”Guam Trust Strategies”
IRS Notice 2000-61

 

According to public court filings on October 10, 2003, the IRS believes that the accounting firm, Grant Thornton LLP, was promoting to potential clients an arrangement designed to reduce the income taxes of shareholders in S corporations. Under this arrangement, called the “Guam Trust Strategy,” the shareholders of a pre-existing or newly-formed subchapter S corporation would transfer their stock to a newly-formed trust that would purportedly qualify as both a domestic trust under US law and a Guam-resident trust for purposes of Guamanian law. This strategy purports to rely on Section 935 of Title 26 of the United States Code (the Internal Revenue Code), by which these trusts are said to be able to pay income taxes to Guam, instead of to the United States, on their income derived from the U.S.-based S corporation. After that, under certain circumstances, a Guamanian rebate law then enables the trust to recover all of the taxes it had paid to Guam. According to the United States Government, this effectively allowed the shareholders to avoid all U.S. federal-level taxes on the corporation’s income. According to public filings, Grant Thornton wrote to the IRS on January 26, 2001, and indicated that it ceased selling this strategy after the IRS issued Notice 2000-61.

If you believe that you may have engaged in a transaction that is the same or substantially similar to the transaction described above, Federal law may require you to disclose your and other parties’ participation in any such “listed transaction” on IRS Form 8886. For more information about Federal law requirements, please contact us.