          
          
          
                        The Offshore Trust Loophole
          
               When tax havens are mentioned, most people think
          of foreign trusts. That's no accident. The trust is a
          staple of tax havens and offshore financial planning.
               Offshore trusts used to provide great tax and
          financial benefits to Americans, and they were very
          easy to set up. You simply paid a lawyer or banker
          $1,000 or so to set up a trust, then transferred assets
          to the trust. The income from the assets accumulated
          tax-free as long as it remained in the trust. Taxes
          were paid only when you or the trust's other
          beneficiaries had income distributed.
               Those days of big, easy tax savings are gone, but
          in the right situations, offshore trusts still can
          provide substantial tax benefits to those who know how
          to use them.
               These days, however, some of the biggest benefits
          of offshore trusts are the non tax benefits. To many
          Americans, these benefits are far more valuable than
          any potential tax savings. Non tax benefits of offshore
          trusts include the following:

               * The protection of assets from creditors
               * Privacy
               * Estate planning
               * International investing and diversification

               In this chapter we look at the many uses and
          benefits of offshore trusts. 

          
          The trusting basics

               Trusts are rooted in antiquity.  There were trusts
          in both Roman and Greek law.  The Romans called it the
          fiducia, from which our word fiduciary is derived. 
          Ancient Germanic and French law had a similar concept,
          and from the time of Mohammed the concept of the trust
          was a fundamental principle of Islamic law.  The trust
          was probably the world's first tax shelter.  In 16th-
          century England it took on tax shelter aspects that
          allowed citizens to avoid feudal taxes on property
          inheritances and transfers. After fighting the trust
          for a few decades, the Crown finally decided to give
          in, and the Statute of Uses became law. 
               American lawyers frequently will mistakenly inform
          you that trusts only exist in common law countries. 
          Not so.  What they should be saying, if they had more
          understanding of comparative law, is that the IRS only
          recognizes common law trusts.  (The fact that they do
          not recognize civil law trusts can sometimes have
          interesting tax planning aspects itself, if you have a
          tax lawyer sophisticated enough to explore the
          possibilities.)
               They used to be divided into two parts: countries
          that recognized common-law trusts and countries that
          didn't (whether or not they had their own civil law
          equivalent). Anglo-American or common-law-based legal
          systems-such as those of the United Kingdom, the United
          States, and most of the Caribbean tax havens that were
          once British colonies-recognized trusts. Countries with
          civil-law-based legal systems generally didn't
          recognize common-law trusts. But trusts have become
          such popular financial devices that many countries with
          civil-law-based legal systems have passed laws
          recognizing their own versions of the trust. Such
          countries include Liechtenstein, Monaco, Jersey,
          Guernsey. Panama, and in 1992, France.  Jersey and
          Guernsey have ties to the United Kingdom, but are not
          common-law jurisdictions, as their unique laws are
          based on pre-conquest Norman law.  The Liechtenstein
          law formally gives recognition to both common-law
          trusts and its own civil law trusts, but the IRS does
          not recognize a Liechtenstein trust as being a common-
          law trust, since they hold that only a common-law
          country (basically one of British historical ties) can
          have a common-law trust.
               A trust is basically a legal relationship between
          three or more parties. The grantor or settlor creates
          the trust. The trustee takes legal title to the trust
          property and manages it according to the terms of the
          trust agreement and the law of the country involved.
          The beneficiary receives money or property from the
          trust according to the terms of the trust agreement.
               Often, one person can have more than one role in
          this scheme. For example, you can create a trust that
          names you the trustee and a beneficiary. This is the
          standard "living trust" agreement that is used to avoid
          probate in the United States and that provides for a
          contingent beneficiary and substitute trustee upon your
          death. More often, when a trust is used to reduce
          taxes, the grantor, trustee, and beneficiary are
          different parties. There often is more than one
          beneficiary, and there is no legal limit to the number
          of beneficiaries a trust can have.
               A trust can be revocable or irrevocable. A
          revocable trust is one that the grantor can abolish or
          alter at any time. This gives the grantor more control
          of the assets, but it normally provides no tax
          benefits. An irrevocable trust is one that permits the
          grantor very few changes once the trust agreement is
          signed. An irrevocable trust is usually required if a
          trust is to be used as a tax-reduction device.
          
