In general, U.S. persons and permanent residents (a/k/a “green-card” holders), even those living outside the United States, must report their worldwide income, and therefore are required to file certain U.S. tax and other informational returns unless exempt under very limited circumstances. Non-U.S. persons (a/k/a “non-resident aliens” or “NRAs”) may also be subject to U.S. taxation based on certain U.S. source income, investments, or business activities.
The ATAS team will provide you with the highest quality of professional advice and U.S. tax preparation, in order to complete and timely file your individual income tax returns and other tax related documents.
If you are not a U.S. person and have U.S. income or U.S. tax related issues ATAS will help analyze your U.S. tax situation. Please also ask us about how ATAS deals with issues related to Switzerland’s Pillar 2 and Pillar 3 pensions and withholding tax.
IN THIS REGARD, THE TRUSTEE SHOULD CONSIDER THE FOLLOWING
Places of Residence
Both past and current places of residence, domicile and citizenship for each and every Grantor and Beneficiary of the Trust, and whether any change to the current status of the Grantor or Beneficiary is anticipated.
Whether any Grantor or beneficiary of the Trust ever renounced their U.S. citizenship or relinquished their Green Cards.
The Status of the Trust for Federal Tax Purposes
Whether the Trust is considered to be a foreign Trust for federal tax purposes and the circumstances under which that may change.
The Trust’s status as a Foreign Grantor Trust or a Foreign Non-Grantor Trust
Whether the Trust is considered to be a Foreign Grantor Trust and/or a Non-Grantor Trust for U.S. federal income tax purposes.
What reporting requirements there are at both Federal and State levels for the Trustee, Grantor or Beneficiaries
The nature of the reporting requirements, if any, of the Trustees, the Grantors and the beneficiaries at both state and federal levels. For example, compliance with the Foreign Accounts Tax Compliance Act (FATCA) and the application of Forms 3520, 3520-A, 8621, 5471, 1040, 1041, 8858, 926, 706 and 709 and Treasury Department Form FinCen 114 (FBAR).
Who the Grantor or Owner of the Trust’s assets is
Who, both currently and in the past, has been considered Grantor of the Trust and who, both currently or in the past, has been considered the owner of the assets of the Trust and under what circumstances that might change.
The income, estate and gift tax consequences for the Grantor and U.S. beneficiaries
These types of tax consequences need to be considered on occasions in which there are (i) certain powers or rights in connection with the Trust or the entities owned by the Trust and conferred on the Grantor or the beneficiaries; (ii) transfers of property to the Trust whether direct or indirect, (iii) direct/indirect actual or deemed distributions or loans from the Trust and (iv) rights to potentially benefit from the Trust.
The manner in which additions to the Trust are made
Trustees, Grantors and beneficiaries should be mindful of this issue so as to minimize adverse tax and reporting requirements.
Possible tax liabilities for the Trustee
Trustees should consider to what extent they could be held liable for federal withholding tax or federal and state transfer taxes (for example, estate and gift taxes).
The manner in which the entities owned by the Trust should be administered
Trustees should consider how to administer the entities which the Trust owns in a tax-efficient manner. For example, how to deal with assets which appreciate and retained earnings, as well as when to make a “check-the-box election”.
Which types of investments should be held directly or indirectly by the Trust
Trustees should consider which types of investment structures should be held directly by the Trust or indirectly through an entity.
What does the Trustee of a non-U.S. trust needs to provide a U.S. beneficiary?
If a U.S. person receives a distribution from a foreign trust, the distribution will have to be reported on the taxpayer’s Form 3520 and tax return statement called Foreign Grantor and Nongrantor Trust Beneficiary Statements. Those statements ensure that the distribution is properly taxed.
Any changes which need to be made to the Trust Documents
Trustees should consider what changes need to be made to the Letter of Wishes; the Trust Deed; and/or any entities owned by the Trust to ensure that the Trust is structured in a manner that is tax efficient. As examples of the types of issues that Trustees need to be on the look out for: a “general power of appointment” of a U.S. person; and the existence of a “step-up in basis” upon the death of the Grantor.
By conducting a due diligence along the lines outlined above, Trustees will be in a relatively good position to ascertain if there are any U.S. taxation and reporting issues in the administration of their trusts.
This due diligence check list is merely a tool to assist Trustees in the administration of their trusts, but given the complexity of the issues highlighted above, will often require further analysis by qualified U.S. Counsel. The attorneys at Anaford Tax & Accounting Services are familiar with these issues and should be consulted in order to ensure that all relevant U.S. issues are canvassed by Trustees in administering their trusts.
ATAS assists Non-U.S. citizens (a/k/a “non-resident aliens”), U.S. citizens and permanent residents (a/k/a “green-card” holders), to prepare and file their required U.S. tax and other informational returns.
ATAS can assist you to regularize your tax situation by providing you with legal expertise, and an advanced accounting team to guide you through one of four options for non-compliant U.S. persons to regularize their U.S. tax situation.