10 percent or greater interest in the partnership, or (ii) the value of the property transferred, when added to the value of the property previously transferred by the person (or related person) to the foreign partnership over the last 12 months, exceeds $100,000. IRC §6038B. The U.S. Person must report the transfer on a Form 8865, which is filed with the person’s timely filed federal tax return (including extensions).
If a domestic partnership contributes property to a foreign partnership, the partners of the domestic partnership are each treated as transferring their proportionate share of the contributed property. Each partner has an obligation to file a Form 8865. Unlike the Form 926 discussed above, however, the domestic partnership itself may file the Form 8865 and satisfy the reporting requirements of its partners.
The penalty for failure to file a Form 5471 or Form 8865 is equal to 10 percent of the fair market value of the property at the time of the exchange/ transfer. The penalty will not apply if the failure to comply is due to reasonable cause and not willful neglect. The penalty is also limited to $100,000 unless the failure to comply was due to intentional disregard.
Rules For Ownership Transfers
Reporting rules apply to the transfer of ownership in a foreign corporation or foreign partnership.
With respect to a foreign corporation, a U.S. Person must file a Form 5471 if any of the following occurred during the tax year: (1) the person acquired stock and thereafter possessed a 10 percent ownership interest (by vote or value) in the foreign corporation, (2) the person acquired a 10 percent or more stock ownership interest, or (3) the person disposes of sufficient stock to reduce the person’s interest below 10 percent ownership. IRC §6046.
These rules do not require that the transfer occur in a single transaction. Rather, a reporting obligation arises if this threshold is met as a result of one or more transactions during the tax year.
Similar rules apply to foreign partnerships. A U.S. Person must file a Form 8865 if during the tax year (1) the person acquires or disposes of an interest in the foreign partnership, and before or after the transfer the person holds (directly or indirectly) a 10 percent interest in the partnership, or (2) the person’s proportional interest in the partnership changes by 10 percent or more. (IRC §6046A.)
Both Form 5471 and Form 8865 must be filed with the U.S. Person’s timely filed tax return (including extensions).
A fixed $ 10,000 penalty is imposed on any failure to disclose a reportable transfer. If the failure continues for more than 90 days after IRS notice, an additional penalty of$ 10,000 will apply for each 30-day period (or fraction thereof) during which the failure continues, up to $50,000. IRC §6679.

International Tax Compliance - Foreign Disregarded Entity (U.S. Owner) Form 8858

admin — Thu, 12 Jun 2008 17:38:15 +0000

Does The Taxpayer Own An Interest In A Foreign Disregarded Entity?
Special reporting rules also apply to U.S. Persons who are owners of a foreign disregarded entity.
Any U.S. Person that is treated as the owner of the assets or liabilities of a foreign disregarded entity is required to file a Form 8858 with its timely filed income tax return, including extensions.
A foreign disregarded entity is simply an entity organized outside the United States that, under the check-the-box regulations, is treated as a disregarded entity. The penalties for failing to file a Form 8858, which include (1) a fixed $ 10,000 penalty, (2) 10 percent foreign tax reduction, and (3) additional penalties for failure to respond to an IRS notice of violation.
The disregarded status of the foreign entity is determined under U.S. law (not the law under which the entity was organized).
A U.S. Person that controls a foreign corporation or a foreign partnership, which corporation or partnership owns a foreign disregarded entity, may also have a reporting obligation. A U.S. Person may be required to file a Form 8858, even when (i) the person has no direct ownership in the foreign disregarded entity, and (ii) the constructive or indirect ownership is less than 100 percent.

International Tax Compliance - Foreign Gifts (U.S. Person)

admin — Wed, 11 Jun 2008 19:10:27 +0000

U.S. Persons that receive giftsfrom foreign individuals or entities must also report such transfers.
Generally, a U.S. Person must report on a Form 3520 (1) any gifts from a non-resident individual or foreign estate that collectively exceed $ 100,000, (2) any gifts from foreign corporations and foreign partnerships that collectively exceed $10,000 (adjusted for inflation). §6039F.
In calculating the $100,000 threshold, the U.S. Person must aggregate gifts from different_, foreign nonresident aliens and foreign estates if he or she knows (or has reason to know) that one of those person is acting as the nominee for the other person.
For tax years beginning in 2008, the reporting threshold amount for gifts from foreign corporations or partnerships is $13,561.
The Form 3520 is due at the same time as the U.S. Person’s federal tax return, including extensions. But the Form is filed separately from that tax return.
If the U.S. Person, without reasonable cause, fails to disclose a foreign gift, the IRS has the right to determine the “proper” tax treatment of the gift, and the IRS’s determination (although reviewable) is subject to an arbitrary and capricious standard. For each month that thefailure continues, the U.S. Person is subject to a penalty of five percent of the gift for each month, up to a 25 percent maximum.
The IRS must issue a notice of deficiency and follow deficiency procedures in making any determination regarding the proper tax treatment of the gift, but it summarily assess the five percent additional penalty.

