Foreign Grantor Trusts - 2010 HIRE Act
The 1996 Small Business Job Protection Act (“1996 Act”) established new reporting requirements for Foreign Gifts and Foreign Grantor Trusts. The 2010 HIRE Act included the Foreign Account Tax Compliance Act which imposed new foreign grantor trust reporting obligations on U.S. owners (i.e., U.S. Settlor) of Foreign Grantor Trusts.
The 1996 Act, under IRC §6048(b)(1) made U.S. owners of foreign grantor trusts responsible to ensure that the foreign grantor trust (Trustee) file the annual trust tax return (From 3520-A).
Under the 2010 HIRE Act, the U.S. government imposed a new reporting obligation on the U.S. owners (of foreign grantor trusts) so the IRS could obtain information about the foreign grantor trust, if the trustee was not cooperative and refused to file the annual Form 3520-A tax return for the Trust. Since the U.S. grantor has neither the legal authority nor the ability to force foreign trustees to file the Form 3520-A, the 2010 HIRE Act makes the grantor responsible to submit information to the IRS with respect to the Trust.
(1) “1996 Act” - Prior Law
Prior to the Small Business Job Protection Act of 1996 (the “Act”), there was no requirement that a recipient of a gift made by a person other than a U.S. person, report the gift.
New Law
Under the “Act”, if the value of the aggregate “foreign gifts” received by a U.S. person during any tax year exceeds $10,000, the U.S. person must report each foreign gift to the IRS. A “foreign gift” is any amount received from a non-U.S. person which the recipient treats as a gift or bequest.
The term “foreign gift” does not include qualified tuition or medical payments made on behalf of a U.S. person or any distribution properly disclosed on a return.
If a U.S. person fails, without reasonable cause to report the foreign gift within designated time, the IRS is authorized to determine the treatment of the unreported gifts. The IRS’s authority to make a determination of reasonableness will be subject to judicial review under an arbitrary or capricious standard, which provides a high degree of deference to its determination. In addition, the U.S. person is subject to a penalty of 5% of the amount of the gift for each month that the failure continues, limited to a total penalty of 25% of the amount.
Effective Date
Amounts received after date of enactment of the 1996 Act in tax years ending after date of enactment of the 1996 Act. Small Business Job Protection Act of 1996, Sec. 1905. IRC §6939F.
Information Reporting Requirement and Penalties - Prior Law
Prior to the Act, any U.S. person who created a foreign trust or transferred money or property to a foreign trust was required to report that event to the IRS without regard to whether the trust was a grantor or a nongrantor trust. Such persons were required to report, among other things, the name, address and identification number of the transferor, the trust, the fiduciary and trust beneficiaries; the interest of each beneficiary; the location of the trust records; and the value of each item transferred. Similarly, any U.S. person who transferred property-to a foreign trust that had one or more U.S. beneficiaries was required to report annually to the Service. In addition, if the transfer of any appreciated property by a U.S. person was subject to the excise tax of Section 1491, the transferor was required to report the transfer to the Service.
Any person who failed to file a required report with respect to the creation of, or a transfer to, a foreign trust could be subjected to a penalty of 5% of the amount transferred to the foreign trust. Similarly, any person who failed to file a required annual report with respect to a foreign trust with U.S. beneficiaries could be subjected to a penalty of 5% of the value of the corpus of the trust at the close of the tax year. The maximum amount of the penalty imposed under either case could not exceed $1,000. A reasonable cause exception was available. These civil penalties were determined separately from any applicable criminal penalties.
New Law
The information reporting requirements relating to foreign trusts, and the associated penalties, are expanded.
On or before the 90th day after any “reportable event,” the “responsible party” must provide written notice of the event to the Service. The notice must include the following information: (1) the amount of money or other property transferred to the trust in connection with the reportable event, and (2) the identity of the trust and each trustee and beneficiary of the trust.
A “reportable event” means the creation of any foreign trust by a U.S. person, the direct or indirect transfer of money or property to a foreign trust, and the death of a U.S. resident or citizen who was treated as the owner of any portion of a foreign trust under the grantor trust rules or whose gross estate includes any portion of a foreign trust. A reportable event does not include property transfers to a foreign trust in exchange for consideration of at least the property’s fair market value (FMV). Consideration other than cash is taken into account at its FMV. Also excluded from reportable events are transfers to pension trusts and charitable trusts.
A “responsible party” includes a grantor of an inter vivos trust, a transferor of a foreign trust, and the executor of a decedent’s estates.
A U.S. person that is treated as the owner of any portion of a foreign trust, the Service is entitled to determine the amount to be taken into account by a U.S. person under the grantor trust rules of Section 671 through Section 679, unless a U.S. person is authorized by the foreign trust to accept service of process. The U.S. person must be authorized to act as the trust’s limited agent with respect to any request by the Service to examine records or testimony in connection with the tax treatment of any items related to the trust. The appearance of persons or production of records by a U.S. person acting as the limited agent will not subject that person or records to legal process for any purpose other than determining the correct tax treatment of the amounts required to be taken into account. A foreign trust which appoint such an agent will not be considered to have an office or a permanent establishment in the U.S. or to be engaged in a U.S. trade or business solely because of the agent’s activities.
Any U.S. person who receives any distribution from a foreign trust is required to file a notice to report the name for the trust, the aggregate amount of the distributions received during the tax year and other information that the Service prescribes. If adequate records are not provided to the Service, the distribution includible in the distributee’s gross income will be treated as an accumulation distribution subject to the throwback rules applicable to U.S. beneficiaries of foreign trusts, unless the foreign trust elects, under the Regulations, to have a U.S. agent for the limited purpose of accepting service of process. In applying the accumulation distribution rules, the applicable number of years is ½ the number of years the trust has been in existence.
In determining whether a U.S. person receives a distribution from, or makes a transfer to, a foreign trust, the fact that a portion of the trust is treated as owned by another person under the grantor trust rules is disregarded, to the extent provided in the Regulations, a trust which is a U.S. person is treated as a foreign trust for purposes of the information reporting requirements if the trust has substantial activities, or hold substantial property, outside the U.S. In applying this rule, the service is expected to take into account information provided by a trust under the domestic trust reporting rules.
