QUESTION: An offshore trust must be reported to the U.S. gov't along
with the beneficiaries. Isn't a Panama foundation better, no reporting
requirements. Also you can have IBC shares owned by the foundation .
This over rides The cfc status.

REPLY: That might be possible if a lot of very technical tax obstacles
can be avoided -- and if the person who provides the funds for the
Panama foundation is making a gift of those funds to a foundation
formed for a purely charitable purpose. But there are a lot of
promoters who are telling people that they can put money into a Panama
foundation, protect those assets from creditors, avoid US taxes and
still have access to the assets and control over the structure.

It's virtually certain that the IRS would not agree with the claims of
these promoters.

Most commentators on this subject describe the Panama private interest
foundation as being like a family foundation, which is used for asset
protection. For US tax purposes, that entity would be treated as a
foreign trust. When a foreign trust owns shares in a foreign
corporation or IBC, the US person who provides the funds to the trust
(or foundation) is deemed to be the owner of the corporation for US
tax purposes.

If the Panama foundation is organized like a genuine charitable
foundation and the founders have no residual interest in the
foundation income or assets, nor any prohibited transactions with the
charitable foundation or with any entities owned by the foundation,
then it is likely that the IRS would treat the entity like a
charitable foundation in the US. However, US taxpayers would not be
able to deduct contributions to a foreign charitable fundation unless
the contributions are made via a domestic charity or foundation.

Even if the Panama foundation functions as a charitable foundation,
any US person who is an officer or director of a foreign corporation
is required to file the tax return (Form 5471) for the foreign
corporation -- even if that person is not a shareholder of the
corporation.

It appears that if a US taxpayer organizes a foreign foundation in a
manner similar to a US charitable foundation, there would be no
reporting requirements to the US government other than to file a gift
tax return when funds are gifted to the foundation. If a foreign
charitable foundation establishes and owns a foreign corporation, then
a US person who is only an employee of the corportion would not be
reqired to file the foreign corporation tax Form 5471 -- BUT -- that
person can't be an officer or director or have any indirect control
over the foundation or the officers or directors of the corporation.
And, if any US person has the authority to direct the use of funds in
any foreign financial account, they must file the Form TDF 90-22.1.

It is a very common desire to find some simple way to protect assets
from creditors and to also avoid US taxes on investment income. While
there are ways to do this with domestic structures, a lot of people
seeme to think that they have to use an offshore structure. But the US
tax law has numerous traps and pitfalls regarding foreign structures
that can have devastating results for the unwary and the uninformed.

It seems there are a lot of promoters who are making false (or
uninformed) claims about the tax treatment of a Panama foundation.
While the IRS has no legal jurisdiction over a foreign foundation as
an entity, it does have jurisdiction over the US taxpayers who provide
the funds for the foundation and direct its activities.

For some further information on this subject see
http://assetprotectiontheory.com/anstalts_stiftung
s_panama_foundations.htm (You may need to combine the separate parts
of this link address.)

Vern Jacobs
www.positivelights.org
www.offshorepress.com
www.vernonjacobs.com

The information herein is not intended to be personal
tax or financial advice and may not be appropriate or
applicable for every recipient of this message. If
personal advice is needed, the services of a qualified
legal, investment or tax professional should be sought.