Bad news for US beneficiaries of foreign trusts
Last month the American version of HM Revenue and Customs, the IRS published a radical “technical advice memorandum” (TAM) which set out its view that US beneficiaries of offshore (i.e. non US) trust / holding company are taxable on a corporate reorganisation within the structure under the Passive Foreign Investment Company (PFIC) rules.
The PFIC rules are part of the US tax code's anti-deferral regime, consisting of a set of rules designed to prevent US shareholders from avoiding US income tax on income earned by certain foreign corporations
This TAM “guidance” is a departure from that issued by the IRS in recent years and could have a significant effect on US beneficiaries of trusts. Although the guidance is non binding it clearly sets out the view of the IRS should they decide to litigate a particular case.
This will be of interest to trustees, family offices, investment advisers and tax advisers to international families with US beneficiaries.
