QUESTION: As a email subscriber and neighboor(Shawnee, Ks.) I would I
like to know your thoughts on (Federal Contract Trusts) if any. Are
they worth considering?

REPLY:

The short answer is that I don't regard them as worth considering.

About once a year, I allow myself to get drawn into a discussion of
this type of trust or of similar tax avoidance scams that haven't done
well in the U.S. courts.

As far as I can determine, the "Federal Contract Trust" (FCT) is
simply a variation of the "Pure Trust" or similar trusts with dozens
of other names. Based on a quick search of the Internet, I located a
web site that claimed justification for the alleged tax exempt status
of the FCT and pure trust. Therefore, a promoter of this form of trust
clearly admits that it is similar to a Pure Trust.

A web site at http://www.quatlooslooser.us/FCT%20and%20IRS.htm offers
the following as alleged proof that the IRS admists that a Pure Trust
is a tax free entity.

----------------
IRS DETERMINATIONS ACKNOWLEDGE NO JURISDICTION OVER FEDERAL CONTRACT
TRUSTS

Repeatedly, in response to the question about EIN's for Pure
Trust Organizations, the IRS has stated, "According to our National
office a Pure trust Organization is an organization that has no return
filing requirements and is a nontaxable organization. Therefore your
Pure trust organization doesn't need and EIN."
----------------

The reason for the IRS response is because the Pure Trust and its
variants are ignored for tax purposes. The assets in the trust are
deemed to belong to the grantor (founder) of the trust and that person
is subject to U.S. tax on any income received by the trust. A
legitimate variation of this concept is the Revocable Living Trust
which provides no asset protection or tax benefits to the trust
grantor but it does provide some protection from the delays and costs
of state probate.

The only kind of truly tax exempt trust of which I'm aware is a bone
fide charitable trust in which all of the income and all of the assets
will be distributed to a tax qualified charity. Although the income of
a non-grantor offshore trust is not currently taxable, it is taxable
when the income is distributed to any U.S. beneficiaries. With an
irrevocable trust, either the trust pays a tax on its income or the
beneficiaries pay a tax on the income distributed to them. With a
foreign trust with a living U.S. grantor, the trust grantor pays a tax
on the trust income.

For additional information about Pure Trusts and a brief mention of
the Federal Contract Trust, see
http://www.quatloos.com/taxscams/puretrustscams.htm

Another web page that I found is designed to dispute the claims made
by Jay Adkisson about Federal Contract Trusts in his Quatloos web site.

However, two of the statements made in the web site at
http://www.assetpro.us/Trust%20Truths.htm about the Quatloos web site
are totally inaccurate. Jay Adkisson is the sponsor of Quatloos; not
Bob Bauman. And Bob Bauman is not employed by Sovereign Security; he
is employed by the Sovereign Society. I could also dispute a number of
other statements in that web page, but if anyone still needs
convincing, it's very unlikely that anything more that I might say
would have any impact.

But if anyone is inclined to argue with me, please take the time to
first read my comments at
http://www.vernonjacobs.com/tax-protestor.htm And I won't respond to
any arguments that are not totally novel and that don't challenge my
curiosity -- because I've been exposed to nearly all of these
arguments sometime in the past 30 years.

Vern Jacobs