¶ 2901
Overview
Scope. This chapter examines how the federal tax law of the United States treats Nevis international trusts, Nevis limited liability companies and Nevis multiform foundations that have an American settlor, member, founder or beneficiary. It covers the classification of each vehicle, the income tax rules that determine who is taxed on its income, the information returns that its American participants and fiduciaries must file, the penalties for failing to file them, and the gift, estate and expatriation taxes that a Nevis structure can attract. The chapter explains the law. It does not prescribe how a return is to be prepared, and the forms and their instructions change from year to year.
Why the chapter matters to Nevis planning. Nevis law does not tax a Nevis international trust, and since the reforms described in chapter 26 the Federation taxes companies on residence and source (see supra ch. 26). For an American client, the absence of Nevis tax changes nothing in the United States. The client is taxed on worldwide income, and the federal rules for foreign trusts, foreign entities and foreign accounts apply in full. Those rules are designed around the assumption that foreign structures are used to defer or conceal income. Their information returns carry penalties measured in percentages of the assets or amounts involved, they are assessed without a notice of deficiency, and foreign secrecy law is no excuse for failing to file. A structure that is sound under Nevis law can generate penalties larger than any judgment it was designed to resist.
The three questions. Every Nevis vehicle with an American connection raises three questions, and the answer to each depends on the one before it. The first is classification: is the vehicle a trust, and if so a domestic or a foreign trust; or is it a business entity, and if so a corporation, a partnership or a disregarded entity? The second is income tax: who is treated as owning the income, the settlor, the beneficiaries or the vehicle itself? The third is reporting: which information returns must be filed, by whom and when? Paragraphs 2910 to 2930 address trusts, ¶ 2950 limited liability companies and ¶ 2960 foundations. Paragraphs 2940 and 2970 set out the principal reporting regimes. Paragraph 2980 turns to the transfer taxes and expatriation, and ¶ 2990 to penalties, the limitations period and remediation.
The typical structures. Three Nevis structures recur in American practice. The first is a self-settled international trust for an American settlor, often holding its assets through a Nevis LLC that the trustee manages (see supra ¶ 1760). The second is a trust settled by a foreign parent for a family that includes American children or grandchildren. The third is a multiform foundation used in place of a trust, either by an American founder or by a foreign founder whose beneficiaries include Americans. Each produces a different combination of income tax and reporting results, and the chapter returns to them in Examples throughout.
Sources and currency. The statutory text is taken from the Internal Revenue Code, title 26 of the United States Code, cited as "I.R.C.", and from the Bank Secrecy Act in title 31. Regulations are cited to the Code of Federal Regulations. Form instructions are cited by their revision date; the December 2025 revisions of the instructions for Forms 3520 and 3520-A were current when the chapter was written. The fuller treatment of the reporting regime, from which this chapter draws, is in Lighthouse on Asset Protection, chapters 42, 43 and 50, and the classification of limited liability companies is examined in Lighthouse on Limited Liability Companies, chapter 39. No United States ruling or decision addressing a Nevis trust, LLC or foundation as such was located. The rules discussed apply to Nevis vehicles in the same way they apply to vehicles formed in any other foreign jurisdiction.
Persons who are "United States persons." The Code defines a United States person to include a citizen or resident of the United States, a domestic partnership, a domestic corporation, any estate other than a foreign estate, and a domestic trust. I.R.C. § 7701(a)(30). A green-card holder is a resident for income tax purposes, and so is an individual who meets the substantial presence test, even if the individual's home is elsewhere. Many of the rules in this chapter turn on whether a settlor, beneficiary, protector or trustee is a United States person, and the answer can change from year to year as people move. A Nevis structure for a mobile family should be reviewed whenever a participant becomes or ceases to be a United States person.