International Tax and Estate Planning: Use of Check-the-Box Election in the Foreign Corporate-Trust Context

The check-the-box election is really important for international tax and estate planning. One common strategy is to use a foreign corporation owned by a trust to avoid U.S. estate tax on the death of the grantor. But with recent tax law changes, this strategy needs to be adjusted to avoid other tax issues. One way to do this is to get rid of the foreign corporation before the grantor dies, but this could have estate tax consequences. Another option is to use the check-the-box election to treat the foreign corporation as if it had distributed all its assets to the trust before the grantor dies, which can help avoid the tax issues. But this only works if the foreign corporation is formed correctly in the first place. The rules allow for the transfer of assets from a foreign corporation to a trust before the owner of the corporation passes away. This can help reduce estate taxes for the owner’s heirs. However, if the foreign corporation owns property in the US, different rules apply. In that case, a different strategy may need to be used to minimize taxes. In this approach, the election for tax purposes is made right after the owner dies. This can be risky because of changes in the stock market and legal issues. Another strategy involves using two different foreign companies to own another foreign company, with different people in charge. This can have tax and estate planning benefits. When someone who owns shares in foreign corporations dies, their shares will be treated as CFCs for tax purposes. The value of the shares will be adjusted to the fair market value at the time of the person’s death. This could result in minimal taxes for the shareholders when the assets are distributed. Alternatively, using a foreign partnership instead of a foreign corporation could also be a good investment structure, as long as certain criteria are met. These criteria include making sure the partnership and its partners are foreign, and that ownership certificates are kept outside the US. This can help reduce estate taxes, even if the investment portfolio includes US property. In order for an election to be valid and effective, it needs to be authorized and carried out by the right person. This is especially important when looking back 75 days. When it comes to a trust, there are still some unresolved issues about who needs to give their approval for the election. However, these issues can potentially be resolved by including a specific provision in the trust document giving the trustee the authority to make the election on behalf of all the trust beneficiaries. This approach is reasonable and could lead to a favorable outcome. The law says that if a foreign person owns stock in a U.S. company and dies, the stock can be subject to a tax. A new law was passed in Congress, changing the rules for taxing certain types of income from foreign sources. When the owner of a trust can cancel it, the trust is treated as if the owner owns the foreign company. This can lead to taxes for the trust’s U.S. beneficiaries or a change in the company’s location for tax purposes. If a foreign company is always considered a controlled foreign corporation, certain tax rules may not apply. When a foreign company is treated as if it has only one owner for tax purposes, this may not change how it is treated under foreign laws. Different types of entities are defined in the tax regulations, and some rules about taxes on foreign companies do not apply if the company does not have any business or income in the U.S. Basically, when making an election about foreign corporations, it’s important to be careful about the effective date. If the election is made to be effective right after someone dies, it could cause unintended tax consequences. It’s better to make the election effective the day after the person dies to avoid this problem.

When reinvesting money from selling stocks, it’s a good idea to invest in different types of assets, like bonds or stocks from different companies, to avoid tax issues. The “check-the-box regulations” emphasize that whether an organization has more than one owner depends on the specific circumstances. It also mentions that whether subsidiaries are associates is still an issue. The regulations consider substance over form to be an important tax consideration, meaning the actual purpose and function of a business structure is more important than its legal form. This means that even if a business is set up as a certain type of entity, it may be treated differently for tax purposes based on its actual operations. For example, if a partnership interest is not tied to a U.S. trade or business, certain tax rules may not apply. This passage discusses some regulations and rules related to international income tax and estate planning. It also mentions the author’s background and qualifications. The author is a practicing attorney and has written a book on the subject. The passage is submitted on behalf of the Tax Law Section. The Florida Bar has a set of rules that its members must follow, including serving the public and improving the justice system.

Source: https://www.floridabar.org/the-florida-bar-journal/international-tax-and-estate-planning-use-of-check-the-box-election-in-the-foreign-corporate-trust-context/