Any notice or return required must be made at the time and in the manner as the Service prescribes. The Service can suspend any of the above information reporting requirements if it determines the U.S. has no significant tax interest in obtaining the required information.
A person who fails to comply with the above notification requirements in cases involving the transfer of property to a new or existing foreign trust, or a distribution by a foreign trust to a U.S. person, is subject to an initial penalty equal to 35% of the gross reportable amount. A failure to provide an annual reporting of trust activities results in an initial penalty equal to 5% of the gross reportable amount.
The gross reportable amount is the gross value of the property transferred as of the date of the event. In cases where annual reporting of trust activities is required, the gross reportable amount is the gross value of the portion of the foreign trust’s assets treated as owned by the U.S. grantor at the close of the year. In cases involving a distribution to a U.S. beneficiary of a foreign trust, the gross reportable amount is the amount of the distribution to the beneficiary.
An additional $10,000 penalty is imposed for the continued failure for each 30-day period beginning 90 days after the Service notifies the responsible party of the failure. However, the total amount of penalties is limited to the gross reportable amount.
The above penalties are subject to a reasonable cause exception. However, the fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer or any other person for disclosing the required information is not treated as a reasonable cause.
The deficiency procedures that apply to income, estate, gift and certain excise taxes will not apply with respect to the assessment or collection of the increased penalty provisions.
Effective Date
The reporting requirements and applicable penalties generally apply to reportable events occurring or distributions received after the date of enactment of the 1996 Act. The annual reporting requirement and penalties applicable to U.S. grantors apply to tax years of U.S. persons beginning after December 31, 1995. Small Business Job Protection Act of 1996, Sec. 1901. IRC §§6048, 6677.
(2) “2010 HIRE Act”
HIRE Foreign Account Tax Compliance: Reporting Requirements for U.S. Persons Treated as Owners of a Foreign Trust
A U.S. Person who is treated as the owner of any portion of a foreign trust under the grantor trust rules, must submit any information required by the IRS with respect to the foreign trust (in addition to the current requirement that such U.S. Persons are responsible for insuring that a foreign trust complies with his own reporting obligations) (see IRC §6048(b)(1), as amended by the 2010 HIRE Act). This requirement to supply information about the trust applies to tax years beginning after March 18, 2010 (Act §534(b) of the 2010 HIRE Act).
The current reporting obligations for U.S. owners of foreign trust include filing a tax return for the year and providing certain information to each U.S. Person who is either treated as the owner of any portion of the trust, or who receives a direct or indirect distribution from the trust (IRC §6048(b)(1)(A) and (B)).
HIRE Foreign Account Tax Compliance: Penalty for Failure to Report Information or File Return Concerning Certain Foreign Trusts
The minimum amount of penalty for failure to report information or file returns for foreign trusts is increased to $10,000.
The maximum amount of the penalty has changed. The penalty for failure to report information or file a return with respect to certain foreign trusts cannot exceed the gross reportable amount (IRC §6677(a)).
To the extent that the aggregate amount of penalties exceeds the gross reportable amount, the IRS must refund the excess to the Taxpayer (IRC §6677(a), as amended by the 2010 HIRE Act).
If any notice or return required to be filed under IRC §6048 is not filed on or before the due date, or does not include all the information that is required, or includes incorrect information, then the person required to file such notice or return must pay a penalty equal to the greater of:
1. $10,000, or
2. Form 3520 Filings: 35% of the gross reportable amount (or Form 3520-A filings: 5% for U.S. Persons treated as owners of the trust)(IRC §6677(a), as amended by the 2010 HIRE Act).
Previously, the penalty for failure to provide the required information or file a return with respect to certain foreign trusts, Form 3520 Filings: 35% of the gross reportable amount (Form 3520-A filings: 5% for U.S. Persons treated as owners of the trust).
With the new minimum amount, the IRS will be able to impose a $10,000 penalty even when there is not enough information to determine the gross reportable amount.
If the failure to report persists for more than 90 days after the IRS has mailed notice of such failure to the person required to pay such penalty, an additional penalty is imposed that is equal to $10,000 for each 30 day period during which such failure continues after the 90-day period expires.
The penalty imposed cannot exceed the gross reportable amount (IRC §6677(a)). No penalty will be imposed if the failure to report is due to reasonable cause and not willful neglect (IRC §6677(d)).
U.S. Tax Compliance - Foreign Grantor Trusts - Foreign Gifts
If a Foreign Trust has a U.S. grantor, and one or more U.S. beneficiaries, under IRC §679 the Trust is classified as a foreign grantor trust and all Trust income, deductions and credits must be reported on the U.S. Grantor’s personal tax returns (Federal tax return/Form 1040).
The 2010 Hiring Incentives to Restore Employment Act (“2010 HIRE Act”) included the Foreign Account Tax Compliance Act which imposed new foreign grantor trust reporting obligations on Responsible Parties (i.e., U.S. Owners/ U.S. Settlor) of foreign grantor Trust (effective 3/18/10).
Since a U.S. grantor has neither the legal authority or the ability to force Foreign Trustees to file the Form 3520-A, the 2010 HIRE Act makes the grantor responsible to submit information to the IRS with respect to the Trust.
When a U.S. taxpayer forms a Foreign Grantor Trust, the following mandatory U.S. tax filings are required:
(1) Form SS-4 is to be filed immediately upon formation (this form is used to obtain the federal tax identification number for the Trust);
(2) Form 56 for reporting creation of fiduciary relationship (this form is filed upon the creation of the Trust, or is due with the first tax return filed for the Trust);
(3) Form 709
A transfer of Assets to a Foreign Trust may create a gift tax liability, dependent on whether or not there is a completed gift.
If the transfer is to an irrevocable, non-amendable trust there is a completed gift. In 2010, $1M in gifts are exempt from tax (Husband and Wife: $2M). The top gift tax rate of 35%, will be applicable to transfers over $500,000.
Although the estate tax is repealed in 2010, the gift tax remains in effect.
In 2010, there is an annual exclusion of $13,000 per donee for gifts ($26,000 for husband and wife, gift-splitting). There is an unlimited exclusion for payments of tuition and medical expenses.
