The idea that an Irrevocable Common Law Trust is not subject to taxation is supported by examples from the USA, but it is believed to apply worldwide due to the universal nature of natural law. The trust operates based on common law principles and is influenced by the Uniform Commercial Code (UCC), which has global reach. Many individuals around the world, potentially numbering in the hundreds of thousands or even millions, have discreetly used this type of trust to avoid filing tax returns, paying income tax, facing vulnerability or intrusion into the trust, experiencing asset loss, or encountering legal issues. Tax agencies view the trust as a pass-through entity, with the tax liability falling on the individuals or entities connected to the trust. However, whether these individuals or entities are actually liable for income tax varies on a case-by-case basis. It’s important to note that this book does not cover the taxability of entities other than the trust and does not provide tax advice. If tax advice is needed, it is recommended to consult a competent tax professional. The main point emphasized here is that the trust itself is considered a nontaxable entity.
A Yale University article on Commerce and Trusts supports the idea that most trusts are treated as pass-through entities, highlighting the appeal of trusts as a commercial form. The article explains that trusts offer a flexible contractual framework, fiduciary duties, and internal governance similar to corporations but with a superior insolvency regime and the advantage of passthrough taxation.
This particular type of trust, known as a pure natural law sovereign irrevocable trust, not only avoids the obligation to pay income tax but also eliminates the need to file tax returns. This is significant because it falls outside the scope of statutory categories that require filing. In response to inquiries, letters from the U.S. Internal Revenue Service (IRS) have stated that a Pure Trust Organization (an Unincorporated Business Trust) is considered a nontaxable organization without any filing obligations, according to the National Office of the IRS.
A well-designed Irrevocable Common Law Trust, unlike certain statutory entities that enjoy tax exemption, has no tax liability or filing requirements. While a statutory non-profit corporation may be exempt from paying taxes, it still needs to file reports annually. Tax authorities can revoke its exemption. In contrast, a well-designed Irrevocable Common Law Trust has no filing obligations.
Tax agencies in English-speaking countries have long recognized Natural Law Trusts as exceptions to filing requirements for the reasons mentioned earlier. These trusts are not classified as “exempt” because that is a statutory term. They are considered exceptions in the sense that statutory filing requirements do not apply to them.
When applying for a tax identification number (EIN) for a Natural Law Trust, the IRS provides an online letter stating that “form 1041 must be filed.” However, this instruction does not apply to a Natural Law Trust because it falls outside the realm of statutory trusts. The IRS does not inquire about the trust type when issuing the EIN. The only information indicated on the IRS online form regarding the trust is “irrevocable,” which can apply to both statutory and non-statutory trusts. The IRS focuses solely on statutory trusts and does not comment on non-statutory trusts. Therefore, the trust officer applying for the EIN (or tax ID in any country) must be aware of these facts without explicitly mentioning them. The following sayings apply: “Don’t ask, don’t tell.” and “The only rights you have are the rights you know you have.”
The universal right of individuals to enter into private contracts with each other without interference from external authorities is widely supported. This principle is exemplified by the U.S. Supreme Court case Hale vs. Henkle (1905), which states that people have an unrestricted right to enter into contracts without government interference as long as they do not harm others. A Natural Law Trust represents such a contract, and this principle extends globally. No government in any country has the authority to infringe upon the universal divine right of human beings to create private contracts and operate accordingly. It’s important to note that these principles are not limited to the USA but are universal, with similar laws and rulings existing in all countries. The United States Supreme Court, in Flora v. United States, has stated that the tax system is based on voluntary assessment and payment, not on forcible collection.
According to Article I, Section 10.1 of the United States Constitution, no state can pass any law that impairs the obligation of contracts. In the case of Burnett v. Smith (1922), the U.S. Supreme Court stated that a Pure Trust, established by contract, operates under contract rights. Therefore, any law or procedure that denies or obstructs these contract rights would violate the United States Constitution.
It’s crucial to understand that engaging in this context is about legal tax avoidance, not tax evasion. As Judge Learned Hand once explained, individuals have the choice to cross a river via a toll-free road orto use a toll bridge. The toll-free road represents legal tax avoidance, while the toll bridge represents illegal tax evasion. Legal tax avoidance involves using legal means to minimize tax liability, such as taking advantage of deductions, exemptions, or structuring one’s affairs in a tax-efficient manner. Tax evasion, on the other hand, involves intentionally evading or falsifying information to illegally reduce or avoid taxes.
It’s important to note that the laws and regulations surrounding taxation can be complex and vary across jurisdictions. The information provided here is based on general principles and should not be considered as legal or tax advice. If you have specific questions or concerns about your tax obligations, it’s always best to consult with a qualified tax professional or attorney who can provide guidance based on your individual circumstances and the laws of your country.
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