Offshore Scams

Offshore Reciprocal
"Gift" Program

From: JStrawder@aol.com
Date: Wed, 23 Oct 1996 01:24:16 -0400

Hi Vern.

My name is John Strawder and I am a recent graduate from the
University of Florida in Journalism and Business. I am in the
process of obtaining several licenses with respect to financial
planning. I have offers from several companies including VTR
Capital and Northwestern Mutual Life.

However, I have begun working with a non-profit organization
based out of the Cayman Islands. The name of the organization
is Greater Trust Ministries International. They began operating
over twenty years ago in Tampa, FL and have recently reorganized
and reestablished themselves in the Caymans. They were having
trouble with fund raising and decided to offer a "gift" program
to patrons. The "gift" program works like this:

Patron gives financial gift to Greater Trust and is paid back,
in the form of a gift, double the original gift.

Example: Patron gifts in $5000 and is given back, in the form
of a gift, $10,000 in 16 payments (each payment period one month
a part).

Greater Trust and gifting patrons have been able to avoid all taxes,
supposedly, so far. My questions to you, if you know:

1. Is the gift back to the patron tax free or exempt from both
income tax and capital gains tax?

2. If the money is made off-shore, which it is, does that qualify
the gift back to the patron as tax exempt?

3. If the answer to both of the previous questions is no, is there
a way to protect the gift back to the patron from IRS and taxation
(such as off-shore trusts of any kind)?

I am going to be setting up Irrevocable Constitutional Trusts in
the Cayman Islands that are ruled by English Common Law (as
pertaining to trusts) domiciled in Washington D.C. The way I
understand this scenario it would be protected from IRS, taxation,
liability, and litigation. I probably should also tell you that
Greater Trust Ministries uses the Bank of Nauru, from the Island of
Nauru, for all of its banking needs.

The trust has had investment returns well above 100% annually, as I
understand is not uncommon for international investors, and has $1
in gold for every $1 gifted to them. They are none-the-less in the
process of assisting about 17,000 gifting patrons financially
independent rather quickly. This is where the Irrevocable
Constitutional Trusts come into play, we are attempting to help
these patrons protect their assets from the IRS and any possible
lawsuit, primarily. Does this sound like we are on the right track?

Also, we are going to be transferring all of their other assets,
besides the gifts back, such as their homes and any other assets
that could not bring upon possible lawsuits to the trust, such as
automobiles. We are quick claim deeding any property into their
Irrevocable Constitutional Trust and setting up a local bank account
in the name of the trust, as well as a post office box also in the
name of the trust. The original owner of the property and assets
becomes managing agent.

I hope you enjoy reading over this information regarding what we are
attempting to do for others. Please respond to as many questions as
time and energy permit. If you could place me on the Emailing List
it would be greatly appreciated.

Yours to count on,
JStrawder@aol.com

[Response by Vern Jacobs, Tax Editor of The Offshore Journal:]

John:

I hardly know where to begin in attempting to respond to your
questions and comments. My first reaction is that this sounds like
a fairly common Ponzi scheme where people are paid back with the
money that is collected from others who pay in later. (Sort of like
the U.S. social security system.) A second observation is that the
IRS and the U.S. courts are virtually certain to treat any money
received from the GTM as income to the extent that any "gifts"
received are greater than the "gift" that was made to GTM.

In addition, the phrase "reciprocal gifts' is something of an
oxymoron - an internal contradiction. The essence of a gift
is that it is not conditional on getting any thing in exchange.
People make gifts to relatives, loved ones and charities, without
any expectation of being repaid - let alone of getting a profit.

With respect to your specific questions:

1. Is the gift back to the patron tax free or exempt from both
income tax and capital gains tax?

I don't believe it would be if it were looked at by the IRS
and I believe the U.S. courts would support the IRS on this.

2. If the money is made off-shore, which it is, does that qualify
the gift back to the patron as tax exempt?

Not under the U.S. tax system where U.S. citizens and long term
resident aliens are taxed on their world wide income.

3. If the answer to both of the previous questions is no, is there
a way to protect the gift back to the patron from IRS and taxation
(such as off-shore trusts of any kind)?

   If the "patron" wants to make an irrevocable gift to the Greater
   Trust Ministeries, there are no laws to prohibit that, as far as
   I'm aware. The implication of what you have described is that this
   arrangement is not really a gift, but an investment in expectation
   of receiving a profit. Frankly, I think the question should be
   whether there is a way to protect the "patrons" funds so that the
   funds are sure to be returned. And it seems that the answer to that
   one is probably "No".

You also suggested that you were going to help your clients to set
up "Irrevocable Constitutional Trusts in the Cayman Islands that are
domiciled in Washington D.C." and that you thought the income of these
trusts would be exempt from U.S. taxes and creditors. The U.S. tax laws
make it pretty clear that the U.S. grantor/settlor who provides the
funds for a foreign trust will be subject to tax on the income earned by
those funds - even though that income is earned offshore and is not
distributed to the U.S. grantor. And ... if a foreign trust is domiciled
in the U.S. then I don't think it will be treated as a foreign trust
under the U.S. tax laws. It would be a domestic trust, with presumably,
U.S. residents or citizens as beneficiaries. If it were an irrevocable
domestic trust, then either the trust would pay taxes on its undistributed
income (at the highest bracket except for a small amount) or the trust
beneficiaries would pay taxes on the amounts distributed to them.

These are just my personal opinions and I would welcome comments from
other tax professionals who are on this list.

Vern Jacobs
This response to your question is not a professional tax
opinion and should not be construed as personal tax advice.

[Reprinted from The Offshore Journal - Nov., 1996]

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