Gifts to a non-citizen spouse are eligible for a gift tax annual exclusion of up to $134,000 (in 2010).
(4) Form 3520
This form is used to report transactions with foreign Trusts (and to report receipts of foreign gifts).
Form 3520 is sent to the IRS, P.O. Box 409101, Ogden, Utah 84409.
The U.S. Grantor of a Foreign Trust (as a responsible party) must notify the IRS of a reportable event: i.e., the creation of a foreign trust by a U.S. person, the transfer of money to a foreign trust by a U.S. person (including a transfer by reason of death), the death of a U.S. citizen or resident (if the decedent was treated as the owner of any portion of a foreign trust under the grantor trust rules or if any portion of the trust estate was included in the gross estate of the decedent).
The notice of “reportable event” is due on or before the 90th day after the reportable event and is satisfied by the Responsible Party filing Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts).
Responsible parties include: the grantor of an inter vivos trust, the transferor in a reportable event (other than by death), and the executor of a decedent’s estate.
U.S. beneficiaries of foreign trusts are subject to IRS reporting requirements, if they receive a distribution from the trust. IRS reporting includes: the name of the trust, the aggregate amount of the distributions received from the trust during the trust year (satisfied by filing Form 3520 with the IRS).
If a complete Form 3520 is not filed by the due date (including extensions), the time for assessment of any tax imposed, with respect to any event or period to which the information required to be reported, will not expire before the date that is three (3) years after the date on which the required information is reported.
Penalties (Form 3520 Filing)
If Form 3520 is not timely filed, or the information is incomplete or incorrect, the penalties imposed:
A penalty generally applies if Form 3520 is not timely filed or if the information is incomplete or incorrect. Generally, the penalty is:
• 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the transfer,
• 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution, or
• 5% of the amount of foreign gifts for each month the report is not filed (not to exceed 25%)
(5) Form 3520-A
Form 3520-A is the annual information return of a foreign trust with at least on U.S. owner, which includes:
1. Annual tax Information about the Foreign Trust
2. Annual Tax Information about its U.S. Beneficiaries
3. Annual Tax Information about any U.S. person who is treated as an owner of any portion of the foreign trust
Form 3520-A is filed with the Internal Revenue Service Center P.O Box 409101, Ogden, Utah 84405 and is due by the 15th day of the 3rd month after the end of the trust’s tax year.
Any U.S. person that is treated as the owner of any portion of a foreign trust (under the grantor trust rules) is responsible to ensure that the trust satisfies IRS reporting requirements, annually, which include: a complete accounting of trust activities and operations for the year, the name of the U.S. agent for the trust, and provides information to each U.S. person who is treated as the owner of any portion of the trust or who receives a direct or indirect distribution from the trust. IRS reporting is satisfied by the filing of Form 3520-A and providing copies of the Foreign Grantor Trust Owner Statement and the Foreign Grantor Trust Beneficiary Statement to the U.S. owners and beneficiaries.
Copies of the Foreign Grantor Trust Owner Statement and Foreign Grantor Trust Beneficiary Statement must be sent to the U.S. owners and U.S. beneficiaries by the 15th day of the 3rd month after the end of the Trust’s tax year.
The U.S. owner is subject to a penalty equal to 5% of the gross value of the Trust’s assets treated as owned by the U.S. person at the close of that year if the foreign trust:
1. Fails to timely file Form 3520-A
2. Does not furnish all of the information required by IRC §6048(b) or includes incorrect information (IRC §6677(b))
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.
Additional penalties may be imposed if noncompliance continues after the IRS mails a notice of failure to comply with required reporting.
Criminal penalties may be imposed under IRC §7203, 7206 and 7207 for failure to file on time and for filing a false or fraudulent return.
5. Appointment of U.S. Agent
Foreign Trust (U.S. Agent)
Under IRC §6048(b), any person who is treated as a grantor of all or any portion of a foreign trust must appoint a U.S. Agent for the Trust.
Failure to execute an authorization of Agent, binding upon the trust and the agent allows the IRS to make its own determination as to the amounts to be included by U.S. transferors under the grantor trust rules (IRC §6048(b)(2), Notice 97-34, Section IV (B)). The designation of a U.S. agent will not otherwise subject the agent to legal process and will not alone cause the foreign trust to have an office in the United States (IRC §6048(b)(2)).
If the Foreign Trust does not appoint a limited U.S. agent, for purposes of examination of books and witnesses, service of summons and enforcement of summons (IRC 7602 – 7604), the IRS may include in the grantor’s income anything it wants to include (IRC §6048(b)(2)(C)). The IRS can make whatever determination it wishes based on its own knowledge or information obtained through testimony or otherwise (IRC §6038A(e)(4) rules regarding judicial proceedings to quash a summons will apply).
6. Foreign Gifts
U.S. Persons that receive gifts from foreign individuals or entities must report such transfers on Form 3520 (Part IV Lines 62-64).
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). IRC §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 2010, the reporting threshold amount for gifts from foreign corporations or partnerships is $14,165.
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.
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 (a copy should be attached to the Federal 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 the failure 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 may summarily assess the five percent additional penalty.
7. Summary U.S. Tax Compliance Foreign Grantor Trusts (Foreign Gifts)
When a U.S. person receives a foreign gift, or establishes a foreign grantor trust, the following U.S. tax compliance is required:
1. Form 56 (upon trust formation)
2. Form SS-4 (for trust formation)
3. Form 3520 (on both trust formation within 90 days of the reportable event, or annually upon receipt of foreign gifts)
4. Form 3520-A (annually)
5. Form 709 (Gift Tax Returns) for transfer of Assets to fund a Foreign Trust
A copy of both Form 3520 and 3520-A is to be attached to the U.S. person’s tax return, with separate copies filed with the IRS in Ogden, Utah.
United States of America v. UBS AG (Declaration of Daniel Reeves)
Filed under: IRS, UBS, int tax compliance, offshore trusts, tax evasion, tax haven, unreported income
The following 305 page IRS affidavit is the Declaration of Daniel Reeves, a duly commissioned Internal Revenue Agent and Offshore Compliance Technical Advisor employed in the Small Business/Self Employed Division of the Internal Revenue Service. He is assigned to the Internal Revenue Service’s Offshore Compliance Initiative. The Offshore Compliance Initiative develops projects, methodologies, and techniques for identifying US taxpayers who are involved in abusive offshore transactions and financial arrangements for tax avoidance purposes.