          Non tax advantages

               Although it is the world's first and
          longest-lasting tax shelter, the trust has a number of
          non-tax advantages.  Many people have found that even
          when an offshore trust does not save them one dime in
          taxes, the non-tax advantages are very worthwhile. In
          fact, it is likely that many Americans who set up
          offshore trusts today do so more for these non-tax
          benefits than for any tax-planning reasons. Let's take
          a look at these non-tax advantages.
          
          Asset preservation and protection

               Wealthy Americans today have at least one
          financial foe they fear more than they do the tax man,
          and that is the lawyer. Many businessmen and
          professionals fear that the legal system is out of
          control, and it doesn't take much to convince a jury to
          give all your assets to a sympathetic plaintiff. One
          mistake, or even one unfortunate accident, can take
          away the fruits of a life's labors, and insurance
          companies often cannot or will not cover an entire
          claim.
               Because of this, many successful professionals and
          business owners are putting a higher priority on asset
          preservation than on tax avoidance. A foreign trust is
          one key to preserving assets from creditors.
               Heres how it works. A trust agreement contains
          several important clauses. One clause allows you to
          replace the trustee whenever you want, which ensures
          that the trustee will manage the trust according to
          your instructions and the trust agreement.  This can be
          a dangerous clause, however, if it is deemed to give
          you too much control over the trust, such as by
          transferring it to a person or company under your
          control.  Prudent lawyers will draft a clause that
          limits your choice of trustee to a definition such as
          "a bank in the jurisdiction of the trust, with assets
          over $20 million, and in which the grantor does not
          hold more than 5% of the stock."
               The force majeure clause allows the situs, or
          location, of the trust to be changed at any time. A
          force majeure clause is often used in case a war or
          natural disaster makes it wise to change the country in
          which the trust is located. But it also is useful if
          laws change. If the host country changes its tax or
          privacy laws, you will be glad to have the force
          majeure clause to rely on. 
               The country in which the trust and trustee are
          located should be one with strong financial privacy
          laws. The ideal countries for asset-preservation trusts
          are usually the tax haven countries such as Jersey,
          Channel Islands, and the Cook Islands, among others.
          Discuss your needs with a local lawyer and have him
          explain exactly how the trustee and the country's
          government will act in particular circumstances. In
          most of these countries, you'll find that the trustee
          does not have to divulge the assets held by the trust
          and does not have to turn over assets to U.S.
          creditors, unless they go through the host country's
          court system, which allows the trustee time to move the
          assets to another country.
               You generally want to transfer only cash and
          intangible assets (stocks, bonds, etc.) to the trust.
          Portable assets, such as gold coins or diamonds, also
          can be used. You do not want to transfer title to real
          estate or a business located in the United States. This
          does nothing to keep the assets away from U.S.
          creditors, and could make the trust subject to the
          jurisdiction of a U. S. court because it would be
          deemed to be doing business in the U. S.
               The trust will not affect your tax return. You
          likely will be the grantor. The beneficiaries likely
          will include your family members, but will not include
          yourself. The trustee will follow your instructions on
          how the trust assets should invested and disbursed. You
          will notice very little difference in the way things
          operate, unless you suddenly are faced with creditors
          who want your assets.
               You will have to disclose the trust on your
          federal tax return. But creditors must get a court to
          order you to reveal your tax return, and that takes
          time. If they do discover the trust's location and file
          a collection suit in that country, the laws of the
          country are likely to be hostile to the creditors, and
          the trustee can shift the trust and its assets to
          another country and another trustee. Then the creditors
          must begin the process all over again. Soon they
          probably will want to talk about settling the dispute.
               Asset-protection specialists believe that a
          variation of this is more effective than a straight
          foreign trust. They advise that you first form a
          limited partnership and name yourself the general
          partner. Then you transfer ownership of the partnership
          to an offshore trust created in an asset-protection
          country like the Isle of Man or the Cook Islands. The
          supporters of this arrangement argue that it renders
          legally improbable the chances that the assets owned by
          a limited partnership-trust combination could be
          reached by a court. You don't want to set up an
          arrangement like this without the aid of an attorney
          who has experience in this area.

