Investing in Manhattan Real Estate: Key Legal Strategies for International Buyers

If you are an international investor considering purchasing real estate in New York, understanding both market timing and legal structuring is critical.

In this video, Max Dilendorf — a New York-based attorney with more than 15 years of experience — shares key insights into acquiring Manhattan real estate, with a focus on investors from Saudi Arabia and other non-U.S. jurisdictions.

Manhattan Real Estate Market Opportunity

As discussed in the video, the Manhattan luxury real estate market is currently experiencing a significant correction.

Prime properties in prestigious neighborhoods such as Central Park South, Hudson Yards, and Tribeca are trading at price levels not seen in over a decade.

For well-capitalized buyers, this presents a rare opportunity to acquire high-value assets at discounted prices in one of the most resilient real estate markets globally.

Structuring Investments to Minimize Tax Exposure

One of the most important considerations for international buyers is U.S. tax exposure.

Investors from countries without a U.S. tax treaty, including Saudi Arabia, may face substantial estate and gift tax liabilities if real estate is not properly structured.

Without planning, tax exposure can reach up to 40%, with only a limited exemption available to non-U.S. individuals.

Max Dilendorf advises clients on advanced legal structures designed to mitigate these risks. These may include offshore trusts, foreign entities, and multi-layered ownership strategies that enhance tax efficiency, preserve privacy, and support long-term wealth planning.

Many international clients acquire New York real estate through trusts formed in jurisdictions such as Delaware, Wyoming, South Dakota, or Nevada.

These trusts often hold Wyoming or Nevada LLCs, which in turn own the real estate asset. This structure is widely used for asset protection and portfolio expansion across multiple U.S. markets.

FIRPTA and Cross-Border Compliance

The video also highlights the importance of complying with the Foreign Investment in Real Property Tax Act (FIRPTA).

Proper planning can help reduce withholding obligations and streamline transactions for non-U.S. investors buying or selling real estate in the United States.

Advanced Strategies: Portfolio Interest Exemption

For certain international investors, structuring real estate investments using the portfolio interest (portfolio debt) exemption can significantly reduce U.S. tax liability.

This is a sophisticated strategy that requires careful legal planning and implementation.

Crypto, Tokenization, and the Future of Real Estate

In addition to traditional real estate structuring, Max Dilendorf is one of the early adopters of cryptocurrency and digital asset law in the United States, having begun practicing in this field as early as 2017.

This experience allows him to advise clients at the intersection of real estate and blockchain technology.

Developers, family offices, and high-net-worth individuals increasingly turn to Max for guidance on:

• Completing real estate transactions using cryptocurrency
• Structuring compliant digital asset payments
• Tokenizing U.S. and international real estate assets
• Navigating regulatory frameworks for blockchain-based ownership

White-Glove Legal Services for Global Investors

Max Dilendorf provides comprehensive, white-glove legal services to real estate buyers, sellers, developers, family offices, and high-net-worth individuals.

His firm assists clients with every stage of the transaction — from identifying distressed real estate opportunities and foreclosures to negotiating contracts and closing deals.

Importantly, the entire process can be handled remotely. International clients can securely invest in New York real estate without traveling to the United States.

Contact Information

Max Dilendorf, Attorney at Law
115 Broadway, 5th Floor
New York, NY 10006
Email: max@dilendorf.com

Attorney Advertising Disclaimer: Prior results do not guarantee a similar outcome. This content is provided for informational purposes only and does not constitute legal advice. Viewing this video or contacting our office does not create an attorney-client relationship. Please consult with a qualified attorney regarding your specific situation.

Domestic Asset Protection Trusts, or DAPTs, are often presented as a powerful way to protect wealth from future creditors. But U.S. courts do not treat them as automatic shields.

When these trusts are tested in litigation, courts usually look beyond the label and focus on the real issues: who funded the trust, who controls it, when it was created, what law applies, and whether the trust was used to keep assets away from creditors or a spouse.

The cases show a simple pattern. A DAPT can work in some situations. But it can also fail, especially if the trust was created too late, if the settlor kept too much control, or if the dispute ends up in a state that does not favor self-settled asset protection trusts.