I.R.S. to Tighten Tax Oversight of Foreign Banks
By LYNNLEY BROWNING, The New York Times
Published: October 16, 2008
The Internal Revenue Service has issued new rules applying to a multibillion-dollar I.R.S. program that allows foreign banks to funnel money overseas on behalf of American clients .
New rules, issued Monday, apply to a little-noticed, multibillion-dollar I.R.S. program that allows participating foreign banks to funnel hundreds of billions of dollars overseas on behalf of American clients without disclosing their names to the I.R.S. In return, the banks promise to know who their clients are, withhold any taxes due on United States securities in their accounts — typically 30 percent — and send that money to the I.R.S.
Click here for complete article.
Cayman Islands, Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist
The U.S. Government Accountability Office (GAO) has recently published, “Cayman Islands, Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist.”
The 57 page pdf can be found here.
Tax Haven Abuse: Walter Anderson Case
The 8/1/06 Report: United States Senate (Permanent Subcommittee on Investigations/Committee on Homeland Security and Governmental Affairs), Walter Anderson Case:
Anderson: Hiding Offshore Ownership.
This case history examines actions allegedly taken by a wealthy American to hide hundreds of millions of dollars in stock and cash offshore by disguising his ownership of the corporations that controlled those assets and failing to pay taxes on those assets. Walter C. Anderson was indicted for tax evasion in 2005, and is now awaiting trial. The government has developed evidence that Mr. Anderson took advantage of secrecy laws in multiple tax haven countries to create a structure of offshore corporations and trusts. According to the indictment, through a series of assignments, sales, and transfers, Mr. Anderson placed into these offshore entities about $450 million in cash and stock, including large interests in telecommunications firms. He allegedly disguised his ownership of these assets through a range of techniques including shell companies, bearer shares, and nominee directors and trustees. In one instance, according to the indictment, Mr. Anderson set up an offshore shell corporation in the British Virgin Islands, gave its shares to a second shell corporation he established in the same jurisdiction, and had the second corporation send the shares to a bearer-share corporation in Panama, which he controlled. The government stated that it seized a document granting Mr. Anderson’s mother the exclusive option to purchase, for $9,900, ninety-nine percent of the bearer share corporation which then held assets worth millions of dollars. According to the indictment, Mr. Anderson used these methods to evade more than $200 million in Federal and District of Columbia income taxes.
View complete report: Tax Haven Abuses: The Enablers, The Tools, & Secrecy
Tax Haven Abuse: (Wyly case) (Artwork, Jewelry)
The 8/1/06 Report: United States Senate (Permanent Subcommittee on Investigations/Committee on Homeland Security and Governmental Affairs), (Wyly Case) Artwork, Jewelry (excerpted pages 287-288):
(7) Spending Offshore Dollars on Artwork, Furnishings, and Jewelry
During the thirteen years examined in this Report, at least $30 million in untaxed, offshore dollars were spent to purchase furnishings, artwork, and jewelry for the apparent personal use of Wyly family members.1142 Although the nominal owners of virtually all of these items were two offshore corporations, the evidence indicates that the art, furnishings, and jewelry were actually selected, held, and used by individual Wyly family members. These purchases are further evidence that the Wylys were directing the use of trust assets, and that the offshore trusts were benefitting U.S. persons.
Background. From 1992 until 2005, numerous expensive works of art, rare documents and books, furniture, and jewelry were purchased with Wyly-related offshore dollars. These purchases included, for example, a $937,500 portrait of Benjamin Franklin,1143 a $13,000 French bronze chandelier,1144 a $162,000 bureau cabinet,1145 $721,000 in official documents from the presidency of Abraham Lincoln,1146 a $622,000 ruby,1147 and a $759,000 emerald necklace.1148
Although a number of Wyly-related offshore entities supplied funds for these purchases, almost all of the items were nominally owned by either Audubon Assets Ltd. (“Audubon”) or Soulieana Ltd. (“Soulieana”). Audubon, formerly named Fugue Ltd., is wholly owned by the Bessie Trust, a 1994 foreign grantor trust set up to benefit Sam Wyly and his family. Soulieana is wholly owned by the Tyler Trust, a 1994 foreign grantor trust set up to benefit Charles Wyly and his family. Both corporations are shell operations, with no employees or offices of their own. Since 1995, many of their transactions have been handled for a fee by the Irish Trust Company, working in tandem with the Wyly family office. The documents show that the key persons who handled these matters for Audubon and Soulieana during the period under examination were Ms. Boucher and Ms. MacInnis from the Irish Trust Company, and Ms. Hennington, Ms. Robertson, Ms. Alexander, and Ms. Westbrook from the Wyly family office.
View complete report: Tax Haven Abuses: The Enablers, The Tools, & Secrecy
Tax Haven Abuse: (Wyly case) (U.S. Real Estate)
The 8/1/06 Report: United States Senate (Permanent Subcommittee on Investigations/Committee on Homeland Security and Governmental Affairs), (Wyly Case) U.S. Real Estate (excerpted pages 273-276, 287, 360):
(a) Real Estate Transactions in General
From 1992 to 2005, multiple U.S. real estate properties used by Sam and Charles Wyly for personal residences or business ventures were funded in whole or in substantial part with offshore dollars.1084 The properties examined here include a $45 million 244-acre ranch near Aspen, Colorado, known as Rosemary’s Circle R Ranch, containing a half dozen residences built for the Sam Wyly family; a $9 million 26-acre ranch near Aspen, sometimes referred to as the LL Ranch, containing an 8,000 square foot residence used by the Charles Wyly family; a $13 million set of condominiums in downtown Aspen operating as Cottonwood Ventures and containing, in part, art galleries run by Sam Wyly’s daughter; a $12 million 95-acre ranch near Dallas, Texas, known as Stargate Horse Farms, run by Charles Wyly’s daughter; and an $8 million oceanside property in Malibu, California, owned by Sam Wyly until 2002.1085 While each of these real estate transactions had unique characteristics, all had common elements regarding the property’s ownership structure and the financial mechanisms used to obtain offshore funding.
