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Waco Foreign Trust Attorney | International Tax Lawyer Texas

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If you live in Waco, Texas, and you are an owner or a beneficiary of a foreign trust, you need to secure the help of a Waco Foreign Trust Attorney to properly comply with US international tax laws.

You should consider retaining Sherayzen Law Office as your Waco Foreign Trust Attorney. Sherayzen Law Office is a leading US international tax firm concerning US tax compliance of US beneficiaries and owners of a foreign trust. Our experience covers US taxpayers with a beneficiary and/or ownership interest in most of the countries that allow for the creation of a trust, including such important jurisdictions as: Australia, the Bahamas, Bermuda, Canada, Cook Islands, India, Japan, Jersey, New Zealand, Saint Kitts and Nevis, the United Kingdom and others. We also have an experience dealing with trusts organized in the United States that are treated as foreign trusts and, vice versa, trusts organized outside of the United States but treated as US trusts.

Waco Foreign Trust Attorney: Foreign Trust Annual US Tax Compliance

Sherayzen Law Office is an experienced US international tax law firm that helps its clients to stay in full compliance with the US international tax reporting requirements concerning foreign trusts, including Forms 3520, 3520-A, 4970, 8938 and FBAR. This applies to both, US beneficiaries and US owners (including US grantors, US trustees and deemed US owners) of a foreign trust.

Waco Foreign Trust Attorney: Foreign Trust Offshore Voluntary Disclosure

Sherayzen Law Office also helps its clients to remedy past noncompliance with respect to reporting of their beneficiary and/or ownership interests in a foreign trust as well as income from a foreign trust.  The primary legal vehicle for remedying such past tax noncompliance is an offshore voluntary disclosure.

Since 2005, Sherayzen Law Office has developed a profound expertise in all forms of offshore voluntary disclosures, including: Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent International Information Return Submission Procedures and Reasonable Cause voluntary disclosure (also known as “Noisy Disclosures” or “Statutory Disclosures”).   Due to its unique expertise, our firm is able to handle both, the legal and the accounting sides of an offshore voluntary disclosure; i.e. we prepare all of the legal documents and tax forms for you within one firm.

Waco Foreign Trust Attorney: Foreign Trust Tax Planning

Sherayzen Law Office assists its clients with all aspects of US tax planning concerning foreign trusts.  Foreign trust tax planning can be very complex and involve multiple tax jurisdictions, but it remains one of the most effective tools to ethically and legally reduce your current income tax compliance burden.

Waco Foreign Trust Attorney:  Challenging IRS Classification and IRS Penalties

Sherayzen Law Office represents its clients before the IRS with respect to challenging IRS classification of a foreign trust as well as high IRS penalties imposed for prior tax noncompliance concerning foreign trusts.

Contact Sherayzen Law Office for Professional Help With Your US International Tax Compliance Concerning Your Beneficiary or Ownership Interest in a Foreign Trust

Timing is highly important in cases involving a foreign trust. Hence, if you have a beneficiary or ownership interest in a foreign trust, you contact us in order to maximize the positive impact of our involvement.

We can help You! Contact Us Today to Schedule Your Confidential Consultation!

2021 Form 3520 Deadline in 2022 | Foreign Trust Tax Lawyer & Attorney

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The beginning of a new tax season starts the clock on completing the required US international information returns, including Form 3520. In this brief essay, I will discuss the tax year 2021 Form 3520 deadline.

2021 Form 3520 Deadline: What is Form 3520

IRS Form 3520 is a US international information return used by the IRS to collect information related to foreign trusts, foreign gifts and foreign inheritance. In essence, Form 3520 collects four types of data from US taxpayers:

  • Certain transactions with foreign trusts;
  • Ownership of foreign trusts under the rules of sections 671 through 679;
  • Receipt of certain large gifts from foreign persons; and
  • Bequests from foreign persons.

It is very important that you file Form 3520 timely, because late filing Form 3520 penalties can be very high. For example, a failure to timely disclose a reportable foreign gift on Form 3520 may result in a penalty as high as 25% of the value of the gift. Initial Form 3520 penalty for a failure to report a property transferred by a US transferor to a foreign trust may be as high as 35% of the gross value of the property.

