Cut capital gains tax rate to below 1% pa with Qualified Electing Fund (called QEF by IRS). Mitt Romney filed 10 form 8621 for his 10 QEFs in 2010. Goldman Sachs (Cayman) Trust, Limited operates as a subsidiary of Goldman Sachs (Cayman) Holding Company – providing services to “in-house” clients and executives!

Hello, I’ve been offshore since 1990 and have formed many, many PFICs (offshore companies) for customers. I work with three British barristers in Anguilla since 2001. I formed over 350 companies in Anguilla – a no tax haven and British Overseas territory like the Cayman Islands. I am an overseas agent for the Anguilla government’s registrar.  I recently formed two companies just like the ones in EXAMPLE #1 below for an industrialist from the USA .

The plan is outlined below in example #1. The IRS calls them “pedigreed qualified electing funds”, and they are PFICs just like the ones Romney uses.

Want an offshore fund (private company) “like” the one Romney might use for yourself? We also form companies in the tax free Bahamas where we live. Since 1990 we’ve formed over 1,030 Bahamian companies, and we can arrange banking with Nassau’s top bank.

 ♠ UPDATE: I have a US based broker (member FINRA/SIPC) that will take on your Anguilla, Cayman or Bahamian registered company accounts where you can trade the US stock markets free of capital gains taxes just like Goldman Sachs does in the Cayman Islands. http://www.camanabay.co.uk/goldman-sachs/ 

“Mitt Romney’s former firm Bain Capital – $77 billion AUM http://www.baincapital.com – has at least 138 funds (called Passive Foreign Investment Companies and QEFs by the tax code) organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind ..” http://www.vanityfair.com/politics/2012/08/investigating-mitt-romney-offshore-accounts ….

Romney filed form 8621 for 10 QEFs in 2010. A QEF stands for a Qualified Electing Fund by the IRS!

http://www.irs.gov/pub/irs-pdf/f8621.pdf http://www.irs.gov/pub/irs-pdf/i8621.pdf  

                                                            
The IRS does not require that a PFIC/QEF file a US income tax return.
IRS can’t/won’t audit a “no tax return required/filed” situation!

Click this link to see how easy it is to fill out Form 8621. Form 8621 is mandatory beginning 2014.

If you trade the stock and bond markets using offshore companies like Mitt Romney you need to know what forms to file.

Offshore companies like Bain Capital’s 138 funds organized in the Cayman Islands do not owe US short term or long term capital gains taxes.

Just think about that next time you call your stock broker or log on online with your stock broker.

Example #1 Foreign company A (FCA) owns 100% of Foreign company B (FCB). US person X owns 4.5% of Foreign company A. FC B owns 95.5% of FCA.
Foreign company B is the business vehicle and has $270,000 in passive profits in it’s first year. For the example we’ll assume this $270,000 is CG, not ordinary income.

SIDEBAR: Profits and income of FC B or FC A could be from stock or bond market gains(and interest or dividends) in the stock market like a hedge fund would have.
Ordinary income from foreign personal holding company incomes as described here.. http://www.law.cornell.edu/uscode/text/26/1293 and
http://www.law.Cornell.edu/uscode/text/26/1297

Foreign base company sales and service income of a QEF are usually considered ordinary (passive/subpart F) incomes for purposes of the QEF/PFIC/CFC legislation. But, that’s ok, because US person X is reporting the income and paying tax on of both FCA and FCB annually. Note. US Person X is only paying tax on his “pro rata share” of the two offshore company’s  income. Most of the offshore profits in these two companies goes untaxed indefinitely.

If it seems confusing, it’s because the US Treasury’s tax writers wanted it to be confusing. Still, it is the (tax) law.

US person X takes the election to be taxed as a QEF for both FCA and FCB.

No US tax returns for Foreign company A or B are required under the US tax law.

For purposes of the PFIC provisions Section 1291 thru 1298, US person X would report his “pro-rata” share of Foreign company A’s profits (called the ordinary earnings + capital gains of his QEF or PFIC).