The structures used to acquire and finance the five real estate transactions were designed by legal counsel, in particular Rodney Owens, a partner at Meadows, Owens, Collier, Reed, Cousins & Blau LLP (“Meadows Owens”), a Texas law firm that provided tax and real estate advice to the Wyly family.1086 Meadows Owens told the Subcommittee that the structures were the result of an indepth research effort by Mr. Owens and others to design an innovative means to ensure Wyly access to properties being financed primarily with offshore funds.1087 Numerous emails discussing the real estate transactions refer to Mr. Owens or Meadows Owens, and indicate that legal counsel was being consulted with respect to the real estate transactions.1088 To date, despite Subcommittee requests, the Wylys have not provided a detailed explanation of the legal reasoning behind these real estate structures, and have not provided any legal opinions or analysis, instead asserting the attorney-client privilege.
The common elements in the ownership and funding structures used for the five properties involve a tiered set of shell entities in offshore jurisdictions and the United States. They can be summarized as follows.
The apparent initial step was for one of the Wyly-related offshore trusts to form a new Isle of Man (“IOM”) shell corporation whose sole function was to serve as a funding gateway for offshore dollars to be spent on a designated real estate property in the United States. Next, this IOM corporation and one or more Wyly family members typically established a trust in the United States to manage the designated property. The management trust was established by a
trust agreement signed by the IOM corporation and Wyly family members. This agreement specified that the trust grantors, meaning the IOM corporation and the Wyly family members who signed the trust agreement, were allowed “full and complete Usage” of the property owned by the trust without any obligation by the trustee to monitor such use.1089 These provisions explicitly authorized Wyly family members to make personal and unfettered use of the real estate.
The trust agreement also assigned to each grantor a so-called “Trust Share” reflecting the grantor’s proportional contributions to the trust’s assets.1090 For example, a grantor who contributed ten percent of the trust’s assets acquired a ten percent “trust share.” The agreement further obligated each grantor to pay a portion of the real estate costs reflecting that “trust share,” such as mortgage payments, utilities, operating expenses, and construction costs. In other words, a grantor with a ten percent trust share had to pay ten percent of the real estate costs.
In the five examples examined by the Subcommittee, the IOM corporation typically made a cash contribution to the U.S. management trust resulting in its acquiring a 98 or 99 percent trust share, while Wyly family members made a much smaller contribution resulting in a 1 or 2 percent trust share. Real estate costs were then split on the same basis, with 98 to 99 percent of the costs attributed to the offshore corporation and only 1 to 2 percent attributed to a Wyly family member. This arrangement was apparently intended to enable Wyly family members to obtain full usage of the trust’s real estate, while paying a minimal percentage of the costs.
After the U.S. management trust was established and funded, the final step was for the trust to form a new U.S. partnership or limited liability corporation. This U.S. entity, using funds supplied from the Wylys and from offshore, then acquired the designated property and served as the owner of record for the U.S. real estate.1091
Most of the funds spent to acquire, improve, and operate the real estate moved from an offshore entity to a U.S. entity. The funds typically moved from one of the 58 Wyly-related offshore trusts or corporations in the Isle of Man, to the newly created IOM shell corporation created to serve as the funding gateway for the particular real estate, to the U.S. management trust, and finally to the U.S. entity serving as the owner of record for the property. The property owner then used the offshore funds to pay the acquisition, construction, and operating costs associated with the real estate. On some occasions, Wyly-related offshore entities ignored this funding pathway and wired funds directly to the U.S. management trust or directly to the U.S. property owner. More often, however, perhaps to avoid direct wire transfers from Wyly-related offshore entities to the U.S. property owner, the offshore funds took the longer route, which often required three or more wire transfers to move funds from the originating offshore entity to the final U.S. entity. This multi-step process also made it more difficult for anyone examining the real estate to trace the origin of the funds and determine that they came from an offshore trust related to the Wyly family.
U.S. and offshore financial institutions played a vital role in making these real estate structures work effectively. Lehman Brothers, Bank of America, Bank of Bermuda (IOM), Queensgate Bank and Trust, and other financial institutions routinely authorized the offshore trusts and corporations to wire substantial funds into the United States, with few questions asked. In these five examples, hundreds of thousands and sometimes millions of dollars moved through multiple accounts, across international lines, within days. Securities accounts often functioned as bank accounts, allowing millions of dollars to pass through them without any securities transactions. Without the cooperation of the banks and securities firms that controlled the financial accounts, these complex real estate structures could not have effectively been used to pay the U.S. real estate bills.
Also critical to the functioning of these complex real estate structures were the financial professionals who processed the paperwork, tracked the real estate costs, and identified available offshore funds. Key players included Ms. Robertson and Ms. Hennington from the Wyly family office, Ms. Boucher from the Irish Trust Company, and the IOM offshore service providers who administered the offshore trusts and corporations. Together, they moved tens of millions of offshore dollars into the United States through real estate transactions benefitting the Wyly family.
The five examples examined in this Report show how these complex structures, designed by lawyers and implemented by bankers, brokers, and other financial professionals, were used to supply millions of offshore dollars to pay U.S. real estate costs and, through sham real estate sales and loans, provide additional millions of offshore dollars for the personal use of Wyly family members in the United States. Two of the examples are explained here; the other three appear in Appendix 5.
(d) Analysis of Issues
The five real estate examples examined by the Subcommittee show how $85 million in untaxed, offshore dollars were used to buy residential and commercial property in the United States; pay real estate maintenance, operating, and construction costs; and enable Wyly family members to enjoy, at minimal personal expense, residential and business properties costing millions of dollars. In these instances, offshore dollars paid for 90 percent or more of the real estate costs. For example, of the $45 million spent on Rosemary’s Circle Ranch, all but $434,000 was supplied from offshore. The examples also show how, in some instances, properties were used to justify sham real estate sales and loans that brought millions of offshore dollars into the United States for the Wylys’ personal use.
