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Madison Foreign Trust Lawyer | International Tax Attorney

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If you are a US beneficiary or a US owner of a foreign trust and you reside in Madison, Wisconsin, you need the help of an experienced Madison Foreign Trust Lawyer to properly comply with complex US tax reporting requirements regarding foreign trusts and avoid paying very high penalties. Who should you consider retaining as your Madison Foreign Trust Lawyer?

Definition of a Madison Foreign Trust Lawyer: Legal Services Provided in Madison, Wisconsin

First, you want to consider only international tax law firms that offer their services related to foreign trust compliance in Madison, Wisconsin. Note the important language here: “offer their services … in Madison”. Offering services in Madison is not equivalent to residing in Madison.

This means that the definition of a Madison Foreign Trust Lawyer includes not only international tax lawyers who live in Madison, but also lawyers who reside elsewhere (for example, Minneapolis) and offer their services in Madison. It should be, however, a lawyer is licensed to practice law in any of the 50 states or District of Columbia.

Why is the residence not important when it comes to defining who is a Madison Foreign Trust Lawyer? The answer is rather simple – foreign trust law is mainly federal and the high-penalty tax forms are also federal. This means that, unlike situation which concern local law, the input of Madison or even Wisconsin law is very small and, in most situations, none. Since the focus is on the federal tax compliance, the physical residence of your foreign trust lawyer does not matter.

Madison Foreign Trust Lawyer Must Be an Experienced International Tax Lawyer

Now that you know that you can choose your Madison Foreign Trust Lawyer from a larger pool of lawyers and without any geographical limitations, we can turn to the second retainer criteria – a Madison Foreign Trust Lawyer should be an international tax lawyer who is experienced in the are of foreign trust compliance laws and regulations.

A foreign trust lawyer should be aware of all areas of US international tax law that are directly and indirectly relevant to foreign trusts in order to properly help his clients. He should know the foreign trust classification, foreign trust compliance (including Form 3520), foreign trust income reporting, FATCA issues, the rules concerning indirect ownership of foreign assets through a foreign trust and many other relevant issues. Thus, the competence of your lawyer in the area of foreign trusts should be the most important criteria in your selection of an Madison Foreign Trust Lawyer.

Sherayzen Law Office Should Be Retained as Your Madison Foreign Trust Lawyer

Under this criteria, Sherayzen Law Office should be a top choice for your Madison Foreign Trust Lawyer. Led by its founder and international tax attorney Eugene Sherayzen, this firm is one of the leading experts in the field of foreign trust US tax compliance and planning. Not only does it boast a higher devoted and experienced legal team with extensive knowledge of all major relevant areas of US international tax law (including Form 3520, Form 3520-A, PFIC compliance, FATCA, FBAR and other relevant requirements), but it has also helped it clients with foreign trust voluntary disclosures in cases where its clients did not timely and/or correctly complied with the numerous US tax reporting requirements. Sherayzen Law Office has also defended its clients against the IRS attempts to make its clients owners of a foreign trusts where, in reality, they were simply beneficiaries.

This is why, if you are looking for an Madison Foreign Trust Lawyer, you should contact Sherayzen Law Office today to schedule Your Confidential Consultation!

Exceptions to Foreign Trusts: Business Trusts

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As I mentioned in an earlier article, U.S. tax law includes a number of important exceptions to legal definition of a foreign trust – i.e. an entity can be classified as a foreign trust for legal purposes and not as a trust (but as a corporation or a partnership) for U.S. tax purposes. This is also true with respect to domestic trusts, but, in international context, the issues are far more complicated and require detailed exploration of facts and, often, local laws. In this article, I would like to discuss one of the most common exceptions to foreign trusts – business trusts.

Business Trusts Taxed as Corporations or Partnerships

Where an entity is organized as a trust but engages in the active conduct of trade or business, the IRS may re-classify this trust as a “business trust” and tax it as a corporation or partnership. The most relevant primary law on this point can be found in IRS Regs. §301.7701-4(b):

There are other arrangements which are known as trusts because the legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Internal Revenue Code because they are not simply arrangements to protect or conserve the property for the beneficiaries. These trusts, which are often known as business or commercial trusts, generally are created by the beneficiaries simply as a device to carry on a profit-making business which normally would have been carried on through business organizations that are classified as corporations or partnerships under the Internal Revenue Code. However, the fact that the corpus of the trust is not supplied by the beneficiaries is not sufficient reason in itself for classifying the arrangement as an ordinary trust rather than as an association or partnership. The fact that any organization is technically cast in the trust form, by conveying title to property to trustees for the benefit of persons designated as beneficiaries, will not change the real character of the organization if the organization is more properly classified as a business entity under § 301.7701-2.

