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September 2016


U.S. TAXES & FOREIGN ACCOUNTS


The IBC structure provides the most complete method for reduction of tax exposure. One clear advantage is when the IBC is utilized as a holding company for international investments. As a foreign entity, the IBC is exempt from capital gains taxes in the United States. Also, an IBC is exempt from taxes and filing requirements in The Bahamas. The IBC can also be used in conjunction with your domestic corporation to reduce tax exposure from your business ventures. Under this scenario, "profits" from the domestic entity would be "expensed" to the IBC. This is accomplished through the simple adaptation of generally accepted accounting principles.

The central aspect in utilizing your offshore corporation is the establishment of a foreign account. The laws that govern banking in The Bahamas prohibit the release of information regarding client accounts. This serves to protect your assets as well as your privacy. So why then don't offshore banks advertise their distinct advantages to the American public? Simple, federal laws prohibit offshore banks from doing so; unless they subject themselves and their clients to the same laws and reporting requirements that govern US banks. Obviously, people have and will continue to become aware of the advantages of establishing an offshore account for asset protection and privacy. So why don't more people take advantage of offshore banking opportunities? Again the answer is simple, the US Department of Treasury established the following guidelines to keep an accounting of your money (1040 Personal Income Tax Schedule B line 11 and 12; regarding foreign accounts):

If you are a U.S. "person"; 1) a citizen or resident of the U.S., 2) a domestic partnership, 3) a domestic corporation, 4) a domestic estate or trust, you must file a Tax return which asks the following:

If you answered YES to one of the above, you must file TD F 90-22.1 Report of Foreign Bank and Financial Accounts. (Paragraph G identifies "financial interest in" as such a person who is the owner of record; whether the account is maintained for his or her own benefit or for the benefit of others, including non-U.S. persons.) In short, if you have any defined authority over or financial interest in an offshore financial account of any kind, you must report it! However, through NFH/THMS there are several ways to establish an offshore account and answer NO to the above. You may:

The client must also realize that all Trusts are as stable as the actual controller of that entity. This of course is the same in all investment institutions. Trust and the laws effecting them are very complex. Please see the following section on Offshore Trusts for an overview or call THMS for further consultation. We advise our clients to realize that offshore situations are not necessarily for everyone. However, divesting a percentage of any portfolio into a non-discretionary account to protect assets offshore is a prudent consideration. Remember, tax avoidance is perfectly legal. It's tax evasion which creates problems. Please consult with your tax advisor to ascertain your individual reporting and compliance requirements.

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TITLE 26 - INTERNAL REVENUE CODE

3520 Creation of transfers to certain Foreign Trusts

926 Transfer of property to Foreign Corporation, Foreign Estate or Trust, or Foreign Partnership

5472 Information return of a 25% Foreign-owned U.S. Corp. or a Foreign Corp. Engaged in U.S. Trade or Business

TD-90-22.1 Report of Foreign Bank and Financial Accounts

3520-A Annual Return of Foreign Trust with U.S. Beneficiaries

1120-f U.S. Income Tax Return of a Foreign Corp.

1120 U.S. Corp. Income Tax (see Sch. K line 7,8,9,10; regarding Foreign accts.)

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