2021 Form 3520 Deadline: Where to File

Form 3520 reporting is complicated by the fact that this form is not filed with a US tax return. Rather, for the tax year 2021, a Form 3520 with all required attachments should be mailed to the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

My recommendation is to mail your 2021 Form 3520 by US Certified Mail.

2021 Form 3520 Deadline: When to File

Generally, 2021 Form 3520 deadline will correspond to your US income tax return deadline. In other words, a US person must file his Form 3520 by and including the 15th day of the 4th month following the end of such person’s tax year for US income tax purposes. Same rule applies to Forms 3520 filed by an estate and on behalf of a US decedent. If the due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday.

For individual taxpayers who reside in the United States, this usually means April 15. However, due to the fact that April 15 is a legal holiday this year, your 2021 Form 3520 will be due on April 18, 2022.

Moreover, if you are a US citizen or resident and (a) you live outside of the United States and Puerto Rico and your place of business or post of duty is outside the United States and Puerto Rico, OR (b) you are in the military or naval service on duty outside of the United States and Puerto Rico, then your tax deadline will shift to the 15th day of the 6th month (i.e. June 15). In other words, if you satisfy either (a) or (b) above and you are either a US citizen or US resident, then your 2021 Form 3520 will be due on June 15, 2022. You must include a statement with your 2021 Form 3520 showing that you are a U.S. citizen or resident who meets one of these conditions listed above.

Finally, if a US person is granted an extension of time to file an income tax return, the due date for filing Form 3520 shifts to the 15th day of the 10th month following the end of the US person’s tax year. In other words, if you are an individual who filed an extension on your US income tax return, then your 2021 Form 3520 will be due on October 17, 2022 (because October 15 falls on a Saturday this year).

Contact Sherayzen Law Office for Professional Help With Your 2021 Form 3520 Deadline

If you are required to file a Form 3520 for the tax year 2021 (whether because you are an owner or a beneficiary of a foreign trust, you received a foreign gift or you received a foreign inheritance), contact Sherayzen Law Office for professional help. We have successfully helped US taxpayers around the world with their Form 3520 compliance, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Liechtenstein Anstalt: US Tax Treatment | Foreign Trust Lawyer & Attorney

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Over the years, the IRS has made a number of rulings with respect to whether certain foreign entities should be considered trusts for US tax purposes. In this article, I would like to discuss the US tax classification of Liechtenstein Anstalt based on the 2009 IRS Chief Counsel Advice Memorandum, AM 2009-012.

Liechtenstein Anstalt: Creation of the Entity

The word “anstalt” means “establishment”. Any natural and legal person can form an Anstalt. Such a person is called a “Founder”.

A person may form an Anstalt for himself or for another party pursuant to a power of attorney or through a fiduciary arrangement. In most cases, Founders are Liechtenstein attorneys or trust companies that protect the anonymity of the actual owner or beneficiary of the Anstalt.

In order to create an Anstalt, the Founder signs Anstalt’s articles. The legal personality of Anstalt is created once the Founder submits to the government registry its articles, the constitutive declaration, proof that capital has been paid in and evidence that the official registration fees have been paid.

Liechtenstein Anstalt: Founder’s Powers

The Founder has the same powers with respect to an Anstalt that are generally attributed to shareholders in a company. Additionally, the Founder possesses “Founder’s rights”, which provide unlimited control and powers of administration (including the power to dismiss directors, distribute profits and liquidate the Anstalt). The Founder may transfer the rights given to him by law and by the articles, in whole or in part, to one or more assignees or successors. The Founder’s rights may also pass through inheritance.

Liechtenstein Anstalt: Board of Directors

An Anstalt must have a Board of Directors (called a Board of Management or Administration) to represent it in its dealings with third parties. In most cases, the Founder will be a member of the Board. The Founder usually appoints the members of the Board for a term of three years, but may appoint for lesser or longer terms. The Board may consist of one or more natural or legal persons. At least one member of the Board authorized to represent the Anstalt and conduct business on its behalf must have a registered office in Liechtenstein. This member must also be authorized to practice as a lawyer, trustee or auditor, or have other qualifications recognized by the government.