          
          Privacy

               Unlike a corporate charter and bylaws, a trust
          agreement is not registered with any government
          authority, in most countries.  (Some of the tax haven
          countries now have provisions for registering trusts,
          so you need to consider whether this is helpful or
          harmful to you.)  The agreement is between you and the
          trustee, unless a dispute forces one of you to bring
          the trust agreement into court. Many trust
          beneficiaries have never seen the trust agreements.
               This gives trusts a distinct privacy advantage
          over corporations. In every country concerned, at least
          one person involved in organizing the corporation must
          be listed on the public record, along with the name and
          address of the corporation. In most countries the
          directors must be listed, but in a few tax haven
          countries that place a premium on financial privacy,
          often only the lawyer who did the paper work is listed,
          but that gives privacy invaders a starting point. With
          a trust, in most countries, nothing is required to be
          registered. The trust agreement and the parties
          involved are not required to be disclosed, and the
          information filed is not on the public record. In
          privacy-conscious countries, the trustee is allowed to
          reveal information about the trust only in very limited
          circumstances.  
               Even in the United States, a trust provides more
          privacy than does any other form of ownership. An
          offshore trust multiplies your privacy.

          
          International investing and diversification

               Some of the world's top-performing mutual funds
          cannot accept U.S. shareholders. Many of the world's
          best-performing or highest-potential stocks and bonds
          cannot sell to U.S. investors. In general, foreign
          investments can't be sold in the United States unless
          they are registered with the Securities and Exchange
          Commission (SEC) and the state commissions. Since this
          is very expensive and also subjects the companies to
          U.S. securities laws, only a few foreign stocks, bonds,
          and mutual funds are registered in the United States.
               You can invest and diversify internationally
          through U.S.-based mutual funds. But if you prefer to
          make your own portfolio selection or know how to keep
          trading costs down, you dont want to use a U.S. mutual
          fund.
               You could use a foreign trust. An offshore mutual
          fund that cannot accept money from a U.S. investor can
          accept money his investor's foreign trust. Your trustee
          handles the investments and paper work while you make
          the investment suggestions. This way, you can partake
          of the worlds best investments without worrying about
          borders and conflicting laws.
               Some people prefer to have a portion of their
          investments physically outside the United States as
          part of a diversification program. You can do that
          through a foreign bank account, but the fees on many
          foreign bank accounts can be steep. Also, you might not
          have a full number of investment options. A foreign
          trust with a lawyer or trust company as trustee might
          be a better way to achieve international
          diversification. Many large trust companies charge a
          percentage of the trust's assets as an annual fee plus
          a percentage of the value of each transaction. Many
          smaller trust companies charge a fixed annual fee plus
          additional costs for time spent on transactions and
          other business. Since it takes just as long to wire $1
          million as it does to wire $10,000, the fees ought to
          be given serious consideration.

          
          Offshore trust tax loopholes

               Offshore trusts still can be structured to
          generate tax advantages for some Americans. In most
          cases, but not all, an offshore trust makes sense if
          you have some of the non tax goals listed above in
          addition to tax-reduction goals. But there are a few
          remaining instances when the offshore trust is
          available purely for tax reduction.

