The excerpt below shows the serious tax implications of Debt Negotiation and Reduction on Real Estate that are often overlooked it the process.
To add insult to injury, owners of distressed property may realize gross income and incur tax liability from a real estate debt workout with a lender. Fortunately, certain provisions under the Internal Revenue Code, including new legislation, exempt certain debt relief income from taxation or permit deferral of such income.
See the whole article here:
http://www.globest.com/news/1504_1504/florida/181256-1.html
Monday, September 28, 2009
Friday, September 18, 2009
CREDITOR PROTECTED CASH ALTERNATIVE AND WEALTH MULTIPLIER?
“What is an alternative to my current cash position that will protect my money from litigation?”
By Ike Devji, J.D.
In our current economic environment, all clients want their money both safe and liquid.
When most people consider “safe” and “liquid,” they immediately think of their bank. However, what most people do not know is that their checking or savings account is unprotected from a very real threat: the exposure to an increasingly hostile and predatory litigation system. Consider this:
There are tens of thousands of lawsuits filed each day in this country. The average legal cost of defending a frivolous lawsuit is $91,000, plus the settlement amount itself. The number of lawsuits increases in tough economic times as people look to your wealth as an additional source of income.
Our team often takes commonly used tools and redesigns them to provide protection of client assets, while allowing clients to retain control and liquidity. This where the sciences of Financial Planing and Asset Protection meet. The situations below demonstrate the benefits of a strategy we are using in which we take a universal life insurance policy and design it to provide 98 to 102 percent cash surrender value in the first year.
Current Situation—Cash in the Bank: A healthy 45-year-old male client has a bank checking account with $1 million. He rarely uses this account, but he keeps his money there because he likes to have a certain amount of funds liquid in case he needs to access it quickly.
Here is how a regular, personally held bank account works:
· The account earns about 1 percent interest per year, with income taxable as ordinary income.
· If the client is sued for any reason and loses, the judge can require the transfer of the assets from the client’s checking account and into the plaintiff’s pockets.
· If the client dies, the named beneficiaries will receive the $1 million minus the taxes due.
· If the client needs to use the money, he is able to take the amount needed.
BETTER: Creditor-Protected Cash Alternative:
The strategy our team has designed allows the same client to place the $1 million into a specially designed universal life insurance policy by paying a premium amount of $500,000 in each of the first two years.
The policy will provide the following benefits:
· The account will earn a net interest of about 1 percent annually invested in the policy’s fixed account, and the gains are allowed to grow tax-deferred. If the client is sued for any reason and loses, the money in this account is 100 percent creditor-protected from day one.
· If the client dies, the named beneficiaries will receive a death benefit of $10,624,682, the face amount associated with this specific example, free of any estate taxes.
· If the client needs to withdraw all or part of the money in the account, he is able to do so at anytime with no fees or surrender charges, and he will have access to the money within a week.
By Ike Devji, J.D.
In our current economic environment, all clients want their money both safe and liquid.
When most people consider “safe” and “liquid,” they immediately think of their bank. However, what most people do not know is that their checking or savings account is unprotected from a very real threat: the exposure to an increasingly hostile and predatory litigation system. Consider this:
There are tens of thousands of lawsuits filed each day in this country. The average legal cost of defending a frivolous lawsuit is $91,000, plus the settlement amount itself. The number of lawsuits increases in tough economic times as people look to your wealth as an additional source of income.
Our team often takes commonly used tools and redesigns them to provide protection of client assets, while allowing clients to retain control and liquidity. This where the sciences of Financial Planing and Asset Protection meet. The situations below demonstrate the benefits of a strategy we are using in which we take a universal life insurance policy and design it to provide 98 to 102 percent cash surrender value in the first year.
Current Situation—Cash in the Bank: A healthy 45-year-old male client has a bank checking account with $1 million. He rarely uses this account, but he keeps his money there because he likes to have a certain amount of funds liquid in case he needs to access it quickly.
Here is how a regular, personally held bank account works:
· The account earns about 1 percent interest per year, with income taxable as ordinary income.
· If the client is sued for any reason and loses, the judge can require the transfer of the assets from the client’s checking account and into the plaintiff’s pockets.
· If the client dies, the named beneficiaries will receive the $1 million minus the taxes due.
· If the client needs to use the money, he is able to take the amount needed.
BETTER: Creditor-Protected Cash Alternative:
The strategy our team has designed allows the same client to place the $1 million into a specially designed universal life insurance policy by paying a premium amount of $500,000 in each of the first two years.