The Board has power with respect to all matters that are not specifically reserved to the Founder. The Founder may give authority to the Board to exercise some or all of the Founder’s rights. The Board may give signatory or agency authority to its own members or to others on behalf of the Anstalt. The Board may assign its management and executive responsibilities partially or completely to one or more of its members or to third persons. In carrying out its management and representation functions, the Board must observe all limitations on its authority contained in the articles in instructions and/or regulations issued by the Founder.

Liechtenstein Anstalt: Beneficiaries and Power of Appointment

The Anstalt’s beneficiaries are those natural or legal persons designated by the Founder, or the person holding the Founder’s rights, as entitled to receive the profits and/or liquidation proceeds of the Anstalt. The right to appoint beneficiaries is usually set forth in the articles and may be reserved to the Founder or granted to the Board or to third persons. If no beneficiaries are appointed, the Founder or his successors are presumed to be the beneficiaries.

Liechtenstein Anstalt: No Shares

The capital of an Anstalt is usually not divided into shares.

Liechtenstein Anstalt: Limited Liability

The liability of an Anstalt is limited to the extent of its assets. No personal liability extends to the Founder, the Anstalt’s Board or the beneficiaries.

Liechtenstein Anstalt: Ability to Conduct Business

Anstalts may hold patents and trademarks, hold interests in other companies and may conduct any type of business except banking. If the articles permit the Anstalt to engage in commercial or industrial activities or a trade, the Anstalt is required to keep proper books and records as well as prepare annual financial statements.

In fact, in most cases, the primary purpose for the establishment of an Anstalt is to conduct an active trade or business and to distribute the income and profits therefrom to the beneficiaries of the Anstalt. The beneficiaries of an Anstalt are usually the previous owners of the business assets contributed to the Anstalt and, in most situations, the Founder acts as a nominee or agent of the beneficiaries in conducting the active trade or business of the Anstalt.

Liechtenstein Anstalt: US Tax Treatment

Based on this description of Liechtenstein Anstalts, the IRS held that a Liechtenstein Anstalt is generally not a trust, but a business entity under Treas. Reg.§301.7701-2(a). This decision would apply in a majority of cases where the primary purpose of a Liechtenstein Anstalt is to actively carry on business activities.

This decision, however, should not be applied automatically to all Liechtenstein Anstalts. Rather, the IRS stated that, in cases where the facts and circumstances indicate that a Liechtenstein Anstalt was created “for the primary purpose of protecting or conserving the property of the Anstalt on behalf of beneficiaries, the Anstalt in such a case may be properly classified as a trust under §301.7701-4.” IRS, Chief Counsel Advice Memorandum, AM 2009-012 – Section 7701 – Definitions. Thus, the critical issue in the analysis of whether a Liechtenstein Anstalt should be treated as a trust is whether it was established primarily to conduct a trade or business or to protect and conserve assets for the designated beneficiaries of the Anstalt.

Moreover, in order for a Liechtenstein Anstalt to qualify for trust classification, all elements of a trust must be present: (1) a grantor, (2) a trustee that has legal title and a legal duty to protect and conserve the assets for the designated beneficiaries, (3) assets, and (4) designated beneficiaries. See Swan v. Commissioner, 24 T.C. 829 (1955), aff’d and rev’d on other grounds, 247 F 2d 144 (2d Cir. 1957).

Contact Sherayzen Law Office for Professional Help Concerning Proper US Tax Classification of a Liechtenstein Anstalt as well as Form 5471 and Form 3520 Compliance

Determining the proper classification of a Liechtenstein Anstalt is very important for its beneficiaries and Founders who are US tax residents, because classification of an Anstalt has a direct impact on these taxpayers’ US international tax compliance, including determining whether Form 3520 or Form 5471 has to be filed. Such determination of US tax treatment of a Liechtenstein Anstalt should be done by an experienced international tax law firm.