International Tax Compliance - Foreign Trust (U.S. Tax Reporting)

admin — Tue, 10 Jun 2008 18:02:45 +0000

1. Form 3520 is filed upon initial Trust formation (within ninety (90) days of formation).Annually, this form is used to report transactions with foreign Trusts and to report receipts of foreign gifts.The Form 3520 return is due on the 15^th day of the third month after the end of the year of the Trust. For calendar year Trusts, the return is due March 15^th. A separate return is required for each offshore Trust;
2. Form 3520-A return includes a full and complete accounting of all annual Trust activities, Trust operations, and other relevant information. This information is furnished to U.S. owners and U.S. beneficiaries. The return is due at the same time as Form 3520 (above).
A copy of the both Form 3520 and Form 3520-A is to be attached to the U.S. person’s tax return and a separate copy sent directly the Internal Revenue Service (”IRS”) in Philadelphia. (These forms replaced Form 926 previously used to report transfers to foreign Trusts and corporations. Form 926 is now only used for transfers to corporations.)
Form 3520-A includes:
a.      The Foreign Grantor Trust Beneficiary Statement;
b.      The Foreign Grantor Trust Owner Statement; and
c.      The Foreign Grantor Trust Information Statement (see attached).
In regard to the Annual Filing (Form 3520-A) for offshore Trusts, the annual Trust tax return (i.e., the information return) is jointly required from the Trustee and Settlor (who is responsible under U.S. law to file the tax return for the Settlor’s offshore Trust).
The Settlor, not the Trustee, is responsible to pay the U.S. tax (the Trustee’s tax filing requirement is the information filing, only), since the Trustee does not pay U.S. tax with the tax return.The Settlor may, at his election:
1.      File the U.S. tax return Form 3520-A (signed as the Grantor of the Trust), which is attached to and filed with Settlor’s Federal Tax Return (Form 1040), and assume the responsibility of the U.S. tax filing (from the offshore Trustee);
2.      The IRS’s concern is that the Form 3520-A Tax Return is filed. Once filed, both the Settlor and the Trustee are in tax compliance for the Trust tax year.
In regard to Form 3520-A, a U.S. person who is treated as the owner of all, or a portion of, a foreign trust is:
“Responsible” to ensure that the Trustee:
1.      Files a return with the IRS for each year, setting forth a full and complete accounting of all Trust activities and operations;
2.      Furnishes the name of the U.S. agent for the Trust and such other information as the IRS describes; and
3.      Furnishes such information to each U.S. grantor and beneficiary of the Trust as the IRS subscribes (see attached).
A U.S. owner of a foreign trust must ensure that the Trustee of a foreign trust, annually:
1.    Properly completes, executes and files current Form 3520-A;
2.    Attaches a Foreign Grantor Trust Owner Statement to the form (see attached);
3.    Sends a Foreign Grantor Trust Owner Statement to each U.S. owner of a portion of the Trust and a Foreign Grantor Trust Beneficiary Statement to each U.S. beneficiary who receives a distribution (see attached).
The Foreign Grantor Trust Information Statement must contain the following background information:
1.      The name, address and taxpayer identification number, if any, of the Trust, its U.S. agent, and the Trustee filing Form 3520-A;
2.      The Trust’s method of accounting;
3.      The taxable year for which the statement applies; and
4.      A Balance Sheet and Income Statement (applying U.S. tax principles to the Trust).
Moreover, the following documents must be filed with the Foreign Grantor Trust Information Statement:
1.      Foreign Grantor Trust Owner Statement;
2.      Foreign Grantor Trust Beneficiary Statement.
In the U.S., a Grantor’s personal tax return (Form 1040) includes all the Trust income on Form 3520-A (Annual Return of Foreign Trust with United States Beneficiary). Additionally, annual contributions to, or distributions from, the Trust are reportable on Form 3520.
The United States has made the United States Settlor responsible to ensure that the Trustee files the offshore tax return, by making the Settlor and the Trustee jointly responsible to file the tax returns. However, the income is reportable to the U.S. person (not reportable to the Trustee who is merely filing an information return).
Form 3520, Part IV (Foreign Gifts):
Taxpayers required to file a Form 3520 are U.S. persons who, during the particular tax year, received certain gifts or bequests from a foreign person. Failure to report these gifts that should be reported could result in the imposition of penalties. A gift to a U.S. donee does not include any amounts paid for qualified tuition or medical payments made on behalf of the U.S. donee.
