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Posted by raylopez99 on July 25, 2007, 6:22 pm
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Under IRS Form 3520, there doesn't seem to be a clear
explanation of what is a "foreign trust", in accordance with
Section 679 of the Internal Revenue Code.
For example, does a US citizen who contributes no money, but
simply is named in a partnership, or a corporation, whose
goal is to buy real estate outside the USA, and the US
citizen is named as a "partner" or "shareholder", have to
fill out IRS Form 3520? Assume the US citizen has no hand
in creating the partnership or corporation other than to
sign their name on some documents; further, that the US
citizen is not either the main partner or the main
shareholder.
Further, assume the US person contributes either nothing, or
contributes less than USD $10000 in the calendar year,
and/or receives no tangible benefit either, since assume the
value of the land at the present is nearly worthless, so
whatever percentage the US citizen might have, it will be
worth less than $10k or so at present.
The instructions for Form 3520 are not entirely clear if the
above hypotheticals (compound question) is a "reportable
event". Under this hypothetical I want to avoid filling out
Form 3520 as much as possible, until such time that the US
citizen actually contributes or receives more than $10k in
tangible value from the partnership or corporation (assuming
such partnership or corporation is indeed a "foreign
trust").
Of course the "safe answer" is to file anyway, but since
this is a hypothetical I would like more speculative answers
(such as even if a 'foreign trust' is really not applicable
here at all, since no money from the US is being transfered
into a 'trust' relationship, rather, this is more of a
partnership/corporation set up now in anticipation of future
gain)
There is some suggestion in the instruction for Form 3520
that the "creation" of a foreign trust by a US citizen is a
reportable event, but is being named in a partnership or
corporation that is an unfunded 'shell' (or thinly funded)
qualify as a "creation"?
RL
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