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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 its 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!

Taxation of Investment Trusts

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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, secure the help of an experienced international tax lawyer as soon as possible. Contact Sherayzen Law Office for professional help concerning foreign trusts as soon as possible. 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!

Determining the Residency of a Trust in Cross-Border Situations

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One of the most important tax aspects involving trusts in cross-border tax situations is the determination of the residency of a trust- i.e. whether it is a domestic or foreign trust for US tax purposes. This determination of the residency of a trust will have important tax consequences for US taxpayers.

In this article we will do a general exploration of how the residency of a trust in cross-border situations is determined; this article is not intended to convey tax or legal advice. Please contact Eugene Sherayzen an experienced tax attorney at Sherayzen Law Office, Ltd. if you have questions concerning trust planning or compliance.

General Criteria for Determining the Residency of a Trust

The general determination of the residency of a trust is described in the Internal Revenue Code (IRC) Section 7701 and Regulation Section 301.7701-7. Under these tax provisions, a trust will be deemed to be a U.S. person if: “(i) A court within the United States is able to exercise primary supervision over the administration of the trust (court test); and (ii) One or more United States persons have the authority to control all substantial decisions of the trust (control test).” (See explanations of the court test and the control test in the paragraphs below). Under the regulation, a trust will be a U.S. person for the purposes of the IRC on any day that the trust meets both of these tests. If a trust does not satisfy both of these tests, it will be considered to be a foreign trust for U.S. reporting purposes.

Determining the Residency of a Trust: The Court Test

In determining the residency of a trust under the Court Test, we need to consult the Treasury Regulations. Regulation Section 301.7701-7(c)(1) provides a safe harbor in which a trust will satisfy this (i.e. US residency) test if: “(i) The trust instrument does not direct that the trust be administered outside of the United States; (ii) The trust in fact is administered exclusively in the United States; and (iii) The trust is not subject to an automatic migration provision…”. For the purposes of the regulation, the term “court” is defined in the regulation to mean any federal, state, or local court, and the United States is used a geographical manner (thus including only the States and the District of Columbia, and not a court within a territory or possession of the United States or within a foreign country).

The term primary supervision means that a court has or would have the authority to determine substantially all issues regarding the administration of the entire trust.” The term “administration” is defined in the regulation to mean, “the carrying out of the duties imposed by the terms of the trust instrument and applicable law, including maintaining the books and records of the trust, filing tax returns, managing and investing the assets of the trust, defending the trust from suits by creditors, and determining the amount and timing of distributions.” The regulations further provide examples of situations that will cause a trust to fail or satisfy the court test.

Determining the Residency of a Trust: The Control test

The Control Test is often the key area of dispute in determining the residency of a trust. “Control” in the control test is explained in the regulation to mean, “having the power, by vote or otherwise, to make all of the substantial decisions of the trust, with no other person having the power to veto any of the substantial decisions.” Critically important – it is required under the regulation to consider all individuals who may have authority to make “substantial decisions”, and not simply the trust fiduciaries.

Under the regulation, the term “substantial decisions” (see usage in first paragraph) is defined to mean, “those decisions that persons are authorized or required to make under the terms of the trust instrument and applicable law and that are not ministerial.” (Some examples of “ministerial” decisions are provided in the regulation, including, bookkeeping, the collection of rents, and the execution of investment decisions).

The regulation further provides numerous examples of substantial decisions: “(A) Whether and when to distribute income or corpus; (B) The amount of any distributions; (C) The selection of a beneficiary; (D) Whether a receipt is allocable to income or principal; (E) Whether to terminate the trust; (F) Whether to compromise, arbitrate, or abandon claims of the trust; (G) Whether to sue on behalf of the trust or to defend suits against the trust; (H) Whether to remove, add, or replace a trustee; (I) Whether to appoint a successor trustee to succeed a trustee who has died, resigned, or otherwise ceased to act as a trustee…; and (J) Investment decisions; however, if a United States person under section 7701(a)(30) hires an investment advisor for the trust, the investment decisions made by the investment advisor will be considered substantial decisions controlled by the United States person if the United States person can terminate the investment advisor’s power to make investment decisions at will.”

Contact Sherayzen Law Office for Tax and Legal Help With Issues Involving Foreign Trusts

Determination of the residency of a trust is just one of a myriad of highly complex issues than an international tax attorney can help you resolve with respect to U.S. tax compliance, tax planning and estate planning. If you are an owner or a beneficiary of a foreign trust, contact Sherayzen Law Office for professional legal and tax help.

Contact Us Today to Schedule Your Confidential Consultation!