(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
LS-1041The Treasury Department and the Internal Revenue Service on Tuesday issued a notice to shut down another abusive tax shelter that is currently being marketed. The shelter utilizes Guam-based trusts in an attempt to effectively avoid both U.S. and Guamanian tax liability.
In this scheme, taxpayers claim that section 935 of the Internal Revenue Code applies to a Guam-based trust in a manner that relieves the trust of all U.S. income tax liability. In addition, the trust claims a rebate from Guam of all Guam income taxes paid. Thus, under the scheme, the trust purportedly is relieved of all income tax liability.
Section 935 was enacted to permit certain individuals who would otherwise be obligated to file an income tax return with Guam and another return with the United States to file a single income tax return in Guam and be relieved of any U.S. tax liability. The section was enacted to eliminate the administrative burden on individuals caused by having to file two income tax returns.
Notice 2000-61 alerts taxpayers and promoters that section 935 applies to relieve only individuals of the burden of filing two tax returns. Section 935 does not apply to trusts and thus does not relieve a Guam-based trust of any U.S. tax liability. The Guam-based trust scheme may also be challenged on other grounds.
The notice also informs taxpayers and promoters that reporting requirements may apply and that penalties may be imposed.