"According to the IRS, if a trust makes any disbursement to any US citizen it is taxable" Bingo. If you are a US citizen in any investment partnership - foreign or domestic, it is taxed at ordinary income rates. There is an entire autonomous IRS division devoted to it. That income is treated just like a domestic LLP K-1 distribution. The money you wire or deposit into the U.S. into ANY account, including a trading account, is reported to the IRS under very strict money laundering procedures enacted post- 9/11. That includes credit card transactions. If you wire a series of small deposits - that gets data mined as well for a flag. Thank the drug dealers and Osama.
PocketChange, You also mention Bermuda in your earlier post as a great place for your scheme. You should realize that the US treasury has already forced most of the tax haven countries including Bermuda to sign and ratify a "Tax Information Exchange Agreement". This brings any financial transaction of any US citizen in these former tax havens within the jurisdiction of the IRS. These countries are now bound by this agreement to provide any information the IRS requests. Countries who have signed this are; Antigua & Barbuda, Aruba, the Bahamas, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Costa Rica, Dominica, Dominican Republic, Grenada, Guernsey, Guyana, Honduras, the Isle of Man, Jersey, the Marshall Islands, Mexico, Peru, St. Lucia, and Trinidad & Tobago
Absolutely: Any repatriated distributions should be reported for tax purposes. K-1 are only issued by domestic LLC's and S-Corps. Foreign LLC's and investment trusts depending on structure may be reportable as a line item on a schedule D as long term gain @ 15%, as dividend income at your tax rate, as a carry over loss to offset other income. If you trade futures through a foreign LLC the trades are not subject to mandatory 60/40 treatment. CME has all sorts of foreign incentives. Asia Pacific Incentive, International Incentive program with RT rates at $0.49. http://www.cmegroup.com/company/membership/files/AsiaPacificIncentiveProgramQA.pdf REIT's have additional options... 503 exchanges, historical renovation and energy tax credits. Certain deductions that are not allowable in the US but may be allowable in a foreign jurisdiction. Other schemes include forming a foreign private bank or foreign privaye insurance business. Each provide certain liberties to take advantage of. Look at the Oil companies registering their platforms from small island nations. Look at the Cruise companies... not one ship registered as a US Vessel. Anything that is heavily regulated generally enjoys relief operating offshore. Obviously, there are millions of ways to skin this cat all with varying degrees of risk. The original question was to provide an example for purposes of this discussion of a scenario where LLC's may be advantageous.
Yes but the entire premise of your argument is that the IRS rules are not real because they are based on the honor system. Failure to report required information is by definition tax evasion. Technically none of the trades that I make are reported to the IRS by my brokerage. It is up to me to report them. Are you also suggesting that me failing to report them is a good tax reduction scheme? BTW, you are wrong. Regardless of where the entity resides, if a US citizen trades futures they are taxed by the IRS at 60/40 unless you are calling it business income in which case it is subject to even greater tax.
No one can answer this there are way too many variables. Start with states with lower business taxes and work from there. Last time I checked CA has a franchise tax fee of $800 per yer. In CO, fees are $20 per year approx plus 5% flat tax.
Yes Indeed and even the Swiss have rolled over. Any country that fails to sign an exchange agreement with the US gets black listed by FINCENs. Checkout the latest issued advisories: http://www.fincen.gov/news_room/advisory/
Ask Wesley Snipes and Nicolas Cage how the tax payment honor system works. Or simply not paying taxes on what you perceive to be a 'gray area'. Hell, there were 'top three' accounting firms giving what turned out to be incorrect advice to clients - the clients were not spared enforcement and serious penalties from the IRS. And you will have to hire a very expensive lawyer who specializes in the area to keep your cheap ass out of the pokey.
I don't know... Off the top of my head: The trades you make are individual. The trades made by a Foreign LLC are business... The foreign LLC has no Federal Tax ID. The foreign LLC conducts no business in their home jurisdiction and your personal information is not filed with anyone anywhere. Evidence of your ownership and interest are on the LLC's books and records. Transfers in and out of their foreign bank account can be monitored. Hypothetically: If you made $5M trading, took $5M in depreciation and sold your property for $10M. You have $15M sitting tax differed offshore. If you repatriate and take a full distribution and the LLC classifies it as an equity buy back to windup and dissolve: Schedule D: Long Term Gain taxed at 15%.