The New York Times revealed at the weekend that the US Treasury has shut down a tax loophole used by many of the country's wealthiest citizens to reduce taxes on gifts to their heirs.
According to the NY Times, the technique in questioned allowed wealthy Americans to sidestep gift taxes: 'in a two-step process that was designed to put wealth into a trust for children or grandchildren and then...wrap the wealth inside an insurance policy so that when the insured person died the money would pass without gift, estate, or income taxes.'
Speaking following the publication of the new regulations, Pamela F. Olson, acting head of tax policy revealed that from now on, 'any scheme to understate the value of benefits for income and gift tax purposes won't be respected' in the event of an audit taking place into taxpayers' affairs.
The New York Times report went on to predict years of audits and litigation for US citizens who bought the policies, and for their tax advisors. However, it is thought unlikely that the insurance companies which sold the policies will be dragged into the fray.
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