Person X should file Form 8621 in the first year and check box A in Part II for to be a (Pedigreed) QEF http://www.irs.gov/pub/irs-pdf/f8621.pdf

For purposes of the PFIC provisions, person X would ALSO report his “pro-rata” share of Foreign company B’s net capital gains + B’s ordinary income ($270,000 – we’ll say this is ALL capital gains), but the IRS allows X to pay tax as long term capital gains on FC B’s CGs… at the lower long term capital gains 15% tax rate. Remember, this is just an example. Most QEFs would not have LTCGs in the first year of operation.

http://www.law.cornell.edu/uscode/text/26/1293

If Foreign Company A has $30,000 of dividend income, US taxpayer X would put 4.5% of the $30,000 dividend ($1,350), (i.e., his pro rata share of the ordinary income of foreign company A) on his tax return. See part III of the form.. http://www.irs.gov/pub/irs-pdf/i8621.pdf

Special Note: X would not have to pay any tax on his pro rata share of the $30,000 dividends that are actually distributed to him ($1,350). That amount ($1,350) could be passed on to him AND he would not have to pay tax on it again.

COMPUTING THE TAXES: The tax for US person X for QEF A (i.e., Foreign Company A) would be on $1,350 income (his pro-rata share of the $30,000 dividend) at a tax rate of say 25% or about $337.50

The tax for US person X for QEF B (I.e., Foreign Company B) would be on B’s $270,000 income (i.e., B’s net capital gains + ordinary income) at a tax rate of 15% or $1,731.375. We’ve assumed FC B had only capital gains and no ordinary income.

The IRS allows the ordinary earnings and profits of Foreign Company B ($270,000) to be taxed at the long term capital gains tax rate of 15% on US person X’ tax return. NOTE: For 2014 the tax rate is going up to 20% for LTCGs.
See Part III, items 6 and 7 of form 8621. http://www.irs.gov/pub/irs-pdf/f8621.pdf.

Note: The net capital gains cannot exceed the the earnings and profits of B according to the tax code. (i.e., I’m assuming $270,000 in net capital gains for FCB).
In our example, X would pay a tax on QEF B totaling $1,822. (multiply 4.5% indirect ownership times $270,000 GG = $12,150 / X’s pro rata share) (this figure ($12,150) gets put in part III of form 8621 and gets taxed at a 15% tax rate AND equals $1,822 in taxes). See Part III, items 6a,b and 7a,b of Form 8621. http://www.irs.gov/pub/irs-pdf/f8621.pdf.
If you read the instructions for Form 8621 it tells you exactly what line on your 1040 that you put the ordinary incomes of the QEFs, and tell you to add the capital gains onto your Schedule D.

REVIEW: Here’s the tax computation of US person’s X tax return for QEF A and QEF B.

X would pay tax on his 4.5% (i.e., his indirect shareholding is 4.5% X 100% = 4.5%) of the $270,000 capital gains (or ordinary income if it’s a pedigreed QEF in it’s 1st year) of foreign company B. The Form 8621 instructions tells X to put any capital gain from a QEF on his Schedule D of his 1040.
X’s tax on FCB is $1,822.
+
X would pay tax on his 4.5% pro rata share of the $30,000 dividends/interests of company A or $337.50.
Multiply $30,000 by 4.5% = $1,350 which equals an actual reportable tax of $337.50.
X’s direct ownership in foreign Company A is 4.5%.

Total tax on $300,000 in offshore profits for both companies would amount to $2,159.5. US person X pays this amount.

That’s a savings of about $120,000 in taxes (annually). For example, if FCA and FCB were doing business in California as domestic corporations or mutual funds their tax bills would be greater than $120,000 (not including any state and city taxes!)

Note: THAT’S A TOTAL TAX RATE OF .77% … LESS than 1%.

Effectively, X would file two QEF forms for Company A and Company B.
See part III for where your accountant reports and files Form 8621 for YOU or person X.
Form 8621 gets attached to your 1040 tax return in March of each year.
Two forms get filed for each of the QEFs (FC A + FC B) in our example.

Note: This author has filed his TD-90.22-1 every year since 1995 (and I have copies to prove it). It’s due by June 30th of every year… . For 2014 the Treasury will be using the NEW FBAR…, and you file electronically

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

“Avoidance of taxes is not a criminal offense. Any attempt to reduce alleviate taxes by legitimate means is permissible.
The distinction between evasion and avoidance is fine yet definite.
One who avoids tax does not conceal or misrepresent.
He shapes events to reduce or eliminate tax liability and upon the happening of the events makes a complete disclosure.

