On October 18th, the IRS issued proposed regulations (Reg-141901-05) that reverses their long standing position on the deferral of capital gains through the
Message 1 of 1
, Oct 31, 2006
On October 18th, the IRS issued proposed regulations
(Reg-141901-05) that reverses their long standing position on the
deferral of capital gains through the use of private
annuities. The proposed regulations are effective for transactions
after October18, 2006.
These regulations effectively eliminate
the use of private annuity trusts and all kinds of foreign private
annuity deals. The effect of the regulation is to treat the
transfer of appreciated property in exchange for an annuity as a sale
that is taxable at the time of the transaction. Arrangements
involving private annuities that were completed before October 18, 2006
will not be affected by these new regulations. In addition,
according to the proposed regulations;
the effective date is delayed for six months for transactions in which
(1) the issuer of the annuity contract is an individual; (ii) the
obligations under the annuity contract are not secured, either directly
or indirectly; and (iii) the property transferred in the exchange is
not subsequently sold or otherwise disposed of by the transferee during
the two-year period beginning on the date of the exchange."
regulations do not affect the tax treatment of other methods of
deferring capital gains taxes such as installment sales, charitable
gift annuities and charitable remainder trusts. It appears that
the use of self-cancelling installment note will continue to be
Customers of Offshore Press who have purchased a copy
of our (1) report on Offshore Variable Annuities, (2) our book on
Offshore Tax Strategies, (3) our guide to Legal Ways to Save Taxes, (4)
our book on Risk Management for Investors, or (5) a subscription
to our online Wealth Preservation Library should note that any
references therein to the use of private annuity transactions is now
affected by these revised regulations for transactions begun after Oct.
We will update and revise these reports and any
others in which we have written about the tax treatment of private
annuities, but until then, customers should be aware that the rules
have changed and that any kind of private annuity arrangement
should be avoided or should only be utilized with the advise of a
qualified tax professional.
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