These real estate transactions provide additional proof that the Wylys and their representatives were directing the use of the offshore assets. In the instances examined by the Subcommittee, the Wylys chose the properties to be purchased or sold, determined the timing of the transactions, supervised construction and renovation projects, and made personal use of the real estate. They built homes, art galleries, and a state-of-the-art equestrian facility. Wyly representatives routinely requested offshore funds to pay the real estate costs, and the Wyly-related offshore trustees routinely complied. The Subcommittee saw no instance in which a trustee refused a request for funds; most funding requests were supplied within days. The Subcommittee also saw no instance in which an offshore trustee initiated a real estate transaction on its own. Instead, the offshore trustees routinely deferred to Wyly representatives, supplying funds whenever asked.
In 2001, Sam Wyly decided to sell the Malibu property. Ms. Hennington and Ms. Boucher warned him that unless he sold it for at least $10 million, he would owe money from the transaction, because he would have to repay the first and second mortgages on the property as well as significant real estate taxes.1397 In September 2001, Mr. Wyly apparently signed papers agreeing to sell the house and its furnishings to a third party for $8.1 million. Ms. Boucher described the $8.1 million as “a good price,” but noted “the shortfall from taxes will be tough to cover.”1398 The Malibu sale apparently closed on February 13, 2002, which is also the date when the Sam Wyly Malibu Trust supposedly paid Security Capital $7.8 million to satisfy the outstanding loan.1399
The Malibu property is an example of U.S. real estate that was pledged as security for a loan from a Cayman shell corporation, Security Capital, that sent millions of untaxed, offshore dollars into the United States for Sam Wyly’s personal use. The loan also paid for the Malibu property’s renovation and operating costs for more than two years. In 2002, when the property was sold to a third party, Mr. Wyly sent over $7 million back offshore as repayment of the Security Capital loan. The fact that Sam Wyly was able to obtain an $8 million loan on real estate already encumbered by another loan, and was able to use the bulk of this cash for his personal use, is further evidence of Wyly ability to direct the use of the offshore assets.
View complete report: Tax Haven Abuses: The Enablers, The Tools, & Secrecy
Tax Haven Abuse: (Wyly Case) (Hedge Funds)
The 8/1/06 Report: United States Senate (Permanent Subcommittee on Investigations/Committee on Homeland Security and Governmental Affairs), (Wyly Case) Hedge Funds (excerpted pages 242-243):
(a) Supplying Offshore Dollars to Hedge Funds
The Wyly-related offshore entities’ invested more than $250 million in untaxed, offshore dollars in two hedge funds known as Maverick and Ranger. Both of these hedge funds were founded and managed for years by Wyly family members. By agreeing to transfer funds to the Wyly-related hedge funds, the Isle of Man (“IOM”) entities ensured that the funds would be further invested under the direction of the Wylys.
(i) Hedge Funds Generally
In the United States, hedge funds are lightly regulated, private investment funds that pool investor contributions to trade in securities or make other investments. Most U.S. hedge funds are structured as limited partnerships, in which the general partner manages the fund for a fixed fee and a percentage of the fund’s gross profits, and the limited partners function as passive investors.913 Investors generally sign a “subscription agreement” specifying the investor’s ownership interest in the fund, which may be in the form of shares, limited partnership interests, or ownership units, all of which are treated as unregistered securities.914 Many U.S. hedge funds sponsor one or more offshore funds, which are administered offshore, keep their subscription agreements and other records offshore, and minimize contacts with the United States, other than typically using the same investment manager as their U.S. counterpart.
Unlike mutual funds, U.S. hedge funds typically are not required to register their securities with the SEC. Instead, as long as the hedge fund does not offer its securities to the public, and has fewer than 100 beneficial owners or accepts only sophisticated investors, such as individuals with at least $5 million in investments, it is exempt from the Investment Company Act of 1940 and the Securities Act of 1933.915 The reasoning behind these exemptions is that “privately placed investment companies owned by a limited number of investors do not rise to the level of federal interest.”916 In December 2004, the SEC issued a regulation requiring persons who direct a hedge fund’s investments to register with the SEC as an investment advisor and disclose a minimal amount of information about the hedge fund; however, this regulation was recently invalidated by the D.C. Circuit Court of Appeals.917
In addition to minimal SEC regulation, hedge funds are currently exempt from U.S. anti-money laundering laws. They are not required to institute an anti-money laundering program, know who their customers are, or report suspicious activity to law enforcement, despite significant money laundering vulnerabilities.918 In 2002, the Treasury Department proposed a rule that would require hedge funds, among other types of unregistered investment funds, to institute anti-money laundering procedures, but four years later has yet to finalize that rule.919
With respect to U.S. taxes, most hedge funds are organized as partnerships, file 1065 informational tax returns with the IRS, and provide information about gains and losses to their partners for inclusion in the partners’ individual tax returns. Some hedge funds organized as corporations must file 1099 forms with the IRS reporting payments made to clients.920 Hedge fund clients are then responsible for including any hedge fund gains in their taxable income. If a U.S. hedge fund sponsors an offshore investment fund, however, that offshore fund is typically structured as a foreign entity outside of U.S. tax law and does not file U.S. tax returns or report payments made to offshore clients. In 1999, the President’s Working Group on financial Markets noted that a significant number of hedge funds operated in tax havens and may be associated with illegal tax avoidance.921
View complete report: Tax Haven Abuses: The Enablers, The Tools, & Secrecy
Tax Haven Abuse: (Wyly Case) (Compensatory Stock Options)
The 8/1/06 Report: United States Senate (Permanent Subcommittee on Investigations/Committee on Homeland Security and Governmental Affairs), (Wyly Case) Compensatory Stock Options (excerpted pages 163-167, 174, 194-195):
(2) Transferring Assets Offshore
Assets can be transferred offshore in a number of ways. In this case history, the Wyly assets were transferred offshore in three groups of transactions, several years apart. The first group took place in 1992, when the initial offshore trusts were established. The second group took place in 1996, after the foreign grantor trusts were established. The third group took place in 1999 and 2002, surrounding the 2000 sales of Sterling Software and Sterling Commerce. On the first two occasions, the primary mechanism used to move assets offshore were stock option annuity-swaps, in which millions of stock options and warrants were transferred to 20 offshore corporations in exchange for 20 annuity agreements promising to make payments to the Wylys years later. In the third instance, Sam and Charles Wyly transferred millions of stock options directly to several offshore corporations in return for cash. Altogether, from 1992 to 2002, about 17 million stock options and warrants, representing at least $190 million in compensation, were transferred offshore.