Evasion on the other hand involves deceit subterfuge camouflage concealment some attempt to color or
Obscure events or making things seem other than what they are.”

— Internal Revenue Service

Send questions and comments to taxman@batelnet.bs

For offshore Bahamian or Anguilla companies with banking at Nassau’s top bank, visit this link http://tomazz1.wordpress.com/2014/04/13/offshore-company-formations-banking-Bahamas/

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IRS CIRCULAR 230 DISCLOSURE
To the extent this document constitutes tax advice subject to Circular 230 this tax advice was not intended or written to be used and it cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice).
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About Tom Azzara

Overseas agent - Anguilla registrar (since 2001) Company Formations/Trusts New Providence Estate Planners, Ltd. (since 1995) 54 Sandyport Drive P.O. Box CB 11552 Nassau Bahamas 1 242 327 7359 Fax/phone: (242) 327-7359 E-mail: taxman@batelnet.bs www.bahamasbahamas.com http://seekingalpha.com/user/7226491/profile Need good advice for your international operations? Hire us. Need planning that really works to fend off the IRS? I have 23 years experience. We form offshore company and foreign trusts. Over 1,330 offshore companies since 1995. We can win with FATCA, because we know US Tax Code.
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15 Responses to Cut capital gains tax rate to below 1% pa with Qualified Electing Fund (called QEF by IRS). Mitt Romney filed 10 form 8621 for his 10 QEFs in 2010. Goldman Sachs (Cayman) Trust, Limited operates as a subsidiary of Goldman Sachs (Cayman) Holding Company – providing services to “in-house” clients and executives!

  1. Foreign banks in tax havens have an unfair advantage over the American taxpayer, and it isn’t right and it isn’t fair. Foreign banks in tax havens use deceit, subterfuge, camouflage, concealment to hide US taxpayer accounts, who often trade in so called “Street name” and file a W-8BEN with the banker

  2. The Capital gains tax is zero for offshore foreign bankers in tax havens like the Cayman Islands and Bermuda.

  3. Citi had 427 subsidiaries in tax havens, including 90 in the Cayman Islands.

    Two Obama nominees (including Treasury Secretary Jack Lew) with offshore Cayman Island bank accounts. Where do you keep your savings accounts?

    http://qz.com/91781/if-you-had-a-bank-account-in-the-cayman-islands-why-would-you-pay-taxes-on-it/

    Baidu the giant Chinese search engine is registered in the Cayman Islands and is listed on the Nasdaq under ticker symbol BIDU. BIDU has a market cap of $70 billion dollars. BIDU can invest in any publicly traded stock or bond traded listed on wall street and not owe short term or long term CG taxes when they trade. http://investing.money.msn.com/investments/company-report?symbol=bidu

    Goldman Sachs (Cayman) Trust Limited does not publish their Cayman email address and probably won’t take an account under $20 million, but they are in the Caymans and almost all the other tax havens too. Avoiding US CG taxes with PFICs and QEFs is the biggest tax break for them too IMO.

    http://caymanyp.com/Cayman-Islands/State-Street-Cayman-Trust-Ltd/profile

    GOLDMAN’s traders made more than $100 million on 17 days in the quarter ended March 31, 2013 compared with 24 days in the year-earlier period, the New York-based company said in a regulatory filing today.

    http://www.bloomberg.com/news/2013-05-09/goldman-sachs-traders-lost-money-on-two-days-in-first-quarter.html

    In 2008 Goldman reduced their overall tax liability to under 5% using tax haven PFICs and QEFs, etc.

  4. Neil R. Brown says:

    Yes, but they have to pay a 30% withholding tax on funds/capital leaving or transfered from the USA! That discourages citizens from putting funds overseas.

  5. The IRS just released (today 3-29-2014) their new W-8BEN E for foreign accounts and FATCA. Once the offshore banker files this form for their company(ies) and individual account holders the IRS will not withhold any monies coming from the USA (other than on dividend income and some interest) transfers. Interest income from publicly traded corporate bonds and US treasuries are free of the 30% US withholding tax.

    http://www.irs.gov/pub/irs-pdf/fw8bene.pdf

    http://www.irs.gov/pub/irs-pdf/iw8ben.pdf

    http://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act

    I don’t know of any “exit tax” on money sent offshore. Not yet! There is a Form 926 that needs to be filed on transfers of over $100,000 to a foreign corporation within a 12 month period.

