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               A strategy that has been used for many, many
          years, has been the use of dividend or profit
          distribution from "pass-through" entities in order to
          decrease social security costs.  
               An example of this would be as follows:  You have
          a current business that pays fees to a limited
          liability company or some other pass-through entity
          (such as a partnership or S corporation) in return for
          services which are provided by that pass-through
          entity.  
               An example of the services would very obviously be
          the services of management by an owner of this company. 
          For many years in a properly constructed asset
          protection plan we have seen the separation of valuable
          assets from the corporate entity.  This is because many
          people over the years have accumulated large numbers of
          assets in their corporations not realizing that they
          were in fact creating a target for a lawsuit.  
               It is not uncommon at all for the young
          entrepreneur to start his corporation to shield his
          personal assets and yet as the business grows he buys
          real estate, he accumulates accounts receivable (this
          is a very common occurrence in medical practices where
          the largest single asset of the practice is these
          accounts receivable), as well as patents, licenses, and
          other valuable assets.  
               By adding a limited liability company, it can pay
          income to a family limited partnership created through
          the estate planning of the principals.  As money
          travels from the corporation, fees are paid to the
          limited liability company, where the consultant takes a
          salary of some dollar amount, the rest of the fees
          being treated as a dividend or as a distribution of
          profits.  When this occurs, there is a difference
          between the income received that is subject to FICA and
          the total distribution of profits.  In other words, to
          use a rough example, if two-thirds of the distribution
          of profits is made not subject to FICA, there will be a
          decrease in the payments for social security.  
               Let us always be aware that by invoking this
          strategy will now most assuredly result in a lowering
          of the social security benefit.  Only for those persons
          who are philosophically attuned to the fact that this
          will occur and ultimately will take responsibility for
          this action, save that money, invest it prudently, and
          allow this to serve as their barrier to poverty at
          retirement age.  This is not a program designed to
          produce money for the vacation to Cancun, this is not
          money that is designed for a new automobile, this is
          sacred retirement money and should be treated as such. 
          One of the main elements of this whole plan is clearly
          the element of self reliance and of social
          responsibility.  We don't want a population dependent
          on the government as we have now.  Any citizen who can
          take personal responsibility for their own financial
          well being should be encouraged to do so.  
               Now, many questions come up as to what to do with
          the excess.  Certainly investments accounts would be a
          logical place for this money to rest.  If we are
          looking for a tax deferred environment, then it is
          quite obvious that typical tax deferred/asset
          protection vehicles like insurance and annuities would
          be a perfect example.  With the new products available,
          including variable life and variable annuities which
          allow for the investment into tax deferred vehicles of
          money, historically going into mutual funds, one can
          either provide a financial safeguard to a family using
          life insurance, or one can use an annuity.  
               In certain cases there is an advantage ultimately
          in the investment realm to using the life insurance
          because of the peculiar tax treatment of the life
          insurance vehicle.  What this specifically is, is what
          is called washed loan accounting.  When a person makes
          an investment into a life insurance policy and gains
          are created, the tax deferred nature builds these up at
          retirement, when a person starts to draw down from the
          insurance policy.  
               In these cases, people draw a long and expansive
          income stream because of the tax treatment of the
          withdrawal.  The first monies withdrawn from the policy
          are considered to be a withdrawal basis therefore non-
          taxable.  The rest of the capital gains is taken out of
          the policy under a washed loan program, which means
          that your account is credited the same or similar
          interest rate as the loan applied to the withdrawal, so
          you have a "wash loan".  The value in this is that
          because it is a loan, it is not treated as a taxable
          event.  There is no reason to believe that in the
          future that this will exist for a long period of time. 
          Taxpayers should get information on these programs as
          soon as possible.  As has happened in many, many
          changes in the tax law, they tend not to be
          retroactive, but they tend to be grandfathered, so the
          purchase of such a contract today in many ways can be
          quite advantageous.  
               This FICA reduction program is not one that can be
          done in a cookie cutter fashion.  Each individual case
          requires separate and distinct analysis from two
          perspectives.  One, there can not be an unreasonable
          alteration of the tax positioning.  Secondly, there
          must be other reasons for this to take place than
          simply to effect a tax result.  There are numerous
          cases on both of these situations that give the
          taxpayer guidance, however, it is imperative in this
          exercise that knowledgeable and experienced legal
          counsel be at least consulted in constructing this or
          what we don't want to happen will and that will be the
          Internal Revenue Service will disallow this program and
          one will have to make back payments to social security. 
          Very few financial planners are even aware of the
          possibilities for FICA reduction.  For more
          information, and referal to people in your area who can
          help, write to FICA Reduction Program, P. O. Box 540,
          Upper Marlboro MD 20772. 
          
          
          
          