          
          What you don't want

               When Congress decided to end the old-style fun and
          games that had been available through offshore trusts,
          Section 679 of the tax code was created. This section
          says that when four conditions are met, the grantor of
          the trust is taxed annually on all income and gains
          earned by the trust, even if they are not distributed
          to anyone. In other words, you put money or property in
          the trust, and all income earned by the trust is
          included in your gross income as though the trust never
          existed.
               If you are plan to use the trust for asset
          protection, privacy, or international diversification,
          this wont matter to you.  
               These are the four factors that must be present
          for the grantor to be treated as owner of the offshore
          trust and taxed on its income:

               1. A U.S. person transfers property (including
          money) to a trust.
               2. The transfer to the trust is either directly or
          indirectly from this person.
               3. The trust has a U.S. beneficiary.
               4. The trust is foreign.

               Obviously, to get the maximum tax benefits, you do
          not want all four of these factors present. If you can
          eliminate just one of the factors, Section 679 no
          longer applies, and the grantor is not taxed on the
          income of the trust (at least not under this part of
          the tax code).
               Fortunately, there are ways to avoid taxes on the
          foreign trust.

          
          The major tax loophole

               Every year, many Americans receive tax-free income
          from offshore trusts. They comply fully with the U.S.
          tax code, and there is nothing the IRS can do about it.
               They get tax-free income by avoiding the first
          factor listed above: The offshore trust is not set up
          by a U.S. person.
               "U.S. person" is broadly defined in the tax code.
          It means a U.S. citizen or resident alien. It also
          means a U.S. partnership, corporation, estate, or
          trust. To qualify for this loophole, the grantor of the
          foreign trust must be a foreigner.
               Here's the typical case in which this loophole is
          used: An individual who is not a resident or citizen of
          the United States (a non resident, alien under the tax
          code) sets up a foreign trust. The beneficiary is a
          U.S. citizen or resident, probably the grantors child
          or grandchild. The grantor retains the power to change
          the beneficiary, revoke the trust, and control
          disposition of the trust property. The trust and all
          its assets are located outside the United States.
               Under this arrangement, the grantor is treated as
          owner of the trust and is taxed on all income the trust
          produces. (These are the regular U.S. tax rules on
          grantor trusts.) The U.S. beneficiaries are not taxed
          when they receive income from the trust, because the
          grantor is the owner and is responsible for the taxes.
               The grantor, however, is not a citizen or resident
          of the United States, so that country does not tax any
          of his income. He doesn't even file a U.S. tax return.
          The trust is located outside the United States and does
          not invest in U.S. assets. So the trust is not taxed by
          the United States or required to file a U.S. tax
          return. If the trust is located in a tax haven, there
          might be no income tax whatsoever. The IRS approved
          that result in Revenue Ruling 69-70, and the law
          remains the same today!
               In this situation, to maximize the tax benefits,
          the grantor should form a foreign corporation and
          transfer the assets to the corporation. Then the
          corporation should be a grantor of a foreign trust. The
          reason for this is that the trust will has foreign
          grantor only as long as the grantor is alive. After the
          grantor dies, all income received by the U.S.
          beneficiaries is taxable in the United States. To
          maximize the tax benefits for as long as possible, the
          trust should be created by a corporation, not an
          individual.
               A recent law tightened this loophole slightly. The
          law was designed to attack the following kind of
          situation: A foreign individual gives money to friends
          or relatives who then set up a trust with the foreign
          individual as beneficiary. The individual then moves to
          the United States. Normally, the individual is treated
          as a U.S. resident and is taxable in the United States
          on worldwide income. But since the individual is a U.S.
          beneficiary of a foreign grantor trust, all income from
          the trust is tax free in the United States.
               The new rules say that this is not a bona fide
          foreign grantor trust, so Revenue Ruling 69-70 does not
          apply. The trust income is generally taxable to the
          beneficiary. This change applies only when there is a
          U.S. beneficiary of a foreign trust who has previously
          transferred assets to a foreign person who then
          transfers them to a trust. However, the new law
          indicates that a gift of $10,000 or less of a present
          interest from the beneficiary to the settlor shall be
          disregarded. 