All 17 million stock options and warrants transferred offshore had been provided to Sam and Charles Wyly by Michaels, Sterling Software, or Sterling Commerce as compensation for services performed. Wyly legal counsel took the position that the Wylys did not have to pay any income tax on most of this compensation at the time it was sent offshore, because the Wylys had exchanged most of the stock options and warrants for annuity agreements of equivalent value. Wyly legal counsel advised further that the securities had been transferred to independent third parties, even though the corporations who received the securities were owned by trusts established by or for the benefit of the Wylys and allowed the Wylys and their representatives to direct how the securities should be handled. Wyly legal counsel also advised that when the offshore corporations exercised the stock options, the stock option gains did not have to be reported as Wyly income, despite a long-standing IRS requirement that when stock options are transferred to a related party, any stock option gains must be attributed to the original stock option holders as compensation income. Instead, Wyly legal counsel advised that the Wylys were liable for taxes only if and when they actually received annuity payments from the offshore corporations years later. In the meantime, legal counsel advised that the Wylys could transfer their stock option compensation offshore tax-free. This untaxed compensation provided the seed money that enabled the Wyly-related offshore entities to initiate an extensive investment effort.
The stock option-annuity swaps used in this case history sought to manipulate the unusual tax status of stock options, which are virtually the only type of compensation that is not routinely taxed during the year when received, but is usually taxed during the year in which the stock options are exercised, often years after receipt. The swaps attempted to take advantage of this delay in taxation by transferring the stock options offshore to purportedly independent entities; the Wylys and their representatives then convinced the corporations that originally issued the options not to report any compensation when those offshore entities exercised the options. A number of U.S. executives attempted to defer taxation on their stock option compensation by transferring their options to other persons and entities in various types of transactions. In 2003, the IRS announced that it considered some of these stock option transactions to be potentially abusive tax shelters and offered to settle the tax liability of persons who participated in them with reduced penalties. The Wylys chose not to participate in this settlement initiative.
(a) Stock Options in General
In the United States, over the past ten years, stock options have commonly provided 50 percent or more of the compensation awarded to chief executive officers of publicly traded companies.626 They are also commonly used to compensate the directors of a public company.
Stock options give the stock option holder the contractual right to purchase company stock at a fixed price, called the “strike price,” for a designated period of time. Frequently, the strike price equals the price that the stock is trading on a public stock exchange on the day the stock option is granted. The stock option typically guarantees that the stock option holder can buy the company stock at the designated strike price for a period of years. The expectation is that the executive will then work to increase the company stock price, not only to build a
stronger company, but also to increase the value of the executive’s personal stock option holdings.
Some stock options do not permit the stock option holder to immediately purchase the company stock. Instead, they require the stock option holder to remain with the company for a designated period of time, such as two or three years, before the stock option “vests” and the executive can “exercise” it to buy the company stock. This vesting period is used to encourage the executive to remain with the company.
In some cases, stock options lose value, because the company stock price falls below the strike price. In such cases, some companies “reprice” the stock options, lowering the strike price so that the executive can profitably purchase the company stock, even though the public stock price has decreased. The SEC discourages such “repricing,” since it rewards corporate executives at the expense of investors left holding the higher priced shares.627
Historically, compensatory stock options were typically nontransferable, meaning the executive given the stock option was not permitted to transfer it to a third party.628 The purpose of this restriction is to preserve the incentives for the executive to remain with the company during the stock option’s vesting period and work to increase the company stock price; both employee incentives are reduced if the stock option were transferred to an outside party. Despite this general practice, some companies have allowed stock options to be transferred with the permission of the company’s board of directors; a few have allowed executives to transfer their stock options at will with notice to the company. In addition, in 1996, the SEC relaxed provisions that had made stock option transfers subject to Rule 16 insider trading restrictions; the new rules exempted from Rule 16 all securities provided by an issuer to an officer or director if certain conditions were met, including requiring any stock options to be held for at least six months from the time of award.629
Compensatory stock options are taxed under Section 83 of the Internal Revenue Code. This section, which codified a longstanding IRS position, provides that stock options are generally not taxed when granted, but are instead taxed when exercised.630 When exercised, the difference between the strike price paid by the option holder for the stock and the market price of the stock on the day of the exercise is taxable as ordinary income to the stock option holder. In addition, under Section 83(h), the corporation that granted the stock option is allowed to take a “mirror” deduction for the compensation included by the executive in his or her gross income at the time of exercise.
Treasury regulations in effect since 1978 provide that, if a compensatory stock option were sold to a third party in an arm’s-length transaction, the stock option holder must treat the amount received for the options at that time as taxable compensation income.631 If the sale were to a related party, however, the transfer would not be considered a taxable event; instead, when the stock options were later exercised by the related party, any profit between the option’s strike price and the stock’s market price at the time of exercise would be attributed as compensation to the person who was originally awarded the stock option and who would then be required to pay tax on that income.632 The purpose of this requirement is to prevent sham stock option sales to related parties for less than fair value.
Beginning in the 1990s, some accounting firms began selling a tax shelter to U.S. corporate executives to delay or eliminate the payment of tax on stock option compensation.633 In this tax shelter, an executive typically transferred compensatory stock options to a related person, such as a family member or an entity controlled by family members such as a family-related partnership or corporation. In exchange, the related person typically promised to pay the executive an amount equal to the stock option’s value, using a long-term, unsecured promissory note or some other unsecured, deferred payment plan promising future payments, often 20 or 30 years in the future. Often the related person had few, if any, assets other than the transferred stock options. The tax shelter promoters claimed that, because no payment was made on the transfer date to the executive, the stock option transfer was not a taxable event, and no tax was due until actual payment of the promised sums in the future. In the meantime, the related person could exercise the stock options, buy and sell the company stock, and, if the related person were located in an offshore tax haven, invest the cash tax-free.
