- 1 Why a U.S. Agent For a Foreign Trust?
- 2 What is a U.S. Agent?
- 3 Anonymity and Foreign Trusts
- 4 Should You Use a U.S Agent for Your Foreign Trust?
- 5 What if There is No U.S. Agent?
- 6 Example: Panamanian Foundation
- 7 Just Because There is a U.S. Agent…
- 8 What if I am Out of IRS Compliance?
- 9 Golding & Golding: About Our International Tax Law Firm
Why a U.S. Agent For a Foreign Trust?
US Agent For Foreign Trusts Increases Confidentiality: When a person has a foreign trust, the IRS requires a significant amount of reporting. That may include the Form 3520 and 3520-A. These forms can require the taxpayer U.S. Person to file and submit significantly documentation with the IRS, include the underlying trust documents. This may be minimized and/or eliminated with a U.S Agent for the Trust.
What is a U.S. Agent?
As provided by the IRS,
“-a U.S. agent is a U.S. person that has a binding contract with a foreign trust that allows the U.S. person to act as the trust’s authorized U.S. agent (see the instructions for Part I, Lines 3a through 3g, later) in applying sections 7602, 7603, and 7604 with respect to:
– Any request by the IRS to examine records or produce testimony related to the proper U.S. tax treatment of amounts distributed, or required to be taken into account under the grantor trust rules, with respect to a foreign trust; or
– Any summons by the IRS for such records or testimony.
– A U.S. grantor, a U.S. beneficiary, or a domestic corporation controlled by the grantor or beneficiary may act as a U.S. agent. However, you may not treat the foreign trust as having a U.S. agent unless you enter the name, address, and taxpayer identification number of the U.S. agent on lines 3a through 3g of Part I of the form. See Identification numbers, later.
– If the person identified as the U.S. agent does not produce records or testimony when requested or summoned by the IRS, the IRS may redetermine the tax consequences of your transactions with the trust and impose appropriate penalties under section 6677.
– The agency relationship must be established by the time the U.S. person files Form 3520-A for the relevant tax year and must continue as long as the statute of limitations remains open for the relevant tax year. If the agent’s responsibility as an agent of the trust is terminated for any reason (for example, agent’s resignation, agent’s liquidation, or agent’s death), see section IV(B) of Notice 97-34.”
Anonymity and Foreign Trusts
While one of the main benefits of having a foreign trust is the idea of anonymity and confidentiality (either real or perceived), that confidentiality or anonymity can be easily destroyed in situations in which there is not at least one U.S. Agent, who serves as a member of the trust.
Why? Because as you will see, when using form 3520-A (reporting a foreign trusts), if the foreign trust does not have a U.S. Agent there is typically a much more in depth reporting document disclosure requirement necessary to appease the IRS.
Should You Use a U.S Agent for Your Foreign Trust?
Typically, these clients may have a foreign trust in a country such as New Zealand, A Sociedad Anonima for Estate Planning purposes in Costa Rica, and/or a Foundation in a country such as Panama.
*While a Panamanian foundation is not per se a foreign trust under US tax law, most US persons who have Panamanian foundations prefer to file a form 3520/3520-A instead of a 5471, due to potential tax benefits).
What if There is No U.S. Agent?
If the trust did not appoint a U.S. agent, the trustee (or whomever is completing the Form 3520-A) must provide copies of the list of documents set forth on page one of Form 3520-A.
It is important to note, that (under most circumstances) these forms are not forms that you are going to want to volunteer to the IRS.
Specifically, the IRS requires the trust to provide:
- Summary of all written and oral agreements and understandings relating to the trust
- The trust instrument
- Memoranda or letters of wishes
- Subsequent variances to original trust documents
- Other trust documents
Example: Panamanian Foundation
For anyone who has ever seen or otherwise been associated with a Panamanian foundation, they understand the benefits of anonymity. Without getting too detailed, the IRS has not specifically stated whether a Panamanian foundation is considered to be a corporation or trust, and therefor (again, under most circumstances and due to the tax benefits) a Panamanian foundation is operated as a trust.
Moreover, in many circumstances the U.S. Beneficiary of the Panamanian foundation uses a foreign trustee to prepare all the documentation. Etc.
Much of the information regarding the beneficiaries (usually US persons) is a separate document not necessarily contained specifically in the text of the foundation document. And, if the Panamanian foundation appointed a US agent – then the above referenced forms do not need to be filed along with question 2 of Form 3520-A.
Alternatively, if there is no US agent, then these forms have to be filed. And, typically with a Panamanian foundation there are additional documents or memoranda which supplement the main document and usually includes references to the beneficiaries, percentage of ownership, etc. which you do not want to provide.
Just Because There is a U.S. Agent…
Does not mean the IRS is going to contact them or would have any need to do so. In other words, it is a risk analysis: is it better to not appoint a US agent but to include all these different portions of the trust document that you otherwise do not want to include, or is it better to appoint a US agent, not submit the additional documentation, and hope it goes into the black hole in which you are never audited or contacted by the IRS – and the information contained within the trust (absent an audit) remains confidential?
This is an analysis you should perform with an experienced Offshore Disclosure Attorney before making any affirmative representation to the IRS.
What if I am Out of IRS Compliance?
When you have not met your prior year IRS foreign bank account compliance obligations, your best options are either the traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.