This is why, if you are a beneficiary and/or a Founder of a Liechtenstein Anstalt, contact Sherayzen Law Office for professional help with your US tax compliance. We have successfully helped US taxpayers from over 70 countries with their US international tax compliance issues, including classification of foreign business entities and foreign trusts. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

New PFIC Foreign Trust Rules by June of 2018 | PFIC Lawyer & Attorney

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On November 9, 2017, the IRS gave a clear signal that it is working on new PFIC Foreign Trust rules and hopes to have these new regulations published by June of 2018. The IRS also indicated that other areas of PFIC rules will be affected and it expects the Subpart F regulations to come out before the new PFIC regulations.

The area of intersection of PFIC rules and Foreign Trust rules is an area of law that has remained murky since the late 1980s. Let’s explore in more detail what exactly the problem is and why the new PFIC Foreign Trust regulations are so important.

PFIC Foreign Trust Rules & Regulations

PFIC Foreign Trust Rules

PFIC Foreign Trust Rules: What is a PFIC?

In general, a foreign corporation that is not a “controlled foreign corporation” (CFC) as defined in IRC section 957, nor a “foreign personal holding company” (FPHC) as defined in IRC section 552, will be determined to be a Passive Foreign Investment Company or (PFIC) if it has at least one US shareholder and meets either one of the two tests found in IRC section 1297: (a) income test: at least 75% or more of the corporation’s gross income is passive income; or (b) asset test: at least 50% of the average percentage of its assets are investments that produce or are held for the production of passive income.

PFIC is a unique US classification that has no equivalents anywhere in the world. The PFIC designation was created by Congress in 1986 (as part of the Tax Reform Act of 1986). In essence, this is an anti-deferral regime meant to deter US taxpayers from deferring or avoiding payment of US taxes by transferring money or investing in passive offshore entities. This is why the PFIC rules are so severe, imposing the highest marginal tax on the income considered as “excess distribution” and converting the rest of the income from capital gains into ordinary income.

PFIC Foreign Trust Rules: Foreign Trust Rules on Distribution of Accumulated Income

The IRS also has a special set of rules concerning foreign trust’s distribution of accumulated income from prior years. In order to analyze these rules, we need to understand two concepts: distributable net income (“DNI”) and undistributed net income (“UNI”). With respect to foreign trusts, in general (and there are exceptions), DNI includes all of the ordinary income and capital gains earned by a foreign trust in current taxable year. If a foreign trust does not distribute its entire DNI in the taxable year when DNI is earned, then, the undistributed portion of DNI (after taxes) becomes UNI.

Hence, whenever we discuss a distribution of a foreign trust’s accumulated income, this means a distribution of UNI in excess of DNI (on FIFO basis). So, what happens if a foreign trust distributes UNI to a US beneficiary?

In general, such distributions of UNI are taxed according to the infamous “throwback rule”. The throwback rule is complex and I can only state here a very simplified description of it. In general, under the throwback rule, distributed UNI will be taxed at the beneficiary’s highest marginal tax rate for the year in which UNI was earned. In other words, the throwback rule divides up UNI back into DNI portions for each relevant taxable year (but not exactly; this is an assumed DNI, not an actual one), adds these portions to the already-reported income on the beneficiary’s US tax returns and, then, imposes the tax on this income.

The throwback rule, however, does more than just add the income to the tax returns – it adds the income always as ordinary income, even if the original undistributed DNI consisted of long-term capital gains. Moreover, the throwback rule imposes an interest charge on the additional “throwback” taxes; the interest accumulates in a way somewhat similar to PFIC rules.

There is a way to mitigate the highly unfavorable consequences of the throwback rule called the “default method” (the name does not make much sense because you can use it only in specific circumstances). In general, you can use the default method in situations where the foreign trust does not provide its US beneficiaries with the information sufficient to identify the character of the distributed income. It is beyond the scope of this article to describe this method in detail, but, there are potentially highly unfavorable consequences to using the default method as well.