          
          Tricks that can cause trouble -- and how to fix them

               Somebody shows you Revenue Ruling 69-70 and comes
          up with this variation: You set up a foreign
          corporation and transfer assets to the corporation.
          Then the corporation creates a foreign trust for the
          benefit of your children or grandchildren. It looks
          good. You have a foreign grantor of the foreign trust,
          so you get the same zero-tax results as provided by
          Revenue Ruling 69-70, right?
               Wrong. Look at the second factor listed above. The
          offshore trust rules apply to direct and indirect
          transfers to offshore trusts. Setting up an offshore
          corporation that in turn sets up an offshore trust is
          considered an indirect transfer from you to the trust.
          You fall under Section 679 and will be taxed on all
          income provided by the trust. There are numerous other
          U.S. tax problems that make this technique undesirable
          to use.
               Remember the first rule of offshore tax planning:
          All offshore tax schemes suggested by promoters should
          be reviewed by an experienced and objective
          international tax advisor who is paid by you.
               But the scheme is not totally off-base. With a few
          changes, it might work.
               If U.S. citizens do not control more than 50% of
          the foreign corporation voting power, then the foreign
          corporation might be considered a legitimate foreign
          grantor. This could make the income of the offshore
          trust completely tax-free again. But be careful with
          this approach. It has not been tested by the IRS or in
          the courts, and if it is to work, it must be set up
          very carefully. It still might be considered an
          indirect transfer from you to the trust. You need the
          advice of both a U.S. and a foreign attorney.
               Another scheme to avoid taxes involves an
          "accommodator" or "accommodating transferor." In this
          scheme, a shady foreign banker, lawyer, or promoter
          agrees to set up, or have his company set up, a foreign
          trust for you. He says that he is legitimately an
          alien, and that puts the trust outside the offshore
          trust rules. He'll write the trust agreement to your
          specifications. Then you can contribute assets to the
          trust, and the assets eventually find their way to your
          named beneficiaries, supposedly tax-free.
               The problem is that this arrangement is not likely
          to pass by the IRS or through the courts. The
          accommodation trustee will be treated as your agent,
          not as an independent, bona fide foreign grantor. You
          are likely to be treated as the grantor of the trust
          and taxed on its income. There have been many foreign
          trusts set up this way. They work only because the IRS
          has not located them yet.  In the past few years there
          have been a number of tax fraud convictions of people
          using this approach -- the courts simply held that the
          trust was a sham, created for the purpose of tax fraud,
          and long prison sentences resulted.  Unfortunately,
          many of these cases have involved people who purchased
          a trust package in all innocence from a promoter, who
          had meanwhile gone on to sell the same scheme dozens of
          times more.  
               The operative word here is "sham."  The courts
          will very quickly look right through all those cute
          technicalities that the promoter told you would work. 
          Before you get into one of these schemes, close your
          mind to the individual trees, and look at the forest
          from the viewpoint of a judge and jury.
               There are innumerable variations of this scheme.
          These basic schemes are usually complicated by the use
          of a number of trusts and foreign corporations. The
          complications merely make it more difficult for the IRS
          to uncover the transactions.  

          
          Another offshore trust loophole

               There is another way to avoid being taxed on the
          income earned by the offshore trust. Note the third
          factor in the list above. The offshore trust rules
          apply only when the trust has a U.S. beneficiary. If
          there is no U.S. beneficiary, the grantor is not taxed
          on the trust income.
               The easy way to take advantage of this loophole is
          to set up the trust to benefit someone who is not a
          U.S. citizen or resident. For example, if most of your
          family members are citizens and residents of another
          country, you can set up an offshore trust to benefit
          them. If you set it up properly, you will not be taxed
          on the trust's income.
               Another way to achieve this result is to have an
          offshore corporation be the beneficiary of the offshore
          trust. Under the tax code, an offshore corporation is
          not considered a U.S. beneficiary of the offshore trust
          unless 50% or more of the corporation's voting power is
          controlled by U.S. persons. So if a U.S. person is one
          of several persons you want to benefit from the trust,
          you can have the beneficiaries form an offshore
          corporation. Be sure the U.S. person does not own more
          than 50% of the voting stock. Under these conditions,
          you fall outside the offshore trust rules and are not
          taxed on the trust income. The income in the trust can
          accumulate tax-free.
               This is another area in which you have to beware
          of shady promoters with questionable schemes. A
          promoter might say that he can form an offshore
          corporation and hold more than 50% of the voting stock.
          Then the U.S. beneficiary you designate can buy the
          rest of the voting stock or nonvoting stock According
          to the promoter, that makes the corporation a non-U.S.
          beneficiary and gets you outside the offshore trust
          rules.
               Be very wary of this approach. The promoter looks
          like an accommodator in this arrangement. If the IRS
          uncovers it, however, it likely will conclude that the
          foreign owners of the corporation are really just
          agents for you. You would be considered the genuine
          owner of the corporation, and the trust -- in the eyes
          of the IRS -- would have a U.S. beneficiary.

