From: Black Unicorn <unicorn@schloss.li>
Date: Sun, 12 May 1996 03:54:49 +0800
To: Cypherpunks <cypherpunks@toad.com>
Subject: Re: Why I Pay Too Much in Taxes
In-Reply-To: <199605111005.DAA28141@infinity.c2.org>
Message-ID: <Pine.SUN.3.93.960511103237.21817F-100000@polaris.mindport.net>
MIME-Version: 1.0
Content-Type: text/plain



-----BEGIN PGP SIGNED MESSAGE-----

On Sat, 11 May 1996, Anonymous User wrote:

> Black Unicorn wrote:
> >In this case the people paying the offshore company for Mr. May's services
> >are also subject to reporting requirements and a 30% withholding tax for
> >which they will be held liable.
> 
> Nobody pays offshore for Mr. May.

Except see footnote 1.

> They pay a domestic corporation for his
> services. The corporation pays Mr. May a sufficient taxable salary for his
> domestic expenses.

Footnote 1:

> Anything above that (i.e. money that Mr. May don't need
> right now) is paid to the offshore entity as (for instance) deductible license
> fees.

Looks like someone paying offshore for Mr. May to me.  Again, 30%
withholding requirement unless you intend to hide it.  The only way to
avoid this is to conceal Mr. May's involvement.

I really suggest you read some U.S. tax code provisions.

> The payment should probably go to a jurisdiction with a double taxation
> agreement with the US, like Holland or Ireland. In Ireland it's easy to setup
> a tax free corporation that sends all it's income to an offshore trust, where
> the money stays until Mr. May needs them.

Such a jurisdiction will have extensive information sharing provisions
with the United States.  If you're planning on secrecy, avoid 
jurisdictions with tax treaties.

Also note that payments to an account for which Mr. May is the beneficiary
can trigger realization in several circumstances.

In this case the offshore entity can easily be classified as a Foreign
Personal Holding Company.  The resulting assets will be taxed per Subpart
F income.  (i.e. without regard to their distribution).  If the offshore
entity is held by U.S. stockholders it is going to cause major problems.
If not it still has major problems.
 
What you fail to mention is that in the event Mr. May actually holds the
assets until his retirement, he will still have to deal with realization
and full taxation when he taps into the funds.  You also fail to mention
the reporting requirements for U.S. citizens holding offshore assets of
significant size.

Because this plan can't seem to decide if it is secret or not, it has
serious shortcomings.

> >This adds the requirement that the individuals or corporations receiving
> >Mr. May's service be involved in this conspiracy.  If they could have
> >been, why do you need the offshore connection?  Why not just conspire with
> >them to pay Mr. May in cash and not report it?
> 
> They just deal with the vice president of a typical domestic consulting
> corporation. That the CEO of the company is an alcoholic living on a park
> bench (for the ultra cheep setup) is nobody's business. He's on permanent
> vacation for all they care.

The example given looked to take advantage of large numbers of fictitious
employees all participating in the endeavor.  This is foolish.

Even in your example above, secrecy is poorly thought out.  Either it is a
tax avoidance plan, or it is a tax evasion plan.  Which is it?

Practically speaking I think you have merely altered the plan to adjust
for my comments and are stuck between both fact scenerios now.

> >If your above scheme is intended merely to conceal funds it is a fairly
> >poor example as it depends on the secrecy of each and every 'employee' of
> >the company.
> 
> Only one individual and he's too drunk to remember anything.

See above.  See also foreign personal holding company and passive income
provisions.

Wherever Mr. May sends his money it is still subject to taxation in the
United States if Mr. May is a citizen.  Structuring the payments to an
offshore entity in an attempt to avoid taxation on those payments is an
attempt to get the IRS to honor form over substance.  Good luck.

> >Continue your participation in such a plan.  I will send you cigs.
> 
> Thanks, but I can afford Cuban cigars. I'm selling setup's like the above for
> a very nice fee.

Caveat emptor.  (What's the name of your firm by the way?  Or do you
prefer to keep it concealed?  I would think you'd advertize it here if
you had anything worth selling).

Your ilk, (other examples of which can be found in the back of The
Economist, and Soldier of Fortune), are a small step above "get rich
quick" types.  Off the shelf companies and trusts have their uses but
anyone proposing to sell a standard tax avoidance/evasion setup off the
shelf should trigger major alarm bells.

Cuban's will serve you better in a federal country club than cigs, this I
admit.

> And this is the kiddie version of serious tax planning. After
> all, Mr.May would still pay taxes on his domestic spending.

I think calling this any kind of version of serious tax planning is
inaccurate.

> X

-----BEGIN PGP SIGNATURE-----
Version: 2.6.2
Comment: Autodocument signed

iQCVAwUBMZSsC2qgui0rHO4JAQEzTAP+NAB9nNODHqI/mcEepuEFK1352dw1veKR
FVWpF7LPUXWxAbgrx/i7NV8F1t3N+AKYOm1f6SGRaF9a15kBDB66uPLBPU62tyLN
go8QWrmJIk/fi1l2lfQUdXMklg1mEAgnjFkybRVsG4AQn3VsSvdhMCJ+myepeUoT
Ag1u3Cdm8oA=
=EwSG
-----END PGP SIGNATURE-----

---
My preferred and soon to be permanent e-mail address:unicorn@schloss.li
"In fact, had Bancroft not existed,       potestas scientiae in usu est
Franklin might have had to invent him."    in nihilum nil posse reverti
00B9289C28DC0E55  E16D5378B81E1C96 - Finger for Current Key Information
Opp. Counsel: For all your expert testimony needs: jimbell@pacifier.com