Courts Still Begin With a Traditional Rule

Even before modern DAPT statutes, American courts were skeptical of trusts created by a person for his or her own benefit. That basic principle still matters today.

In Vanderbilt Credit Corp. v. Chase Manhattan Bank, 100 A.D.2d 544, 473 N.Y.S.2d 242 (2d Dep’t 1984), the New York court stated: “[a] disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator.” The court explained that this rule reflects the principle “that a property owner cannot utilize a spendthrift trust to insulate his assets from the reach of present or future creditors.”

Other courts have said the same thing in slightly different ways. In Menotte v. Brown (In re Brown), 303 F.3d 1261 (11th Cir. 2002), the Eleventh Circuit held that because the debtor was both the settlor and the beneficiary, “the spendthrift clause was ineffective as against her creditors.”

In In re Shurley, 171 B.R. 769 (Bankr. W.D. Tex. 1994), the bankruptcy court explained that “Either substantial control or self-settlement may operate to invalidate protective trust provisions,” and held that the debtor “exhibited sufficient dominion and control over the Trust assets to defeat the Trust’s protective character.”

That is the backdrop for every DAPT case. Courts do not forget the old rule just because a trust was formed in Nevada, Alaska, or Delaware.

A DAPT State’s Law Does Not Always Control

One of the most important DAPT decisions is In re Huber, 493 B.R. 798 (Bankr. W.D. Wash. 2013). The debtor was a Washington resident who created an Alaska asset protection trust. On paper, the trust pointed to Alaska law. But the bankruptcy court refused to follow that choice.

The court concluded that Alaska had only a minimal connection to the trust, whereas Washington had a substantial connection at the time the trust was created.

It further emphasized that Washington has a strong public policy against self-settled asset protection trusts. On that basis, the court chose to disregard the settlor’s selection of Alaska law and instead applied Washington law.

That part of Huber is especially important for nonresident settlors. A trust created in a favorable DAPT state does not automatically receive that state’s protection if the settlor lives elsewhere and the dispute is centered elsewhere. Courts may instead apply the law of the state with the strongest connection to the parties, assets, and creditors.

The facts in Huber also mattered. The court pointed to evidence that the trust was meant to “protect and shield” assets from creditors and concluded that the debtor still effectively enjoyed the assets after the transfers. That combination made the trust difficult to defend.

Courts Do Not Let DAPT States Block Other Courts From Hearing Creditor Disputes

Another Alaska case, Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018), addressed a different issue. Alaska’s statute tried to make Alaska courts the exclusive forum for fraudulent transfer claims involving Alaska self-settled spendthrift trusts. The Alaska Supreme Court rejected that effort.

The court explained that the statute “purports to grant Alaska courts exclusive jurisdiction over fraudulent transfer claims against Alaska self-settled spendthrift trusts,” but held that Alaska “could not unilaterally deprive the Montana and bankruptcy courts of jurisdiction.”

It also said that the Full Faith and Credit Clause “does not compel states to follow another state’s statute claiming exclusive jurisdiction.”

This matters because DAPT planning is sometimes sold as though the trust state can control where every dispute must be heard. Toni 1 shows the limits of that idea. If another state court or a bankruptcy court otherwise has jurisdiction, the DAPT state cannot simply close the door.

Bankruptcy Law Can Override State-Law Protection

Bankruptcy remains one of the biggest risks for DAPT structures. In Battley v. Mortensen (In re Mortensen), 2011 WL 5025288 (Bankr. D. Alaska 2011), the bankruptcy court made clear that even if a trust complied with Alaska law, “that would not protect it from avoidance if the trustee could establish all the elements of § 548(e).”

That is the key point. State DAPT statutes do not exist above federal bankruptcy law. If a bankruptcy trustee can show the required elements under the Bankruptcy Code, the transfer can still be attacked.

Huber and Mortensen together show why bankruptcy is such a serious test for asset protection planning.