          
          Yet another offshore trust loophole

               Because of this loophole, an offshore trust could
          be a key part of your estate plan.
               The offshore trust rules are avoided when the
          transfer to the trust is made reasonable by the death
          of the transferor; that is, under the terms of a will.
          In other words, if the offshore trust is set up under
          the terms of your will and if property is transferred
          to it under the terms of the will, the offshore trust
          rules are avoided. Neither your estate nor any other
          U.S. person can be taxed as grantor of the trust.
               This loophole allows income to accumulate tax-free
          in the foreign trust. The trust can invest anywhere in
          the world, including the United States, and pay little
          or no taxes, depending on where the investments are
          made and how they are structured. If your children do
          not need the income or assets of your estate right
          away, the offshore trust can make their eventual
          inheritance much larger than it otherwise would be.

          
          Does the loan loophole work?

               Here's a strategy that is commonly recommended by
          tax advisors:
               Suppose you set up an offshore trust with $500,000
          in cash or liquid investments. You are subject to the
          grantor trust rules, so any income the trust generates
          from that property is taxable to you. But suppose the
          trust then uses that property as collateral to secure a
          $400,000 loan from a bank that has no relationship to
          you or the trust. The loan proceeds can be invested,
          and as long as the income from the investments exceeds
          the interest on the loan and other trust expenses, the
          trust profits and continues to grow.
               Here's the tricky part: The tax code says that as
          grantor of the offshore trust, you are taxed only on
          the income generated by the property you contribute to
          the trust. For example, if you and a foreigner jointly
          create and contribute to an offshore trust with U.S.
          beneficiaries, you are taxed only on the income
          generated by your contribution. A number of tax
          advisors believe the same principle applies to the
          loan. You do not contribute the loan proceeds, so you
          are not taxed on the income generated by the loan
          proceeds. If the property you contribute to the trust
          is invested in low-income, high-growth assets, you
          might not be taxed at all on the income from the trust
          at all.
               This is another strategy that has not passed the
          hurdles of IRS challenges and court review. If you use
          it, do so with great care and in conjunction with the
          advice of experienced international tax lawyers. You
          want to be careful not to set up what the IRS calls
          back-to-back loans. One example of a back-to-back loan
          is when your corporation or trust deposits money in a
          foreign bank. The bank then lends 80% of this money to
          the trust, corporation, or some other entity controlled
          by you. The IRS is likely to attempt to collapse these
          transactions and not treat the loan as a real loan.