For the tax shelter to work, however, the corporation that provided the stock option to the U.S. executive had to assist the transaction. For example, the corporation had to allow normally nontransferable stock options to be transferred by the executive to the related person. The corporation also had to allow the related person to exercise the options and take ownership of the company stock. In addition, the corporation had to agree not to issue a Form1099 or W-2 reporting compensation to the executive from the stock option exercise, and give up the corporate deduction available to it for the stock option compensation on the date of exercise. These actions typically represented an economic hardship to the corporation since it had to forego a valuable tax deduction for the stock option compensation. Nevertheless, many corporate executives were able to convince their corporations to go along.
In 2003, the IRS concluded that this executive stock option transaction had no economic substance apart from tax avoidance, and announced that it considered it a potentially abusive tax shelter.634 In 2005, over 100 executives and corporations accepted an offer by the IRS to settle possible tax liability and penalties related to the executive stock option tax shelter by agreeing to pay back taxes on the stock option compensation, interest, and a reduced amount of penalties.635 The IRS calculated that U.S. corporate executives had used the stock option tax shelter to avoid
reporting nearly $1 billion in taxable income.636
Sam and Charles Wyly used transactions similar to those described in the IRS notice to move their assets offshore. Each brother had millions of compensatory stock options that had been granted to him by the three publicly traded companies they founded or expanded, Michaels Stores, Sterling Software, and Sterling Commerce, for which, at various times, the brothers served as directors, officers, or large shareholders.637 In 1992 and 1996, with the assistance of legal counsel, the Wyly brothers arranged for the transfer of many of these stock options to the offshore entities examined in this Report. In return, they accepted, not promissory notes, but private annuities.
Each of the legal opinion letters addressed to the Wylys advised that they could defer the payment of any tax on the $41.8 million in stock option compensation sent offshore in exchange for the private annuities. The letters reasoned that a promise to make lifetime annuity payments had no immediately determinable value, an unfunded and unsecured promise to pay money in the future did not qualify as taxable property, and the stock options themselves had no readily ascertainable fair market value under Section 83 of the tax code, so none of the transactions resulted in an immediate tax liability to the Wylys. The letters also reasoned that, because the value of the private annuity being provided equaled the fair market value of the stock options being contributed in exchange for the annuity, no gift tax would apply. The letters asserted further that the exercise of the stock options would not result in taxable compensation to the original stock option holders, because the stock options had been disposed of in arm’s-length transactions.
The legal opinion letters failed to acknowledge or analyze the key issue of whether the stock option transfers were transfers between related parties and, thus, under Section 83 of the tax code, had to attribute any stock option exercise gains as taxable income to the original stock holders, Sam and Charles Wyly. Instead, each letter simply asserted without explanation that the stock options were transferred in arm’s-length transactions.
Counsel forwarded copies of the letters addressed to the Wylys to Michaels and Sterling Software, presumably to aid both corporations in reaching a decision not to report any stock option compensation for the Wylys either at the time the Wylys initially transferred the stock options to the Nevada corporations or later when the offshore corporations exercised those stock options.664 The evidence indicates that neither Michaels nor Sterling Software, in fact, issued a W-2 or 1099 form reporting the Wyly stock option compensation, either in 1992 or later.665 Apparently both corporations determined that the stock option-annuity swaps, as represented to them, meant that neither Sam nor Charles Wyly would receive any taxable income from their stock options until the annuity payments began years later.
(g) Analysis of Issues
The 17 million stock options and warrants moved offshore over a ten-year period, from 1992 until 2002, represented at least $190 million in compensation provided to Sam and Charles Wyly by Michaels, Sterling Software, and Sterling Commerce.746 Of this $190 million, Sam and Charles Wyly appear to have reported $31 million as taxable income in 2002. Since 2003, another $35 million was transferred to the Wylys in the form of annuity payments, for which taxes were presumably paid. It appears that the remaining $124 million in stock option compensation remains offshore and untaxed.
The U.S. publicly traded corporations that issued the stock options could have reported to the IRS the stock option gains realized when the options were exercised, but chose not to do so. The 20 offshore corporations that exercised the stock options and warrants then sold the shares or used them in securities transactions to produce additional income that was also untaxed.
The offshore transfers at the center of this case history involve sending valuable stock options and warrants to newly created shell entities with no employees, offices, or assets, in exchange for unsecured promises to make annuity payments years in the future. These transactions do not make economic sense, unless the recipients of the assets are understood to be related parties under the direction of the persons who sent the assets offshore.
Also key to understanding these transactions is the immense effort that was undertaken to keep them secret. Securities were directed to shell corporations in Nevada which sent them to IOM corporations bearing the same corporate names. Offshore grantor trusts were established to act as intermediaries for stock options intended to be transferred to still other offshore entities. Public corporations were persuaded not to file W-2 or 1099 forms reporting stock option gains to the IRS. A public corporation that made nearly $74 million in cash payments to offshore corporations was told it had no legal obligation to file forms reporting those payments to the IRS. When the IRS asked CA, in 2002, about Wyly stock option transfers to four offshore corporations, no one disclosed to the IRS that the offshore corporations were owned by trusts benefiting the Wyly family. In short, the extent of the stock option compensation sent offshore was kept hidden from the IRS.
Five publicly traded corporations, Michaels, Sterling Software, Sterling Commerce, SBC and CA, facilitated these offshore transfers and helped the Wylys avoid the immediate payment of taxes on their stock option compensation. Michaels and Sterling Software allowed the transfer of stock options that were supposed to be nontransferable. Four of the five amended their ownership records to accept stock option ownership by the offshore corporations. All five chose not to file 1099 or W-2 forms reporting Wyly stock option compensation to the IRS. All but one gave up taking multi-million-dollar tax deductions for the Wyly stock option compensation. As part of a repricing of all its employee stock options, Michaels even repriced the stock options held by the offshore entities, substantially increasing their value. None conducted a detailed investigation into the true relationship between the offshore entities and the Wylys to determine whether, in fact, they were independent or related parties.
View complete report: Tax Haven Abuses: The Enablers, The Tools, & Secrecy
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