Family Courts May Also Refuse to Honor Out-Of-State DAPTs

DAPTs are not just tested by business creditors. They also come under pressure in divorce cases.

In Dahl v. Dahl, 2015 UT 23, 345 P.3d 566 (Utah 2015), the Utah Supreme Court considered a trust that pointed to Nevada law. The court refused to follow that choice.

It wrote: “Because Utah has a strong public policy interest in the equitable division of marital assets, we will not enforce the choice-of-law provision contained in the Trust. Instead, we construe the Trust according to Utah law.”

It then held: “We hold that the Trust is revocable under Utah law and that Ms. Dahl has an interest in the Trust property as a settlor of the Trust.”

The court’s reasoning in Dahl is grounded in practical considerations. It explained that, under Utah law, there is a presumption that property acquired during a marriage is marital property subject to equitable distribution.

The court also warned that treating the trust as untouchable would allow “a spouse to shield marital property from equitable division in the event of divorce. And that is exactly what Dr. Dahl attempted to do in this case.”

So even if a trust is designed under the law of a DAPT state, that does not mean a divorce court in another state will honor it when doing so would undermine local family-law policy.

Some Courts Do Uphold DAPTs

The picture is not entirely negative. There are cases where courts have enforced DAPT statutes.

In Klabacka v. Nelson, 133 Nev. 164, 394 P.3d 940 (2017), the Nevada Supreme Court held that the trusts before it were “validly created self-settled spendthrift trusts.” It also held that, “[p]ursuant to NRS 166.090(1), trust assets could not be applied to support arrears.”

That makes Klabacka an important pro-DAPT case. It shows that a court in a DAPT-friendly state may enforce the trust when the statutory requirements are satisfied and the facts fit the statute.

Still, Klabacka should be read carefully. It reflects Nevada law and the specific facts of that case. It does not mean every self-settled trust will be enforced everywhere.

Delaware’s recent In the Matter of the CES 2007 Trust,  C.A. No. 2023-0925-SEM (Del. Ch. May 2025), decision points in the same direction. There, the court recommended dismissal of a creditor’s challenge and held that “[t]he Trust is an Asset Protection Trust.” It further concluded that the petitioner “has failed to plead a reasonably conceivable claim for avoidance of the protections afforded to the Trust, and its beneficiaries, as an ‘Asset Protection Trust.’”

At the same time, the Delaware court did not say that every trust labeled “asset protection” must be respected.

It acknowledged the rule that courts “will not give effect to a spendthrift trust that has no economic reality and whose only function is to enable the settlor to control and enjoy the trust property without limitations or restraints.” On the facts before it, however, the court found no sufficient basis to disregard the trust.

So yes, courts do sometimes uphold DAPTs. But those cases usually involve stronger facts, better administration, and a forum willing to apply the favorable trust statute.

Timing Also Matters

Sometimes the issue is not only whether the trust was valid, but whether a creditor acted soon enough to challenge it.

In TrustCo Bank v. Mathews, C.A. No. 8374-VCP, 2015 WL 295373 (Del. Ch. Jan. 22, 2015), the Delaware Chancery Court treated the fraudulent transfer claims as time-barred. That decision is useful because it shows that DAPT disputes can turn on timing and limitations rules, not just on the structure of the trust itself.

For planners, this cuts both ways. A transfer made in the face of a looming dispute can look suspicious. But an older transfer may become harder to unwind if the creditor waits too long.

What These Cases Really Show

When read together, the cases tell a practical story.

Courts are most skeptical when a trust looks reactive, heavily controlled by the settlor, or tied to a state that has little real connection to the dispute. Courts are more open to enforcing DAPTs when the trust was formed early, administered properly, and clearly meets the governing statute’s requirements.

In other words, courts do not ask only whether a trust is called a DAPT. They ask whether the structure has real legal substance.

Conclusion

U.S. courts do not treat DAPTs as bulletproof. They treat them as legal structures that must survive challenges based on public policy, fraudulent transfer law, bankruptcy law, family-law principles, and the actual facts of control and administration.