Let’s explore these regulations in more depth in order to have a clear idea of the general test for business trusts.

Most Important Features of Business Trusts for Federal Income Tax Purposes

There are two most important factors in determining whether a trust is a business trust. The first and most important distinction between ordinary trusts and business trusts is the conduct of a “profit-making business” which “normally” would have been done by a business entity. It is important to understand that it is not simply the ownership of business assets which re-classifies ordinary trusts in business trusts; rather, while ordinary trusts must be created for the purpose of conservation and preservation of assets for beneficiaries, business trusts should be created for the purpose of the profit-making activities.

How does one determine the purpose for which a trust is created? There are various factors, including the history of the trust. The trust agreement (the document that creates the trust), however, is the key document on which the IRS will focus.

The second important feature of business trusts concerns domestic and foreign trusts which have associates to conduct an active trade or business for their benefit. In such cases, the trusts will be reclassified as business trusts and taxed as corporations or partnerships.

Both of these factors in determining the business nature of a trust rely are highly dependent on facts and require minute analysis of a trust’s history and circumstances. The help of an experienced international tax lawyer is indispensable in this matter.

Contact Sherayzen Law Office for Professional Help With Trust Classification

If you are a beneficiary or grantor of a foreign trust, contact Sherayzen Law Office for professional help in determining the classification of the trust. The founder of our firm, Mr. Eugene Sherayzen, is a highly experienced international tax lawyer who has helped hundreds of taxpayers in and outside of the United States with their U.S. international tax compliance issues.

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Trust Classification

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This article begins to explore one of the most obscure, yet highly important questions in U.S. international tax law – foreign trust classification and what law is relevant in the determination of such a classification. This area of law is very complex and I cannot hope for more than providing just some general contours of it in this essay.

Foreign Trust Classification: Relevant Law

In order for an entity to be classified as a foreign trust, one must establish that the entity is a “trust” and the entity is “foreign”. In this article, I will only discuss the definition of a trust and leave the subject of determining whether a trust is foreign for future discussion.

Both parts of this definition are determined by federal income tax law. The substantive trust law under which the trust was created, while often determinative of rights and duties of relevant parties (i.e. grantor, trustee and the trust’s beneficiaries), does not establish whether an entity should be treated as a trust. Nevertheless, the substantive trust law is still very important in order to establish the facts and context for federal income tax analysis.

The most important federal income tax law concerning foreign trusts can be found in Section 7701 of the Internal Revenue Code (IRC) and relevant regulations. The IRS decisions and rulings (such as Private Letter Rulings) are also highly important in entity classification.

Foreign Trust Classification: General Definition of a Trust under Federal Law

Generally, at the simplest level, a trust is an arrangement where the title to property is held by a fiduciary – a person with the responsibility to conserve the property for a benefit of another person or person (called beneficiaries). As beneficiaries, these persons should not participate in any fiduciary responsibilities.

IRS Regulations in §301.7701-4(a) provide more details about what entity would be considered as a trust:

In general, the term “trust” as used in the Internal Revenue Code refers to an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of such a trust may be the persons who create it and it will be recognized as a trust under the Internal Revenue Code if it was created for the purpose of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. Generally speaking, an arrangement will be treated as a trust under the Internal Revenue Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.

Foreign Trust Classification: Most Important Aspects of this Definition of a Trust

Two aspects of this long definition of a trust are especially relevant for foreign trust classification. First, the title to property has to be held by a fiduciary, not the beneficiary. This means that all arrangements outside of the United States will not fall under the foreign trust classification if the title is preserved by the beneficiary.

Second, for the purposes of foreign trust classification, the most important practical focus of the IRS has been on the separation of management of a foreign trust from the enjoyment of the benefits that the trust provides. Undoubtedly, such inquiry heavily depends on the particular facts of the case and would require a separate exploration beyond the scope of this article. It is worth mentioning, however, that, in situations where the beneficiary preserves the right to dispose of an asset supposedly held by a foreign trust, the IRS may rule that the arrangement does not fall within the boundaries of the foreign trust classification.

Foreign Trust Classification: Exceptions

In another article, I will explore certain exceptions to foreign trust classification. Here, I will simply state that not all trusts are treated as trusts even if the title belongs to the fiduciary. On the other hand, some arrangements will be treated as foreign trusts even in situations where one would not expect such classification (certain foreign pension arrangements, for example).

Contact Sherayzen Law Office for Help With Foreign Trusts

U.S. tax laws concerning foreign trust are highly complex and require substantial tax compliance. If you own a foreign trust or you are a beneficiary of a foreign trust, you need to contact Sherayzen Law Office as soon as possible for professional legal help. We have helped U.S. taxpayers around the world and we can help you!

Contact Us today to Schedule Your Confidential Consultation!