PFIC Foreign Trust Rules: the Inconsistency Between PFIC Rules and Foreign Trust Rules With Respect to Accumulated Income

Now that we have a general familiarity with PFIC rules and the foreign trust UNI distribution rules, we can now understand the area of confusion between PFIC rules and Foreign Trust rules that the IRS wishes to finally clear up by June of 2018. The confusion arises when both anti-deferral regimes are combined into PFIC Foreign Trust rules.

Let’s clarify this issue further. The basic problem occurs whenever a foreign trust distributes UNI that originates from accumulated PFIC income. For example, in a situation where a foreign trust received PFIC dividends and did not distribute them as part of its DNI distribution, such dividends would be added to the trust’s UNI. In this situation, if the trust distributes its PFIC UNI and we just follow the standard UNI rules, the PFIC rules would never be taken into account. The IRS, however, never said that the throwback rule or the default method should trump PFIC rules; it is also unclear about what should be reported on Form 8621 (for indirect ownership of PFICs).

On the other hand, if a taxpayer calculates his tax liability under the PFIC rules, then, he cannot comply with his Form 3520 requirements. The IRS also never stated that PFIC rules should triumph over either the throwback rule or the default method for UNI distributions. In other words, there is no clear guidance on what to do in this situation.

There is simply no compatibility between the foreign trust’s UNI distribution rules and the PFIC rules: one of them has to triumph or a completely new set of regulations has to be issued by the IRS to address the PFIC Foreign Trust rules. As an international tax attorney, I hope that the IRS keeps its word and resolves this highly important dilemma of the US international tax law.

Contact Sherayzen Law Office for Help With PFIC Foreign Trust Rules and Other International Tax Issues

If you are struggling with the PFIC Foreign Trust rules or you have any other issues concerning your compliance with your US international tax obligations, contact Sherayzen Law Office for professional help.

Sherayzen Law Office has helped hundreds of US taxpayers around the globe with their US tax compliance issues, including those concerning the PFIC rules and foreign trust rules. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Mexican Fideicomiso is not a Foreign Trust | International Tax Attorney

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Mexican Fideicomiso is one of the most convenient ways for U.S. persons to purchase land in Mexico. Of course, one can purchase the land through a Mexican corporation, but such an arrangement will require additional tax planning and higher annual compliance costs, including potentially filing form 5471, Form 8938 and other forms. Therefore, most U.S. persons prefer to purchase land in Mexico through a Mexican Fideicomiso.

I am often asked a question about whether Mexican Fideicomiso should be considered a foreign trust for U.S. tax purposes. The answer to this questions is fairly straightforward, but it is important to point out a potential pitfall.

Main Rule: Mexican Fideicomiso is Not a Foreign Trust for U.S. Tax Purposes

The U.S. tax treatment of Mexican Fideicomiso was settled by the IRS in PLR 201245003 and, even more authoritatively, IRS Revenue Ruling 2013-14. In PLR 201245003 and Rev. Rul. 2013-14, the IRS decisively ruled that a Mexican Fideicomiso is not a foreign trust for U.S. tax purposes.

Main Rule Applies Only If a True Mexican Fideicomiso Relationship is Preserved

It is important to understand, however, that PLR 201245003 and Rev. Rul. 2013-14 apply only if the true Fideicomiso relationship is preserved. If this relationship is modified with other features and agreements, then the U.S. tax treatment of the new arrangement may actually change. For example, if the trustee of Mexican Fideicomiso suddenly acquires the ability to act independently and in complete disregard of the beneficiary’s instructions, the IRS may start treating this modified Mexican Fideicomiso as a foreign trust.

Contact Sherayzen Law Office for Help with Reporting of Your Foreign Assets and Foreign Income

If you have foreign assets or foreign income, you are facing a difficult challenge of trying to comply with the numerous complex U.S. tax requirements. It is very easy to make mistakes in this area; given the high penalties associated with noncompliance, the cost of remedying these mistakes may be high.

This is why you need the help of Sherayzen Law Office, an experienced international tax law firm that has helped hundreds of U.S. taxpayers around the globe to bring and maintain their tax affairs in full compliance with U.S. tax laws.

Contact Us Today to Schedule Your Confidential Consultation!