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May 24, 2010 - Phil Hodgen

New foreign trust tax rules, Part 7 – more paperwork

This is the seventh episode in this saga, in which I summarize the latest development in U.S. tax law as they apply to foreign trusts.  The previous episodes are here: Here is where to find the earlier stuff: Part 1 – OverviewPart 2 – Using Trust Property For FreePart 3 – expanding the grantor trust rulesPart 4 – new presumptions for discretionary trustsPart 5 – Letters of Wishes are useless, Part 6 – all foreign trusts have U.S. beneficiaries.

With this change, Congress just handed the IRS the keys to the car:  “demand all of the information for a foreign trust that you want.”

What the HIRE Act says

The new law gives specific authority to the Secretary of the Treasury (his/her minions are the ones who actually write the regulations ‘n stuff) to write regulations which extract more information from taxpayers.  Here’s the text of the HIRE Act:

SEC. 534. REPORTING REQUIREMENT OF UNITED STATES OWNERS OF FOREIGN TRUSTS.

(a) In General – Paragraph (1) of section 6048(b) is amended by inserting ‘shall submit such information as the Secretary may prescribe with respect to such trust for such year and’ before ‘shall be responsible to ensure’.

(b) Effective Date – The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

What it means to you

More paperwork.  The rules have yet to be written, but they’re coming.  The forms have yet to be designed, but watch out.  There will be more opportunities for the IRS’s present enforcement mentality:  “Death Penalty for Parking Tickets!”  Your professional fees will be higher.

Sorry.  This is what entropy looks like when applied to bureaucracies.

Tax and Trusts