The following is an archive of our firm’s newsletters. These newsletters are published a few times each year, and cover various substantive asset protection and tax planning topics of current interest to our clients and colleagues.
U.S. INTRODUCES GAME CHANGING PROPOSALS TO INTERNATIONAL TAX TREATY MODEL
The discord in legal tax practices has never been more evident than in the International tax practices of big multinationals. In an ongoing game of Tic-Tac-Toe between corporations and governments, it is glaringly obvious that the current score leaves regulatory bodies frustrated, angry and still trying to catch up.
In May 2015, the U.S. Treasury proposed changes to the U.S. tax treaty model that would have an impact on how foreign corporations in the U.S. are taxed.
STRUCTURING THE INTERNATIONAL JOINT VENTURE -PARTNERSHIPS AND CORPORATIONS
The most basic – and most important decision that a U.S. partner in an International Joint Venture (IJV) will need to make is whether the foreign business entity is a partnership or corporation. As difficult as this decision often is, with respect to domestic businesses, it is infinitely more difficult with respect to foreign entities.
You don’t have to plan your estate. No one can force you to. But if you don’t, you might end up like Einar Borglund (The name has been changed to protect the family). Mr. Borglund was not a client of Klueger & Stein, LLP. However, his children are clients. Mr. Borglund, according to his children, was apparently the most ornery old coot alive. Throughout his life, he amassed a good deal of wealth, owning a large collection of apartment buildings in Los Angeles.
RUSSIA PROPOSES LAWS FOR CONTROLLED FOREIGN COMPANIES
Under the label “de-offshorization” Russia is currently reviewing several amendments to its tax laws which are expected to take effect from 1 January 2015. The key element of the tax initiative was – at least initially – the introduction of CFC rules intended to discourage the artificial deferral of income tax payments through the use of off-shore companies in tax planning structures.
There has been a spike in the number of businesses converting to Limited Liability Companies (LLCs), or establishing businesses as LLCs right from the start. This is because LLCs offer business owners flexibility and advantages not present in more traditional C and S Corporations.
PASSIVE FOREIGN INVESTMENT COMPANIES (PFICS): CLASSIFICATION & REPORTING REQUIREMENTS
Prior to the implementation of the PFIC (passive foreign investment company) rules in 1986, the taxation of foreign corporations was tied solely to ownership. Controlled Foreign Corporation rules were used to determine whether the U.S. shareholders of a foreign corporation should be taxed on their foreign income.
There is no asset protection topic more confusing than protection afforded to retirement plans. It is an important topic - for many of us retirement plans are a very significant asset. It is estimated that over $15 trillion are held in ERISA and IRA plans. ERISA-qualified retirement plans (like 401k and defined benefit plans) are usually fully protected from creditors under federal law. Some non-qualified plans, including IRAs, are protected at least partially under state law (more on that below). IRAs that are inherited (i.e., the plan participant has died) are not protected, which is a big missing piece in the asset protection planning of most people.
Expatriation refers to not simply leaving the U.S. and living abroad, but also to surrendering U.S. citizenship or permanent residency (i.e., green card). If someone does surrender U.S. citizenship, moves abroad and picks up a new citizenship, the U.S. government may be unable to recover taxes due to it by the expat (the U.S. will no longer have personal jurisdiction over the person). Consequently, the expatriation rules of the Code look to exact a tax from the expat while the U.S. still has jurisdiction. This is commonly referred to as the “exit tax.”
Any U.S. citizen or resident who has a foreign bank account, and who has failed to report the foreign account to the IRS, and/or has failed to report the income attributable to the account, has faced extreme penalties....In order to entice these U.S. taxpayers to come in out of the cold, the IRS has, for some years, maintained an “amnesty” program, the Overseas Voluntary Disclosure Program (“OVDP”).
Every U.S. citizen or resident alien is required to annually report any interest that he or she has in any foreign bank account or other financial instrument with a balance in excess of $10,000. The 'Foreign Bank Account Report' ('FBAR') must be filed by June 30 for foreign accounts held during the previous year.
A TAX GUIDE TO FOREIGN INVESTMENT IN THE UNITED STATES
A person we colloquially refer to as a “foreigner” is known as a “non-resident alien” ("NRA") for federal income tax purposes. An NRA is defined as a either a foreign corporation or a person who is (1) physically present in the U.S. for less than 183 days in any given year, (2) less than 31 days in the current year, (3) physically present for less than 183 total days for a three year period (using a weighing formula), and (4) does not hold a green card.
PARTNERING UP OVERSEAS : A DUE DILIGENCE CHECKLIST
In a previous issue, we reviewed the foreign country due diligence that every U.S. investor should conduct before investing or conducting business overseas. Once you have determined that the local market is one in which you can profit, the next step is the due diligence required of the partner or distributor with whom you contemplate doing business. Here is a due diligence checklist:
Florida and Texas have some of the more debtor-friendly state laws, however, with the introduction of N.R.S. 86.401.2(a) in 2011, Nevada became the most debtor-friendly state in the United States.