If a foreign trust makes a distribution to a U.S. person, this should be reported on Part III of the Form 3520. A domestic trust that is not treated as owned by another person is required to report the receipt of a gift or bequest from a foreign person. Conversely, a domestic trust that is treated as owned by a foreign person is not required to report the receipt of a contribution to the trust by a foreign person.
Line 60 of the Form 3520 (Part IV) must be answered affirmatively if, during the applicable tax year, a U.S. donee receives more than $100,000 from a non-resident alien or a foreign estate that were treated as gifts or bequests. Line 61 must be answered affirmatively if, during the applicable tax year, a U.S. donee receives more than $13,561 (2008) from a foreign corporation or a foreign partnership that was treated as gifts or bequests.
If the U.S. donee answers affirmatively to Line 62, then an explanation must be prepared if the ultimate donor on whose behalf the reporting donor was acting is a foreign corporation or foreign partnership. This explanation must include the ultimate foreign donor’s name, address, identification number (if available), and whether the entity is a corporation or a partnership.
Due Dates:
In general, Form 3520 is due on the date (for that particular taxable year) that the U.S. person’s income tax return is due, including extensions. As such, Form 3520 should be attached to the U.S. person’s income tax form, and additionally, a copy should be sent to the IRS Center in Philadelphia, Pennsylvania. Form 3520 must have all the required attachments to be considered a complete return.
If the Form 3520 is filed by an individual or a fiduciary, it must be signed by such individual or fiduciary. If the Form 3520 is filed by a partnership, it must be signed by a general partner of the partnership. If the Form 3520 is filed by a corporation, it must be signed by someone authorized to sign on the corporation’s behalf.
Penalties:
A penalty generally applies if Form 3520 is not timely filed or if the information is incomplete or incorrect. Generally, the penalty is as follows:
·         Thirty-five percent (35%) of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report such transfer;
·         Thirty-five percent (35%) of the gross value of any distributions received from the foreign trust for failure by a U.S. beneficiary to report receipt of the distribution;
·         Five percent (5%) of the amount of certain foreign gifts for each month for which the failure to report continues.
Additional penalties may be imposed if noncompliance continues after the IRS mails a notice of failure to comply with required reporting. However, this penalty may not exceed the gross reportable amount. Penalties will only be imposed to the extent that the transaction is not reported.
Form 3520-A:
In addition to the filing requirements of the Form 3520, there may also be requirements to file a Form 3520-A. The Form 3520-A is the annual information return of a foreign trust with at least one U.S. owner. The Form 3520A provides information about the foreign trust, its U.S. beneficiaries, and any U.S. owner who is treated as the owner of any portion of the foreign trust.
A foreign trust must file the Form 3520-A to satisfy its annual information reporting requirements if such foreign trust possesses a U.S. owner. An owner of a foreign trust is the person that is treated as owning any of the assets of the foreign trust pursuant to the grantor trust rules. If the foreign trust is treated as owned by a U.S. person, then each U.S. person treated as a U.S. owner of the foreign trust is responsible for ensuring that the foreign trust files the Form 3520-A setting forth a full and complete accounting of all trust activities, trust operations, and other relevant information. Additionally, the U.S. owner is responsible for ensuring that the foreign trust annually furnishes certain information to the other U.S. owners and U.S. beneficiaries of the foreign trust.
The completed Form 3520-A must be filed with the IRS by the 15^th day of the third month after the end of the foreign trust’s tax year. The Form 3520-A should be filed with the IRS Center in Philadelphia. An extension of time to file the Form 3520-A can be obtained through the filing of Form 2758 with the IRS. The U.S. beneficiary and the U.S. owner’s tax returns must be consistent with the Form 3520-A filed by the foreign trust, unless such inconsistency is reported to the IRS.
Penalties:
The U.S. owner of a foreign trust is subject to a penalty of 5% of the gross value of the portion of the foreign trust’s assets treated as owned by that person at the close of that year if the foreign trust fails to timely file Form 3520-A or does not furnish certain required information. Additional penalties may be imposed if the failure to file or furnish information continues after the IRS mails a notice to the U.S. owner.
No penalties will be imposed if the U.S. owner can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly, reluctance on the part of the foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is to reasonable cause either.