    Transferring $99,900 every 12 months would not require the form be filed.

    http://www.irs.gov/pub/irs-pdf/f926.pdf

    http://www.irs.gov/pub/irs-pdf/i926.pdf

    There is also a 30% withholding tax on dividends sent to an offshore company by a US company.

    This link at Blackrock.com – the giant fund manager explains. Blackrock has many $ billions of PFIC funds in many of the offshore tax havens.

    http://www.blackrock.com/corporate/en-zz/literature/whitepaper/viewpoint-foreign-account-tax-compliance-act-may-2011.pdf

  6. Neil R. Brown says:

    Sending $99,999 every 12 months might meet the letter of the law but certainly violates the spirit of the law which is how most tax cases are based today.

  7. The IRS offered over $800 Billion in deductions to US companies that had CFCs in Cayman, Bermuda & Switzerland, but few of them bit.. They would let these offshore companies repatriate their profits with a tax rate of just 5.5% overall.

    Some 843 corporations, a relatively small number of corporations given that roughly 9,700 corporations had CFCs in 2004, took advantage of the deduction. But these corporations repatriated almost $362 billion.
    Of that, $312 billion qualified for the deduction, creating a total deduction of $265 billion.

    The newly added Internal Revenue Code section 965 outlines the provisions for this deduction,

    The IRS wrote “Firms can be expected to park considerable shares of their earnings and profits in the Netherlands, Switzerland, Bermuda, Ireland, Luxembourg, and the Cayman Islands, as these countries are known for their favorable tax policies”

    The link below is an IRS link and the IRS gathered the information and a special tax law was written into the tax code.
    Scroll down to the charts and view the dollar amounts of the companies involved. http://www.irs.gov/pub/irs-soi/08codivdeductbul.pdf

  8. Pingback: $1.2 trillion dollars on deposit in Cayman Banks – up 10% in 2005 says Cayman Government?

  9. Pingback: Offshore Company Formations/Banking Bahamas | $1.2 trillion dollars on deposit in Cayman Banks – up 10% in 2005 says Cayman Government?

  10. Pingback: OFFSHORE PRIVATE EQUITY COMPANIES: How to file new IRS Form 8621 for a Qualified Electing Fund or Passive Foreign Investment Company – It’s mandatory for tax years 2014 and beyond. | $1.2 trillion dollars on deposit in Cayman Banks – up

  11. Pingback: OFFSHORE PRIVATE EQUITY COMPANIES: How to file new IRS Form 8621 for a Qualified Electing Fund or Passive Foreign Investment Company – It’s mandatory for tax years 2014 and beyond. | $1.2 trillion dollars on deposit in Cayman Banks – up

  12. Pingback: OFFSHORE PRIVATE EQUITY COMPANIES: How to file new IRS Form 8621 for a Qualified Electing Fund or Passive Foreign Investment Company – It’s mandatory for tax years 2014 and beyond. | $1.2 trillion dollars on deposit in Cayman Banks – up

  13. Pingback: OFFSHORE PRIVATE EQUITY COMPANIES: How to file new IRS Form 8621 for a Qualified Electing Fund or Passive Foreign Investment Company – It’s mandatory for tax years 2014 and beyond. | $1.2 trillion dollars on deposit in Cayman Banks – up

  14. Pingback: OFFSHORE PRIVATE EQUITY COMPANIES: How to file new IRS Form 8621 for a Qualified Electing Fund or Passive Foreign Investment Company – It’s mandatory for tax years 2014 and beyond. | $1.2 trillion dollars on deposit in Cayman Banks – up

  15. Goldman Sachs (Cayman) Trust, Limited operates as a subsidiary of Goldman Sachs (Cayman) Holding Company providing services to PFICs/QEFs of clients and executives! http://caymanyp.com/Cayman-Islands/State-Street-Cayman-Trust-Ltd/profile http://www.bloomberg.com/news/2013-05-09/goldman-sachs-traders-lost-money-on-two-days-in-first-quarter.html

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