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New York Foreign Trust Tax Lawyer | FATCA IRS Attorney

The residents of New York who are beneficiaries or owners of a foreign trust are likely to find themselves facing a difficult legal situation and various US tax complications. Failure to properly identify and comply with their tax obligations may result in imposition of severe penalties. This is why they need the help of a New York Foreign Trust Tax Lawyer to safely navigate through the numerous tax minefields of US international tax law. In this brief essay, I will explain who is considered to be a New York Foreign Trust Tax Lawyer and why Sherayzen Law Office should be your preferred choice.

New York Foreign Trust Tax Lawyer Definition: Legal Foreign Trust Services Provided in New York

While New York is one of the few states where there is some state component with respect to foreign trusts (though, more indirect), the main focus is still on the federal law and federal tax forms. This means that any international tax lawyer who is licensed to practice in any state of the United states can offer his foreign trust tax services in New York – i.e. the physical presence in New York is not necessary.

Armed with this understanding, we can now turn to the definition of a New York Foreign Trust Tax Lawyer. It obviously includes all of the New York international tax lawyers who reside in New York. However, the definition of a New York Foreign Trust Tax Lawyer is not limited to New York residents; rather, this concept also includes all international tax lawyers who offer their tax services with respect to foreign trust compliance in New York. This means that your lawyer can residence in Minneapolis and still be considered as a New York Foreign Trust Tax Lawyer.

New York Foreign Trust Tax Lawyer Must Be an International Tax Lawyer

In the previous paragraph, I stated “all international tax lawyers who offer their tax services”. This focus on international tax lawyers is not an accident, because the essential requirement for a New York Foreign Trust Tax Lawyer is that he should be an international tax lawyer.

This means that a foreign trust lawyer cannot be just any tax lawyer, but a lawyer who devotes the majority of his practice to US international tax law, who is highly knowledgeable of the international tax law issues directly and indirectly relevant to foreign trust compliance, and who has experience in this area. It is this competence criteria that should govern your selection of a New York Foreign Trust Tax Lawyer.

Sherayzen Law Office Can Be Your New York Foreign Trust Tax Lawyer

Sherayzen Law Office should undoubtedly be your best choice for a New York Foreign Trust Tax Lawyer. Sherayzen Law Office is an international tax law firm which developed a deep expertise in the issues of US international tax compliance, including foreign trusts. Its legal team, headed by Attorney Eugene Sherayzen, has extensive experience concerning all major relevant areas of US international tax law relevant to foreign trust compliance including Form 3520, Form 3520-A, foreign business ownership within a foreign trust, FBAR and FATCA compliance and other relevant requirements. We have helped numerous taxpayers with their foreign trust issues, including situations involving multiple trusts and multiple jurisdictions. We have also helped our clients defend against IRS attempts to make our clients owners of a foreign trusts where, in reality, they were simply beneficiaries.

This is why, if you are looking for a New York Foreign Trust Tax Lawyer, you should contact Sherayzen Law Office, Ltd. today to schedule Your Confidential Consultation!

Taxation of Investment Trusts

This article on investment trusts continues a series of articles on classification of foreign trusts. In earlier essays, I explored the definition of foreign trusts and some of the exceptions to this definition. In the present writing, I would like to discuss the general circumstances when investment trusts would be treated as corporations or partnerships rather than ordinary foreign trusts (this discussion focuses on foreign trusts, but it is also equally applicable to domestic trusts).

Investment Trusts: Definition and Taxation

Where several individuals, in a voluntary association, create a trust as a means of pooling their capital into investments in which interests are sold, such a trust is considered to be an “investment trust”. The principal law concerning investment trusts can be found in IRS Regs. §301.7701-4(c).

The taxation of investment trusts is a complex and mostly depends on two factors: the number of classes of ownership interests in the trust and the power vested in the trustee under the trust agreement to vary the investment (and reinvestment) of the certificate holders. In certain circumstances, investment trusts are taxed as ordinary trusts while, in other circumstances, they can be taxed as business entities.