          
          The offshore private lead trust

               The private lead trust (PLT) is a fairly
          sophisticated income and estate-tax planning device
          that should be considered by anyone with appreciated
          assets.
               The PLT works like this: You transfer the
          appreciated assets to a trust. The trust agreement
          provides that you be paid income from the trust for the
          remainder of your life, or for a specified number of
          years. The amount of the annual payment, which must
          fall within a range prescribed by the tax law, can be
          determined by you at the creation of the trust. The
          trust agreement also provides that when income payments
          to you cease, the trust assets belong to your named
          beneficiaries, probably your children or grandchildren.
               The lifetime estate- and gift-tax credit can be
          used to reduce or eliminate the gift tax due when the
          trust is created.
               Usually, a PLT is set up to pay you income for
          life and leave the remainder to charity. That gives you
          a deduction up front for the charitable contribution.
          The trust, however, does not have to include a charity.
               Suppose you set up a PLT in an offshore tax haven.
          The trust invests in assets that are designed to
          produce low income and high growth. When the trust
          earns capital gains or income, you use your own
          separate funds to pay the tax on the gain.
               That does not initially look like a good deal. But
          consider the alternative. Suppose you leave the assets
          in your name. Each year you will pay taxes on the gains
          and income, just as with the trust. But when you die,
          all the assets all be included in your estate. Unless
          you can make other provisions, your estate will pay
          taxes not only on the value of the assets you own today
          but also on the appreciation and income that are
          generated between today and the day you die. But if you
          transfer the assets to an offshore PLT, the
          appreciation is out of your estate. If you are in the
          top estate-tax bracket, you trade a 55% estate tax for
          an income tax of approximately 28%. In this case, you
          don't eliminate taxes. Instead, you trade a high tax
          for a much lower tax. You probably don't want to do
          this unless you have substantial assets and have
          considered other estate-tax reduction strategies.

          
          The offshore trust loophole summary

               Offshore trusts are extremely flexible financial
          and tax-planning devices. Though efforts have been made
          to eliminate their tax benefits to U.S. taxpayers,
          opportunities still remain. But offshore trust
          strategies are complicated and full of pitfalls, and
          there are many tax haven promoters out there who are
          trying to capture fees rather than generate solid tax
          plans. Venture into this area only with the help of an
          experienced international tax adviser who is
          unquestionably working for you. 

          
          One more hurdle to clear

               Whether you are setting up a foreign trust,
          corporation, or other entity, there is one more hurdle
          you have to clear. That is the excise tax that is
          imposed on some transfers of property to foreign
          entities. This tax is imposed by Section 1491 of the
          tax code, with exceptions in Section 1492.
               The excise tax is imposed on transfers by a U.S.
          person or entity to a foreign corporation, partnership,
          estate, trust, or partnership. A 35% tax is imposed on
          the appreciation that is inherent in the property and
          is not recognized on the transfer. In other words, if
          you transfer appreciated property to a foreign
          corporation, trust, or partnership in what would
          normally be a tax-free transaction, you can turn the
          transaction into a taxable one and pay the regular
          capital-gains tax or you can pay the excise tax.
               Obviously, the easy way to avoid the excise tax is
          to transfer cash or non-appreciated property to the
          foreign entity. There also are exceptions for tax-free
          contributions to a foreign corporation under certain
          circumstances. Aside from these exceptions you have to
          choose between paying the capital-gains tax or paying
          the excise tax.
          
          
          A reliable source of help
          
               One of the best sources of help in setting up
          offshore trusts and corporations is an American
          certified accountant who has a large practice in
          Panama.  Marc Harris holds a master's degree in
          business administration from Columbia University in New
          York, and completed the certified public accountancy
          examination at the age of 18.  He is believed to be the
          youngest person in the U.S. to pass the examination.
               He opened his Panamanian firm in 1985, after being
          a consultant with the accounting firm of Ernst &
          Whinney.  His services are highly recommended because
          he is able to create and administer offshore
          corporations and trusts with complete compliance with
          U.S. laws.  Often an American client uses a tax-haven
          based advisor who knows the local laws but is not
          familiar with American tax law requirements and
          technicalities, and the client eventually gets into
          trouble, so Marc Harris has a unique ability to bridge
          the two worlds for his clients.  Although based in
          Panama, he can create and administer corporations and
          trusts that are registered in all of the popular tax
          havens.
               For more information, please write to The Harris
          Organization, Attn: Traditional Client Services,
          Estafeta El Dorado, Apartado Postal 6-1097, Panama 6,
          Panama.
          
          
          
