International Tax Compliance - IRS Tax Audit Strategy
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).
1) Assets inside a life insurance policy grow and compound income tax free.
2) Death benefit paid income tax free.
Domestically in the
Other benefits include the following:
1)
2) Bond interest (taxed at 41% ordinary income rates Federal/California): exempt from income tax.
3) Policies in certain jurisdictions (e.g.,
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
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
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.
U.S. to Seek Client Names From UBS In Tax Case
From Wall St Journal 5/15/08 article
“U.S. prosecutors are expected to confront Swiss banking giant UBS AG with a broad subpoena for the names of wealthy American clients who may have used its services to avoid income taxes, according to lawyers and others involved in the case.
The subpoena would follow an indictment, unsealed Tuesday in Florida federal court, of former UBS private banker Bradley Birkenfeld and his alleged accomplice, Mario Staggl, a Liechtenstein businessman skilled in setting up intricate trusts in Europe and offshore tax havens. Mr. Birkenfeld pleaded not guilty Tuesday in Fort Lauderdale. Mr. Staggl, who is at large and believed to be in Liechtenstein, didn’t return phone calls or emails for comment…
The investigation focuses on whether UBS, Mr. Birkenfeld and Mr. Staggl helped clients hide assets in Swiss and Liechtenstein accounts, moves that allegedly allowed the clients to avoid reporting taxable income to the Internal Revenue Service from 2001 at least through 2006.”
Click here for complete article.
Baseball star Canseco loses home to foreclosure
LOS ANGELES (Reuters) - Former U.S. baseball star Jose Canseco said on Thursday he had lost his California mansion to foreclosure — one of the first celebrities to publicly admit being a statistic in the U.S. housing crisis.
Click here for complete article.
U.S. Income Tax/Real Estate Foreclosures
Under IRC § 61(a)(12), a Taxpayer realizes income to the extent of debt forgiveness. Income must be recognized when a taxpayer satisfies or retires a loan for an amount less than the loan’s full face value. The taxable income is the difference between the face amount of the debt and the amount accepted as consideration (in full satisfaction of the debt).
1)
2)
3)
1)
2)
3)
4)
For tax compliance, Form 982, Deduction of Tax Attributes Due to Discharge of Indebtedness (and § 1082 basis adjustment) is filed with a debtor’s income tax return to report excluded income from the discharge of indebtedness.
Top 10 Foreclosure States
Top 10 States for Foreclosures in March based on recent data from RealtyTrac.
- Nevada: 1 in 139 homes
- California: 1 in 204 homes
- Florida: 1 in 282 homes
- Arizona: 1 in 283 homes
- Colorado: 1 in 339 homes
- Georgia: 1 in 351 homes
- Ohio: 1 in 448 homes
- Michigan: 1 in 475 homes
- Massachusetts: 1 in 486 homes
- Maryland: 1 in 538 homes
-
Subscribe via RSS