One-Class Investment Trusts: Definition and Taxation

One-Class Investment trusts are investment trusts “with a single class of ownership interests, representing undivided beneficial interests in the assets of the trust”. IRS Regs. §301.7701-4(c)(1).

Generally, one-class investment trusts are taxed as ordinary trusts as long as “there is no power under the trust agreement to vary the investment of the certificate holders.” Id. The concept of “power to vary the investment” is highly complicated and requires detailed exploration of relevant case law and PLRs. The focus of the IRS examination will be on the Trust Agreement and related documents.

Multiple-Class Investment Trusts: Definition and Taxation

Multiple-class investment trusts are investment trusts with multiple classes of ownership interest. Generally, it is much harder for a multiple-class investment trust to be taxed as a trust, rather than a business entity.

IRS Regs. §301.7701-4(c)(1) sets forth the legal test which states that multiple-class investment trusts will generally be taxed as business entities unless two conditions are satisfied: (1) “there is no power under the trust agreement to vary the investment of the certificate holders”, and (2) “the trust is formed to facilitate direct investment in the assets of the trust and the existence of multiple classes of ownership interests is incidental to that purpose”. Id.

This is a tough, but not an impossible test to meet.  In fact, one can point to multiple PLRs where the IRS agreed with the taxpayers that this test was met. Nevertheless, a high degree of precision, planning and professionalism is needed to assure that the test is met.

Contact Sherayzen Law Office for Professional Help With Foreign Trusts

If you are a beneficiary or grantor of a foreign trust, you need to secure the help of an experienced international tax lawyer as soon as possible. This is why you need to contact Sherayzen Law Office for professional help concerning foreign trusts as soon as possible. Our founder, attorney Eugene Sherayzen, has developed deep expertise in international tax law in order to help hundreds of U.S. taxpayers around the world. He can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Exceptions to Foreign Trusts: Business Trusts

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!

Outbound Foreign Trust: An Introduction

One of the most fundamental distinctions in US foreign trust law is the difference between an inbound foreign trust and an outbound foreign trust. This distinction was emphasized by the landmark piece of legislation “The Small Business Job Protection Act of 1996″ and should be clearly understood by US tax lawyers as well as US grantors and US beneficiaries of a foreign trust.

Definition of an Outbound Foreign Trust

In order for a foreign trust to be deemed “outbound”, two conditions must be satisfied. First, the trust was created through the transfer of assets by a US person. Second, the trust must be a foreign trust or a domestic trust that later became a foreign trust.

Obviously, a transfer by a foreign person of exclusively foreign assets to a foreign trust which has only foreign beneficiaries is completely irrelevant because there is no nexus with the United States (hence, the foreign trust is not subject to taxation in the United States).

Two Areas of Special Importance of an Outbound Foreign Trust

There are two particular areas of special interest for international tax lawyers with respect to an outbound foreign trust. First, the grantor trust rule under IRC (Internal Revenue Code) Section 679. In general, where a US grantor transfers property to a foreign trust, IRC Section 679 taxes the US grantor as the owner of any portion of a foreign trust attributable to the transferred property in any year in which the trust has a US beneficiary. This is a complex rule that deserves special treatment in a separate article.

The second area of special importance with respect to outbound foreign trusts is the taxation of the transfer of appreciated assets to a nongrantor foreign trust under IRC Section 684 and the excise tax under the already-repealed IRC Sections 1491-1494. Again, this is a topic that should be discussed in a separate article; I just wanted the readers to be aware of the existence of this rule.

Obviously, there are other highly important tax issues associated with an outbound foreign trust, but these issues are usually discussed in conjunction with an inbound foreign trust, taxation of foreign trusts in general, or they are similar to taxation of US domestic trusts.

Contact Sherayzen Law Office for Help With Respect to US Taxation of an Outbound Foreign Trust

The US tax issues associated with foreign trusts in general and an outbound foreign trust in particular are immensely complex. This is why, if you are a US person who is considered to be an owner or a beneficiary of an outbound foreign trust, you should contact Sherayzen Law Office for help with your US tax compliance and planning with respect to this outbound foreign trust.

Contact US Today to Schedule Your Confidential Consultation!