The policy will provide the following benefits:
· The account will earn a net interest of about 1 percent annually invested in the policy’s fixed account, and the gains are allowed to grow tax-deferred. If the client is sued for any reason and loses, the money in this account is 100 percent creditor-protected from day one.
· If the client dies, the named beneficiaries will receive a death benefit of $10,624,682, the face amount associated with this specific example, free of any estate taxes.
· If the client needs to withdraw all or part of the money in the account, he is able to do so at anytime with no fees or surrender charges, and he will have access to the money within a week.
To Summarize the benefits again:
- Creditor Protection
- Wealth Multiplier Effect of 10X (in this illustration)
- Liquidity and borrowing options with no penalty
- Death benefit of $10MM plus that passes outside the estate and free of estate tax
My thanks to Insurance and Investing Expert Jeff Christenson for his help on the technical details of the insurance policy. Together we implement this strategy for clients and advisors nationwide.
UNREPORTED FOREGIN BANK ACCOUNTS - DEADLINES AND PENALTIES LOOMING
People who haven't reported ownership of foreign accounts by September 23 may face jail time and fines.
By Seth J. Entin
Mr. and Mrs. Doe, who are U.S. citizens, have an account with a foreign financial institution. The Does have never reported their ownership of or the income from this account on Schedule B of their U.S. federal income tax returns, and they have never filed Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR), which they are required to do to disclose this account.
SEE THE WHOLE STORY HERE: http://www.fa-mag.com/online-extras/4478-wednesday-deadline-approaching-for-foreign-accounts.html
By Seth J. Entin
Mr. and Mrs. Doe, who are U.S. citizens, have an account with a foreign financial institution. The Does have never reported their ownership of or the income from this account on Schedule B of their U.S. federal income tax returns, and they have never filed Treasury Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR), which they are required to do to disclose this account.
SEE THE WHOLE STORY HERE: http://www.fa-mag.com/online-extras/4478-wednesday-deadline-approaching-for-foreign-accounts.html
Saturday, September 12, 2009
MOST COMMON ABUSIVE TAX SCHEMES - WHAT THE IRS SAYS
I continually warn clients and advisors that there are good and bad methods, tools and practitioners in every business including Asset Protection. The worst plans I see combine abusive tax plans with supposed Asset Protection benefits. These plans typically involve IBCs, Nevada Trusts, and Domestic Asset Protection Trusts in some combination. Generally speaking these are the WORST tools to use for a variety of reasons. We use offshore tools effectively and legally everyday for Asset Protection and other issues. The tools we use are explicitly TAX NEUTRAL because we don't want our clients relying on these tools for protection and estate preservation and fighting the IRS at the same time, a common fatal flaw that is spawned by greed and promises of tax savings that top professionals will never make. Below is what the IRS has to say in their own words.
Yours, Ike
Tax evasion using foreign jurisdictions is accomplished using many different methods. Some can be as simple as taking unreported cash receipts and personally traveling to a tax haven country and depositing the cash into a bank account. Others are more elaborate involving numerous domestic and foreign trusts, partnerships, nominees, etc. The following schemes are not all-inclusive, but just a sample of abusive tax schemes.
Abusive Foreign Trust Schemes: The foreign trust schemes usually start off as a series of domestic trusts layered upon one another. This set up is used to give the appearance that the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets. Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries.
As an example, a taxpayer's business is split into two trusts. One trust would be the business trust that is in charge of the daily operations. The other trust is an equipment trust formed to hold the business's equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041). Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return. Foreign trust-one then distributes all or most of its income to foreign trust-two. Since all of foreign trust-two's income is foreign based there is no filing requirement.
Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC). The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets. The reality is that nothing ever changed. The taxpayer still exercises full control over his/her business and assets. There can be many different variations to the scheme.
International Business Corporations (IBC): The taxpayer establishes an IBC with the exact name as that of his/her business. The IBC also has a bank account in the foreign country. As the taxpayer receives checks from customers, he sends them to the bank in the foreign country. The foreign bank then uses its correspondent account in to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore. Once the checks clear, the taxpayer's IBC account is credited for the check payments. Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction.
False Billing Schemes: A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter). A bank account is then opened under the IBC. On the bank's records the taxpayer would be listed as a signatory on the account. The promoter then issues invoices to the taxpayer's business for goods allegedly purchased by the taxpayer. The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer. The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account.
Original Link:http://www.irs.gov/compliance/enforcement/article/0,,id=105822,00.html
Yours, Ike
Tax evasion using foreign jurisdictions is accomplished using many different methods. Some can be as simple as taking unreported cash receipts and personally traveling to a tax haven country and depositing the cash into a bank account. Others are more elaborate involving numerous domestic and foreign trusts, partnerships, nominees, etc. The following schemes are not all-inclusive, but just a sample of abusive tax schemes.