International Tax Compliance - Foreign Trust (U.S. Person): Reportable Event

admin — Mon, 09 Jun 2008 18:47:49 +0000

A reportable event is generally defined as the creation or funding (with money or property) of a foreign trust by a U.S. Person, including transfers by death. It also includes the death of a U.S Person if the person was an owner of the foreign trust or any portion of the trust is includible in his or her gross estate. Transfers for fair market value are excluded. A responsible party is generally the trust grantor, the transferor, or executor involved in the reportable event.
To satisfy the Responsible Party Rules, the U.S. Person must report the event on Form 3520. This return is due at the same time as the person’s federal income tax return, including extensions, but is filed separately from that return.
Unlike the Form 3520-A filed under the Trust Rules, the U.S. Person is not required to file an extension separate from the extension for his or her tax return.
Beneficiary Rules
U.S. Persons who receive a distribution from a foreign trust must report the distribution on Form 3520.
Penalties
The penalty for failure to timely file a Form 3520-A is equal to five percent of gross value of the trust’s assets over which the U.S. Person is considered an owner. Each U.S. owner of the foreign trust may be subject to this penalty.
The penalty for violation of the Responsible Party and Beneficiary Rules (penalty for failure to timely file a Form 3520) is equal to 35 percent of the gross value of any property transferred to or distributed by the foreign trust. Additional penalties up to the gross reportable amount may be imposed when the U.S. Person receives IRS notice of a violation and does not act to cure it.
Penalties may not be imposed, however, when the violation is due to reasonable cause and not willful neglect. The IRS applies the reasonable cause standard applicable to late-filing/late-payment penalties. The fact that a foreign jurisdiction would impose a penalty for disclosing the information is not considered reasonable cause. The refusal on the part of a foreign trustee to provide information for any other reason, including difficulty in producing the required information or provisions in the trust instrument that prevent the disclosure of required information, is also not a basis for reasonable cause.

These penalties are payable on notice and demand. The IRS is not required to issue a notice of deficiency. A pre-payment appeal of the penalty is not automatically available.

International Tax Compliance - Foreign Bank Accounts

admin — Fri, 06 Jun 2008 18:50:35 +0000

The FBAR rules are established in the 1970 Bank Secrecy Act (since 2003 the IRS enforces these rules).
U.S. Donor: FBAR form
The FBAR filing requirement applies if a U.S. person has a signatory power over or financial interest in a foreign bank account or securities account if the aggregate value of the accounts exceeds $10,000.
The U.S. donor/grantor may be required to file Form TD F 90-22.1 (Report to Foreign Bank and Financial Accounts), also known as the FBAR form, if the trust has a foreign bank account or securities account. The U.S. donor/grantor will be considered to have a reportable interest in the trust’s bank or securities accounts if he has a present beneficial interest in more than 50% of the trust assets or receives more than 50% of trust income.
The FBAR from must be filed by June 30 of the year following the year in which the U.S. person possessed the signatory power or financial interest in the foreign account. It is filed independently of the U.S. individual income tax return and there are no extensions. The civil penalty for failure to file the FBAR form is $10,000. In the case of willful violations, the penalty is the greater of $100,000 or 50% of the value of the account. Although this is a Treasury Department form, the IRS is now responsible for auditing compliance with this informational reporting requirement.
Financial Interest Or Authority
A U.S. Person has a financial interest in a foreign account if he or she is the legal or beneficial owner. Attribution rules apply in making this determination. A person serving as a shareholder, partner, and trustee may be deemed to hold a financial interest if the owner of the account is (i) a person acting as an agent on behalf of the U.S. Person, (ii) a corporation where the U.S. Person owns, directly or indirectly, more than 50 percent of the outstanding stock, (iii) a partnership in which the U.S. Person owns more than 50 percent of the profits, or (iv) a trust in which a U.S. Person has either a present interest in more than 50 percent of the assets or from which the U.S. Person receives more than 50 percent of the income. If these thresholds are met, the U.S. Person has an FBAR reporting obligation, regardless of whether he or she has any authority over the account.
Non-owners with authority over a foreign account are also subject to the FBAR reporting rules. Authority means the U.S. Person has the ability to order a distribution or disbursement of funds or other property held in the account. This is not limited to signature authority, but includes the ability to order distributions by verbal commands or other communication. Authority does not include persons who have the right to invest, but not distribute, the foreign account funds.
Financial Account In A Foreign Country
The term financial account is broadly defined as any asset account and encompasses simple bank accounts (checking or savings), as well as securities or custodial accounts. It also includes a life insurance policy or other type of policy with an investment value (i.e., surrender value). Foreign country refers to any country other than the United States. Puerto Rico, U.S. possessions and territories are included as part of’ the United States.

