Gift taxes

The second horrible tax trap is this: Every time bearer shares are handed over to and from a U.S. person -- except for a bona fide sale for value -- gift taxes must be paid! And, of course, if there is a sale then capital gains taxes must be paid.

For example, let's say you have $10 million in the Bahamas IBC as set forth above. You think you are about to get divorced, so you give the shares to your brother to hold for awhile. In the divorce proceedings, you answer "no" when asked if you own any foreign stock interests. After the divorce proceedings are over, your brother gives the shares back to you. Easy enough, eh?

Not quite. From a federal gift tax standpoint, in approximate numbers here's what happened:First, when you gave the bearer shares to your brother, you triggered a 55% gift tax, meaning that you now owe $5.5 million to Uncle Sam.

Second, when your brother gave the bearer shares back, he triggered a 55% gift tax (again on the $10 million value), meaning that he now owes $5.5 million to Uncle Sam.

Thus, your simple little transfer to your brother and back triggered a total of $11 million in federal gift tax liability to you and your brother -- meaning that you and your brother are now $1 million in the hole! Needless to say, you would have done much better to split the $10 million with your ex-spouse in the divorce proceedings.

And if you don't report and pay the taxes generated by handing these shares back-and-forth it is big-time tax evasion. So, if you hear someone talk about bearer shares, ask them whether giving the shares to someone triggers federal gift taxes. If they say either "no" or that they don't know, then they have sufficiently displayed their ignorance in this area such that you should be quickly running away from them.

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