Abusive Foreign Trust Schemes: The foreign trust schemes usually start off as a series of domestic trusts layered upon one another. This set up is used to give the appearance that the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets. Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries.
As an example, a taxpayer's business is split into two trusts. One trust would be the business trust that is in charge of the daily operations. The other trust is an equipment trust formed to hold the business's equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041). Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return. Foreign trust-one then distributes all or most of its income to foreign trust-two. Since all of foreign trust-two's income is foreign based there is no filing requirement.
Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC). The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets. The reality is that nothing ever changed. The taxpayer still exercises full control over his/her business and assets. There can be many different variations to the scheme.
International Business Corporations (IBC): The taxpayer establishes an IBC with the exact name as that of his/her business. The IBC also has a bank account in the foreign country. As the taxpayer receives checks from customers, he sends them to the bank in the foreign country. The foreign bank then uses its correspondent account in to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore. Once the checks clear, the taxpayer's IBC account is credited for the check payments. Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction.
False Billing Schemes: A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter). A bank account is then opened under the IBC. On the bank's records the taxpayer would be listed as a signatory on the account. The promoter then issues invoices to the taxpayer's business for goods allegedly purchased by the taxpayer. The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer. The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account.
Original Link:http://www.irs.gov/compliance/enforcement/article/0,,id=105822,00.html
Wednesday, September 2, 2009
How Many Lawsuits are There in the U.S. & What are They For?
The article below has a great summary of lawsuit facts that helps shed light on what all this "lawsuit and Asset Protection fuss) is about. Your wealth is the product being sold by attorneys nationwide, choose not to let them have it and take action. - Ike Devji
(Reprinted with Permission from the SixWise.com Security & Wellness e-Newsletter www.sixwise.com)
The U.S. legal system ensures that every American who feels they have been injured or victimized is able to seek justice through the court system -- clearly a noble and necessary protection. However, in recent decades the United States has earned the nickname as the most "litigious society" out there, in part due to major increases in lawsuits involving everything from hot spilled coffee to neighbors' disputes.
The United States has more lawyers per capita than any other country.
In fact, Americans spend more on civil litigation than any other industrialized country, according to a study in the Economic Journal, and twice as much on litigation as on new automobiles.
Why the disparity? Part of the reason, according to the Economic Journal study, has to do with incentives to sue, of which Americans have plenty. While in most European legal systems the loser in a suit must pay a large portion of the winner's legal fees, in America each party pays their own. So, simply speaking, in America there's nothing to lose.
More Lawyers Per Capita Than Any Other Country
As of 2006, there are over 1 million lawyers in the United States, according to the American Bar Association -- more per capita than any other country.
As the number of lawyers has increased, so has the number of civil claims, up 12 percent from 1993 to 2002.
In all, over 16 million civil cases were filed in state courts in 2002, according to the State Court Guide to Statistical Reporting,2003, from the National Center for State Courts. Trial lawyers earned an estimated $40 billion in lawsuit awards that same year.
What Are All These Lawsuits For?
Demand for legal services is increasing across the board, but particularly in such areas as health care, intellectual property, venture capital, energy, elder, antitrust, and environmental law.
The largest jump in lawsuits has been seen in the health care industry, where doctors have been paying significantly higher liability premiums to defend against potential litigation. While some say the increase in health care lawsuits may provide a safer environment for patients, opponents believe they are keeping patients from receiving the best care.
Some interesting facts:
- Over 16 million civil cases were filed in state courts in 2002.
- 79 percent of doctors report that they've ordered more tests than they would based only on professional judgment due to litigation fears, according to a Harris Interactive Poll.
- The American Medical Association lists 21 states as being in a "medical liability crisis."
- 71,000 drug lawsuits have been filed in federal courts since 2001 -- and have outnumbered asbestos, tobacco and auto safety lawsuits since 2002.
- 45 percent of U.S. hospitals reported that the liability crisis has caused a loss of physicians and/or reduced coverage in emergency departments.
How do Americans Feel About the Legal System?
News about frivolous and controversial lawsuits makes headlines just about everyday. But when a 14-year-old sues her friend for losing her iPod, the music industry sues a 12-year-old for downloading music from the Internet, and lawyers are eyeing fast food companies and snack food makers as targets in potential class-action lawsuits of the future, litigation, it seems, gets taken to a new level.