International Tax Compliance - IRS Tax Audit Strategy

admin — Thu, 05 Jun 2008 18:02:04 +0000

Private placement life insurance is a pre-emptive IRS audit tax strategy that transforms taxable ordinary income and capital gains into tax-free income (with no income tax reporting required under current U.S. Law). Please reference IRS Private Letter Ruling 200244001 (May 2, 2002).

For U.S. Persons with investment income, private placement life insurance provides for compliant, tax-free compounded earnings.

From Wall St Journal 10/18/06 article, Insuring Against Hedge-Fund Taxes:
It’s called “private placement” life insurance. These special insurance contracts allow policyholders to invest in a wide range of products, including hedge funds. The main attraction: Because the investments are held within an insurance wrapper, gains inside the policy are shielded from income taxes — as is the payout upon death. What’s more, policyholders may be able to access their money during their lifetimes by withdrawing or borrowing funds, tax-free, from the policy, depending on how it’s set up…

Private-placement policies are typically restricted to individuals paying at least $1 million in total premiums. They are offered by both domestic and offshore insurers, including American International Group Inc., Phoenix Cos.’s AGL Life Assurance Co., Sun Life Financial Inc., Massachusetts Mutual Life Insurance Co. and New York Life Insurance Co., among others.A private placement insurance policy is variable in nature, which allows the insurance company to invest the majority of the premium(s) in a legally separate, segregated account to be managed by either an investment manager of the client’s choosing or the insurance company itself. There are no guarantees when it comes to the investment performance (as it varies, so does the death benefit but with a fixed minimum).

The income tax benefits are:
1) Assets inside a life insurance policy grow and compound income tax free.
2) Death benefit paid income tax free.

Domestically in the U.S., investors have traditionally used the tax benefits of variable life insurance policies to invest in mutual funds. In contrast, international private placement life insurance policies allow users to invest in a wider range of investments including hedge funds, private equity, derivatives, and real estate investment trusts (there are functionally no restrictions on the types of investments that can be held and managed inside the policy).

Other benefits include the following:
1) Short-term capital gains (41% Federal/California income tax): exempt from income tax.
2) Bond interest (taxed at 41% ordinary income rates Federal/California): exempt from income tax.
3) Policies in certain jurisdictions (e.g., Cayman Islands): exempt from creditor attachment.
4) IRS audit risks are minimized since assets held under a qualifying life insurance policy are neither subject to income tax, nor is there any required income tax reporting (under IRC §72(e)(5)). In addition to the substantive tax and reporting benefits, for audit purposes there would be no presumed IRS tax avoidance, due to the fact that life insurance has been granted an “angel exception” (i.e., is an IRS approved transaction) (IRS Revenue Procedure 2004-65, 2004-66, 2004-67, 2004-68).
5) Policy lifetime withdrawals may be tax-free and not subject to tax reporting (as either a return of premium/basis or a loan). The Modified Endowment Contract (“MEC”) rules may or may not apply depending on policy design.

California Home-Price Cuts End Sales Losing Streak

admin — Fri, 30 May 2008 18:30:59 +0000

May 27 (Bloomberg) — Housing demand in California, where one out of every eight U.S. residents lives, is reviving as bargain hunters buy foreclosed properties, reversing a two-year slide in home sales.

Sales in the state increased 2.5 percent in April, following 30 consecutive declines, the California Association of Realtors said in a May 23 report. The median home price tumbled 32 percent in April from a year earlier to $403,870, the biggest drop in at least three decades, dragged down by sales of foreclosed properties, the Los Angeles-based trade group said.

Click here for complete article

Foreclosure filings hit record in April

admin — Tue, 20 May 2008 16:47:31 +0000

By Kenneth Musante, CNNMoney.com staff writer

Last Updated: May 14, 2008: 8:08 AM EDT

U.S. foreclosure filings reached a record high in April, rising almost 65% over the previous year and putting municipalities at risk by cutting into the value of taxed property, according to a study released Wednesday.

Some 243,353 households, nearly one in 519, received a foreclosure filing during April, according to the U.S. Foreclosure Market Report from RealtyTrac, an online marketplace that tracks foreclosed properties. That was up 4% from March, and surpassed the record of 239,851 set in August 2007.

Property tax plunge: The record number of foreclosures added their weight to an already saturated real estate market, pulling down home prices. Plunging home values reduce the money that cities, villages and towns collect in property taxes.

In particular jeopardy are parts of Nevada, California, Arizona and Florida, whose states maintained the highest foreclosure rates, according to RealtyTrac.

Click here for complete article.