A properly structured DAPT may provide meaningful protection. But if the trust is created too late, if the settlor keeps too much control, or if the case is heard in a state that does not favor self-settled asset protection, the trust may not hold up.

At Dilendorf Law Firm, we represent both U.S. and non-U.S. clients in the formation of domestic and international trust structures. Our practice includes guiding clients on asset protection strategies as well as the tax planning considerations that accompany these structures across jurisdictions.

Contact Us

We assist U.S. and international clients with sophisticated cross-border estate, tax planning, and asset protection strategies. In addition to structuring trusts, we guide clients in protecting and optimizing traditional assets, including real estate, stocks, bonds, and diversified investment portfolios.

Our practice spans domestic asset protection trusts (DAPTs) in leading U.S. jurisdictions—such as Wyoming, Alaska, Nevada, and South Dakota—as well as offshore trust structures in key jurisdictions including the Cook Islands, Nevis, and the Cayman Islands.

In each jurisdiction, we have developed a network of experienced trustees, financial institutions, and vetted legal partners who help ensure that every structure is professionally administered and compliant with local regulatory standards.

To discuss how our experience and network can support your planning goals, contact us at info@dilendorf.com or by calling us at 212.457.9797 to discuss your needs.

Real Estate Tokenization (RWA) Explained: Legal Framework & Key Considerations

Real-world asset (RWA) tokenization—particularly in real estate—is one of the fastest-growing areas in the digital asset industry.

However, many sponsors, developers, and investors underestimate the legal, regulatory, and operational complexities involved in launching a compliant tokenization project.

Below is a video presentation by Max Dilendorf, a New York–based attorney who has been advising clients in the crypto and digital asset space since 2017, and one of the first lawyers in the United States to focus his practice on digital assets and cryptocurrencies.

▶️ Watch the Video

What This Video Covers

In this presentation, Max Dilendorf explains the core legal principles behind tokenizing real estate and other real-world assets, including:

• Why tokenization is not simply “putting an asset on the blockchain,” but rather issuing a security subject to U.S. laws
• Key regulatory frameworks, including Regulation D and Regulation A+ under the Securities Act of 1933
• Investment Company Act exemptions such as 3(c)(1) and 3(c)(7)
• Transfer restrictions, resale limitations, and secondary market trading requirements
• The role of broker-dealers, transfer agents, and Alternative Trading Systems (ATS)

The video also includes a real-world example of institutional tokenization, including the 2024 launch of a tokenized fund by BlackRock using Securitize’s regulated infrastructure.

Beyond Real Estate: Tokenization Across Asset Classes

While the focus is on real estate, the same legal principles apply to a wide range of tokenized assets, including:

• Private equity and venture investments
• Music rights and royalty streams
• Film and entertainment financing
• Art and other alternative assets

Key Legal & Operational Challenges

This video highlights several critical issues that must be addressed when launching an RWA tokenization project:

• Choosing the correct securities exemption and investor eligibility requirements
• Structuring entities (LLC vs. C-corp) for tax and compliance efficiency
• Addressing lender consent for mortgaged real estate
• Designing token economics, investor rights, and redemption mechanics
• Evaluating liquidity expectations and secondary trading limitations
• Navigating cross-border offerings and international compliance

Cybersecurity & Custody Risks

A significant portion of the discussion focuses on cybersecurity and custody risks.

Our firm has handled over 100 matters involving cyberattacks, stolen digital assets, and custody failures—including incidents involving accounts held at major platforms such as Coinbase and Gemini.

If you are launching a tokenization project, it is critical to evaluate:

• Platform security and custody infrastructure
• SOC 2 certification and audit history
• Alignment with frameworks such as National Institute of Standards and Technology
• Regulatory oversight of service providers

RWA Tokenization Legal Services

At Dilendorf Law Firm, we advise clients through the full lifecycle of digital asset and tokenization projects, including:

• Tokenization of real estate, equity, music, and entertainment assets
• Structuring securities offerings under U.S. law (Reg D, Reg A+, and others)
• Broker-dealer licensing for digital securities
• Alternative Trading System (ATS) structuring and regulatory strategy
• Money transmitter licensing for blockchain and digital asset platforms
• Compliance with SEC, FINRA, FinCEN, and state-level regulations

Contact Us for a Consultation

If you are considering an RWA tokenization project or need guidance on structuring, licensing, or compliance, we invite you to contact us:

📧 Email: max@dilendorf.com
📞 Phone: 212.457.9797
📍 Address: 115 Broadway, 5th Floor, New York, NY 10006

Attorney Advertising. Prior results do not guarantee a similar outcome.