Frivolous lawsuits alone are said to cost the United States $200 billion a year, according to Congressman Terry Everett, and all of these potentially unwarranted claims are having an affect on how Americans view the legal system.
According to a survey conducted by Harris Interactive, 76 percent of those surveyed feel that fear of frivolous lawsuits discourages people from performing normal activities.
Further:
- Only 16 percent trust the legal system to defend them against frivolous lawsuits.
- 54 percent do not trust the legal system.
- 67 percent strongly agree (and 27 percent somewhat agree) that there is an increasing tendency for people to threaten legal action when something goes wrong.
- 83 percent feel that the legal system makes it too easy to make invalid claims.
- 56 percent think that there are fundamental changes needed to make the civil justice system work better.
Perhaps most telling of all, most Americans surveyed (55 percent) strongly agreed (and another 32 percent somewhat agreed) that the justice system is used by many as a lottery, to start a lawsuit and see just how much they can win.
(Reprinted with Permission from the SixWise.com Security & Wellness e-Newsletter www.sixwise.com)
The U.S. legal system ensures that every American who feels they have been injured or victimized is able to seek justice through the court system -- clearly a noble and necessary protection. However, in recent decades the United States has earned the nickname as the most "litigious society" out there, in part due to major increases in lawsuits involving everything from hot spilled coffee to neighbors' disputes.
The United States has more lawyers per capita than any other country.
In fact, Americans spend more on civil litigation than any other industrialized country, according to a study in the Economic Journal, and twice as much on litigation as on new automobiles.
Why the disparity? Part of the reason, according to the Economic Journal study, has to do with incentives to sue, of which Americans have plenty. While in most European legal systems the loser in a suit must pay a large portion of the winner's legal fees, in America each party pays their own. So, simply speaking, in America there's nothing to lose.
More Lawyers Per Capita Than Any Other Country
As of 2006, there are over 1 million lawyers in the United States, according to the American Bar Association -- more per capita than any other country.
As the number of lawyers has increased, so has the number of civil claims, up 12 percent from 1993 to 2002.
In all, over 16 million civil cases were filed in state courts in 2002, according to the State Court Guide to Statistical Reporting,2003, from the National Center for State Courts. Trial lawyers earned an estimated $40 billion in lawsuit awards that same year.
What Are All These Lawsuits For?
Demand for legal services is increasing across the board, but particularly in such areas as health care, intellectual property, venture capital, energy, elder, antitrust, and environmental law.
The largest jump in lawsuits has been seen in the health care industry, where doctors have been paying significantly higher liability premiums to defend against potential litigation. While some say the increase in health care lawsuits may provide a safer environment for patients, opponents believe they are keeping patients from receiving the best care.
Some interesting facts:
- Over 16 million civil cases were filed in state courts in 2002.
- 79 percent of doctors report that they've ordered more tests than they would based only on professional judgment due to litigation fears, according to a Harris Interactive Poll.
- The American Medical Association lists 21 states as being in a "medical liability crisis."
- 71,000 drug lawsuits have been filed in federal courts since 2001 -- and have outnumbered asbestos, tobacco and auto safety lawsuits since 2002.
- 45 percent of U.S. hospitals reported that the liability crisis has caused a loss of physicians and/or reduced coverage in emergency departments.
How do Americans Feel About the Legal System?
News about frivolous and controversial lawsuits makes headlines just about everyday. But when a 14-year-old sues her friend for losing her iPod, the music industry sues a 12-year-old for downloading music from the Internet, and lawyers are eyeing fast food companies and snack food makers as targets in potential class-action lawsuits of the future, litigation, it seems, gets taken to a new level.
Frivolous lawsuits alone are said to cost the United States $200 billion a year, according to Congressman Terry Everett, and all of these potentially unwarranted claims are having an affect on how Americans view the legal system.
According to a survey conducted by Harris Interactive, 76 percent of those surveyed feel that fear of frivolous lawsuits discourages people from performing normal activities.
Further:
- Only 16 percent trust the legal system to defend them against frivolous lawsuits.
- 54 percent do not trust the legal system.
- 67 percent strongly agree (and 27 percent somewhat agree) that there is an increasing tendency for people to threaten legal action when something goes wrong.
- 83 percent feel that the legal system makes it too easy to make invalid claims.
- 56 percent think that there are fundamental changes needed to make the civil justice system work better.
Perhaps most telling of all, most Americans surveyed (55 percent) strongly agreed (and another 32 percent somewhat agreed) that the justice system is used by many as a lottery, to start a lawsuit and see just how much they can win.
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