Over the last few years, the Tax Division of the U.S. Department of Justice (DOJ) has been battling the problem of tax evasion by international bank account holders. Armed with the threat of criminal prosecution, the DOJ has initiated several programs to encourage disclosure of account activity/tax information of U.S. accounts around the world.
In any acquisition, merger or joint venture, there is nothing more important than thorough due diligence. When we represent a client, we can never know too much about a prospective target’s operations, finances and legal issues. Due diligence can mean the difference between an acquisition that succeeds and one that fails. At the very least, thorough due diligence can result in a reduced purchase price or different terms.
On the last day of its 2013 term, the U.S. Supreme Court issued two monumental rulings dealing with same-sex marriage. The result is that federal benefits conferred to married couples in over 1000 federal statutes now benefit same-sex couples as well.
One of the tools we commonly use to shield a client’s assets from creditors is a trust. Trusts are used so frequently, and benefits of trusts are so second nature to us, that we sometimes fail to explain some basic trust principles. We’re going to ameliorate that shortcoming right here.
After years of uncertainty, Congress has finally removed the uncertainty surrounding the taxation of decedents’ estates. Estate planning attorneys (and our clients) can now plan to reduce estate taxes with some degree of confidence that the landscape will not radically change as soon as the ink on the estate plan is dry.
There was a time – until very recently – when a U.S. citizen who maintained a foreign bank account but who didn’t bother to pay the tax on the interest earned on that account had very little to worry about. After all, if the taxpayer himself was not going to report the income, the only other party who knew about the account was the foreign bank itself, and foreign banks don’t send 1099 forms to the IRS. The only way the IRS could ever learn of the account is in the highly unlikely event that a routine audit would uncover the foreign-source income.
If you have never banked outside the United States, offshore banking may seem mysterious and shadowy. It is not, and the following will illuminate the subject.
The laws of the 50 states aren’t uniform when it comes to shielding or exposing a debtor’s assets from the claims of creditors. For example, some states fully expose a debtor’s residence to a creditor. Other states, such as Florida and Texas, provide a complete homestead exemption. But no state beats Nevada when it comes to consistently and aggressively enacting legislation designed to assure that a debtor’s assets remain with the debtor and out of the clutches of creditors.
Expatriation refers to not simply leaving the U.S. and living abroad, but also to surrendering U.S. citizenship or permanent residency. If someone does surrender U.S. citizenship, moves abroad and picks up a new citizenship, the U.S. government may be unable to recover taxes due to it by the expat (no more jurisdiction). Consequently, the expatriation rules of the Code look to extract a tax from the expat while the U.S. still has jurisdiction. This is commonly referred to as the “exit tax.”
We advise our clients that asset protection is not about hiding assets; it’s about structuring the debtor’s affairs so that even if a creditor learns of the existence of the debtor’s assets, he cannot access the assets.
On December 16, 2010, Congress passed and sent to the President the “Middle Class Tax Relief Act of 2010.” The law contains the most sweeping change in the taxation of estates in 29 years. It also contains a ticking time bomb that might explode in the faces of the beneficiaries of many trusts. As a result of the new law, many existing estate plans no longer work, and many others will cause actual harm. As a result, every married couple’s existing estate plan should at least be reviewed, if not scrapped.
The one asset nearest and dearest to most people’s hearts – and the one most difficult to protect from creditors – is the personal residence. Unlike cash and other liquid assets, you cannot remove a residence from the jurisdiction and out of the hands of creditors. A creditor who obtains a judgment against a homeowner needs only to record the judgment and wait. Once the judgment is entered, the homeowner cannot sell or refinance the residence without first retiring the judgment. Eventually, the judgment will be paid.http://us6.campaign-archive2.com/?u=2ca51543d087a0f30ba869a33&id=3a195281ee&e=722cccd8f0
The Treasury Department has issued proposed regulations on taxation of series limited liability companies. While we have set out the text of the proposed regulation below, here is a summary of what the Treasury has proposed….
This warning label should appear on every limited liability company (“LLC”) charter that the California Secretary of State issues to every person who opens a new LLC. For good measure, the Secretary of State should post this warning on every renewal notice it sends to the owners and managers of existing LLC’s. A new case from the Florida Supreme Court, Olmstead v. Federal Trade Commission, points out the asset protection risks inherent in single-member LLC’s. In this law letter, we’ll explain why.
Assume that a spouse in California becomes liable to a third party, either as a result of a tort claim, a business debt or any other source. To what extent may the other spouse (the “non-debtor spouse”) be held liable for the debts of the “debtor spouse”? Unfortunately, California statutory law is mostly good news for creditors and bad news for married debtors. But the Family Code provides spouses who engage in some early planning with an escape hatch, permitting the non-debtor spouse to avoid the debts of the debtor spouse.
