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This article claims to give specifics, but carefully omits that all legal ways to transfer money from a trust to a US individual will require the individual pay
by troydavis 9y ago
This article claims to give specifics, but carefully omits that all legal ways to transfer money from a trust to a US individual will require the individual pay taxes on it. The offshore trust only serves to defer taxes, not avoid them, unless the money remains outside the US permanently.
The US's tax policy is to tax income when it's brought into the country. One can debate the pros and cons of that policy, but it was a very intentional choice. Calling compliance with that law "avoiding taxes" is like calling an average American who deducts mortgage interest a "tax avoider": they're complying with the letter and the spirit of the tax law. Its implementors considered the pros and cons and decided that, on balance, the mortgage interest deduction made sense. Someone who isn't paying taxes they don't owe is not a "tax avoider."
As an example, this article's sole proposed way to get the cash from a trust is patently illegal:
> When your Uncle Joe dies, the insurer pays. The cash goes into your bank account tax-free. How can the taxman prove otherwise? You have a policy and Uncle Joe’s valid death certificate issued by your own government. The money is home free.
… which they gloss over with:
> If the phony insurance policy is too gruesome for you, you can find something more appealing in the summaries of the multitude of methods on the IRS website. A simple workaround would be to get a credit card from a foreign bank and pay it off through your secret bank account.
This isn't "a simple workaround," it's a recipe for getting prosecuted for tax fraud – and quite possibly going jail, since it would be clear that this was intentional fraud.
For a few perspectives that cover the issue better, start here:
* https://www.irs.gov/businesses/income-from-abroad-is-taxable https://www.irs.gov/businesses/income-from-abroad-is-taxable (the IRS's own statement on hiding income offshore). "In addition to reporting your worldwide income, you must also report on your U.S. tax return whether you have any foreign bank or investment accounts." This isn't some theoretical risk; if, or more likely when, this account gets discovered, they'll be prosecuted.
* https://www.nytimes.com/2017/11/07/world/offshore-tax-havens.html?_r=0 https://www.nytimes.com/2017/11/07/world/offshore-tax-havens... (look for examples how someone can actually get the money into the US without paying taxes; you won't find many, if any)
* https://en.wikipedia.org/wiki/UBS_tax_evasion_controversy https://en.wikipedia.org/wiki/UBS_tax_evasion_controversy and https://www.cbsnews.com/news/swiss-to-let-banks-lift-secrecy-in-us-tax-deal/ https://www.cbsnews.com/news/swiss-to-let-banks-lift-secrecy... (2013; history of US pressure on the last few countries that are or were part of the worldwide banking system but didn't disclose transactions)
* https://www.bloomberg.com/view/articles/2017-11-08/proxy-fights-and-mystery-trusts https://www.bloomberg.com/view/articles/2017-11-08/proxy-fig... - Matt Levine's summary (quoting the FT): "Otherwise, the Paradise Papers seem to be 'dull reading,' and they describe plans that are 'mostly, if not totally, legal' -- 'Some are not even questionable from a legitimacy point of view.'
This sentence of the NYT article a good summary of the US's tax policy:
> “I would have told the guy, ‘You’ve got this money offshore — just leave it offshore,’” Mr. Pfeifer said. “And he did.”
Again, there are pros and cons to that policy, but this article doesn't try to point those out, it tries to paint people complying with the letter and spirit of the tax law as unethical.
- Retric 9y agoYou can bring money into the US without paying taxes as long as you have an intermediary do so. EX: The trust could buy US property. You can also sell a security without making that a taxable event which allows you to earn interest from money that would have been paid as taxes. Thus, lowering your lifetime tax bill. Finally, because of the way our Tax system is setup such that deductions don't apply to say Social Security 'income tax' becomes a bigger deal for the rich. So, gaming the system becomes more viable the more money you have.
- pjc50 9y agoIndeed. The only reason to bring money back into the US would be to spend it on consumption. If you want to invest it, or leave it to your heirs, or borrow against it, you can leave it offshore.
- blunte 9y agoThis exactly - you simply borrow against it at a very low rate.
- njarboe 9y agoThis works since 2009, but historically interest rates are not zero. It will be interesting to see how things turn out in the future when most of the richest people in the world have huge US dollar loans at low rates borrowed from pension funds and banks backed by hard assets. These people would benefit greatly if there is high inflation/hyperinflation. I don't really know, but I would guess in the recent past the super rich held a lot of US bonds and other dollar denominated assets that would loose value with inflation.
- troydavis 9y ago> The trust could buy US property. The US tax policy deliberately draws that line, though, on the grounds that there's only 2 ways for that trust to exist: (a) the income was earned outside the US. The US says this isn't taxable until or unless it comes into the country for corporate or personal use. See slides 10 - 12 of https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pdf https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pd... for more - basically, if any party treats it as a personal bank account, it's not a trust. (b) the income was earned inside the US, and thus already passed through the US (and taxes were paid on it) before it was moved to the trust. Moving it to the trust isn't a taxable event, and any gains will be taxed if or when they are brought into the country (see (a)). Don't trust me, though, form your own opinion. These are good summaries of what an offshore trust can and can't do: * https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pdf https://www.irs.gov/pub/int_practice_units/FEN9434_02_01R.pd... * https://en.wikipedia.org/wiki/Offshore_trust https://en.wikipedia.org/wiki/Offshore_trust * http://nomadcapitalist.com/offshore-trust/ http://nomadcapitalist.com/offshore-trust/ (covers a few countries) * https://www.theguardian.com/business/2016/apr/08/offshore-trusts-tax-avoidance-explainer https://www.theguardian.com/business/2016/apr/08/offshore-tr... (UK-specific but interesting)