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Case: IRS Cannot Pick What Penalty to Assess on Foreign Trust Grantor, Sole Beneficiary (E.D.N.Y.) (IRC §6048)

Nov. 19, 2019, 2:30 PM

IRS can only assess 5% penalty under tax code Section 6677(b) for a violation of Section 6048(b)(1) even though foreign trust grantor is also trust’s only beneficiary, a district court held. Grantor set up an overseas trust to hold assets so his then-wife, who was filing for divorce, couldn’t get to them. The trust was funded with about $9 million in U.S. Treasury bills. The principal had already been taxed in the United States. Grantor filed returns reporting the trust assets and its interest that accrued, but when the divorce was finalized in 2007, Grantor terminated the trust...

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