The United States District Court for the Southern District of California has recently provided practitioners with a roadmap for avoiding having the activities (and the assets) of one entity conflated into a sister entity by means of the “alter ego” theory. Failure to prove “alter ego” is particularly crippling to a creditor if there is personal jurisdiction over one entity but no jurisdiction over the sister entity that has the deep pocket.
For many of us, retirement plans are a very significant asset. It is estimated that over $15 trillion are held in ERISA and IRA plans. ERISA-qualified retirement plans (like 401k plans) are fully protected from creditors under federal law. Some non-qualified plans, including IRAs, are protected at least partially under state law (more on that below). IRAs that are inherited (i.e., the plan participant has died) are not protected, which is a big missing piece in the asset protection planning of most people.
Everyone knows how to draft a partnership or LLC agreement. At least that is the sense one gets from talking to lawyers. Unfortunately, many attorneys are lulled into a false sense of security by the wonderful forms that everyone has access to. When copies of LP and LLC agreements became available on EDGAR online, every attorney received access to the documents drafted by the big law firms.
On May 29 the Governor of Nevada approved Nevada Senate Bill 350 which creates a new type of limited liability companies and limited partnerships. For simplicity, we will focus on the LLCs only.
Last time we discussed the new Voluntary Disclosure program rolled out by the Treasury beginning of April and expiring on September 22, 2009. The goal of this program is to bring into the fold undisclosed foreign bank accounts and with them, a lot of tax revenue. The voluntary disclosure program is confiscatory and will be a tough pill to swallow for many taxpayers with undisclosed accounts
Several years ago the Justice Department subpoenaed names of Americans who had Visa and MasterCard accounts with offshore banks. The IRS then offered these taxpayers a choice, come forward voluntarily and we will waive criminal prosecution and some monetary penalties, or wait until we get to you and then take the risk of criminal penalties.
We spend so much time dealing with the technicalities and the nitty-gritty of Asset Protection that sometimes we lose sight of the forest for the trees. Every now and then it helps to step back and review some basic principles.
Investors who recently learned that their investments with Bernard Madoff are all but worthless may soon find that this is only the beginning. They may soon learn that they will be asked to return any distributions they received from Madoff in prior months or years. Whether some of these investors will be required to pony up may depend on where they live or what their assets are.
It all started in July of 2007. The banks stopped lending and asked for collateral increases. Mortgage brokers and smaller lenders sought the safe haven of asset protection. From small local operations to national, publicly traded companies, we were representing dozens upon dozens of brokers, lenders and financiers. Back then no one could yet foresee what was to come a year later.
Over the past few years we have managed to build our law firm into the largest asset protection practice on the West Coast. What is the secret of our success? There is no secret. It has been built on three simple tenets…
ESOPs (employee stock ownership plans) have been around for over 30 years, with S corporation ESOPs since 1998. Many of us have heard of them, yawned, and changed the channel. So, in a couple of paragraphs, here is everything you need to know to sound intelligent at parties populated by tax geeks.
Foreign bank accounts have always been an important consideration for wealthy Americans. Whether the objective is privacy, tax planning, asset protection, currency hedging or broader investment choices, a foreign bank account can accomplish some or all of these goals.
The universe of offshore tax planning and asset protection is large and complex. There are no “magic bullet” structures; instead there is a myriad of choices. The hallmark of a savvy practitioner is not only knowing of all the available options, but also knowing when to use which option for a particular client. Swiss annuities should be considered by all practitioners looking to confer significant tax and asset protection benefits on their clients.
The question of California registration comes up often when foreign limited liability companies are used as holding companies for California legal entities, or own passive assets in California like bank accounts and non-income producing real estate. In publication 3556, and in practice, the FTB has adopted a position that virtually every foreign limited liability company, especially one with a California resident manager or managing members should register with California and pay California taxes. The FTB, again, is wrong.
Dr. Mehta always encouraged his children to be entrepreneurial. So when his son undertook his first real estate development project, Dr. Mehta helped him by personally guaranteeing $1 million in loans.
As the Year Winds Down, Clients Finally Look to “Plan.” There is a commonality shared by all tax practitioners – procrastinating clients. If we are fortunate, the client call will come in at 3 p.m. on the day a transaction is set to close. In many cases, the call comes in after the transaction has been completed, some time next tax year. What is a tax practitioner to do?
We often preach about converting existing corporations to limited liability companies, both for tax and non-tax reasons. If the conversion is effected for tax planning reasons, it generally results in a liquidation of the corporation and the contribution of the corporate assets to a limited liability company taxed as either a disregarded entity or a partnership.
Welcome to the introductory issue of our e-mail newsletter! Our newsletters aim to educate you on the subjects of our expertise: asset protection, tax law and business entities. These newsletters will endeavor to introduce you to various advanced planning strategies and will update you on new cases and developments. From time to time we will share with you some of our recent client stories and victories. We hope you will find these monthly newsletters interesting and useful.