A Green Card is often seen as a gateway to opportunity – but it can also create significant and unexpected tax exposure.

Many individuals assume that once they leave the United States, their U.S. tax obligations end. In reality, holding a Green Card may continue to subject individuals to U.S. taxation on their worldwide income – regardless of where they reside.

So long as an individual continues to hold lawful permanent resident status (i.e., a Green Card), the United States generally treats that person as a U.S. tax resident. In turn, the individual’s worldwide income—not only U.S.-source income—may be subject to U.S. taxation.

For individuals living abroad, this often comes as an unexpected – and sometimes costly – surprise.

This outcome is driven by a fundamental feature of the U.S. tax system: worldwide taxation. Unlike most countries, which tax individuals based primarily on residency, the United States applies this system to both its citizens and lawful permanent residents.

Understanding these rules is critical when evaluating whether to maintain or relinquish Green Card status, particularly in light of the “8-year rule” and potential exit tax exposure.

Understanding the 8-Year Rule for Green Card Holders

Under 26 U.S.C. § 877A, a Green Card holder may be classified as a “long-term resident” for U.S. tax purposes if they have held lawful permanent resident status in at least 8 of the last 15 taxable years.

This classification is critical because it determines whether an individual may become subject to the U.S. expatriation tax regime upon relinquishing Green Card status.

Who Is a “Long-Term Resident”?

For purposes of the expatriation tax rules, a long-term resident is an individual who:

• Has been a lawful permanent resident of the United States; and
• Held that status in 8 or more taxable years during the 15-year period ending with the year of relinquishment

Importantly, even partial years may count, depending on the period during which Green Card status was held.

What Happens After 8 Years?

If a Green Card holder meets the “long-term resident” threshold and later relinquishes that status, they may become subject to the U.S. expatriation tax regime under 26 U.S.C. § 877A.

However, this treatment does not apply automatically. The key question is whether the individual is classified as a “covered expatriate” within the meaning of the statute.

In general, an individual will be treated as a covered expatriate if they meet one or more of the following conditions at the time of relinquishment:

• A net worth of $2 million or more
• An average annual U.S. income tax liability above a specified threshold (adjusted annually; e.g., $206,000 for 2025)
• Failure to certify full compliance with U.S. tax obligations for the preceding five (5) years

These tests operate independently: meeting any one of them may result in covered expatriate status.

Exit Tax: The Core Consequence

If an individual is classified as a covered expatriate, they may be subject to a “mark-to-market” exit tax under 26 U.S.C. § 877A.

In practical terms, the individual is treated as if they sold all of their worldwide assets at fair market value on the day before expatriation.

As a result:

• Unrealized gains (e.g., on stocks, real estate, or business interests) may become immediately taxable
• A statutory exclusion amount applies to the aggregate gain (adjusted annually for inflation; $890,000 for 2025)
• Any gain exceeding that exclusion is generally subject to capital gains tax

For example, an individual holding a portfolio of appreciated assets – such as shares, real estate, a privately held business, or digital assets (including cryptocurrency) – may face a substantial tax liability upon expatriation if those gains have not yet been realized. In some cases, this can result in a six- or even seven-figure tax exposure triggered solely by the act of relinquishing Green Card status.

Why Timing Matters

This is where the 8-year rule becomes particularly important.

Before reaching long-term resident status, individuals may be able to relinquish their Green Card without triggering the expatriation tax regime under 26 U.S.C. § 877A.

After crossing that threshold, however, the analysis becomes significantly more complex and may require advance planning to mitigate potential tax exposure.

Contact Us

If you are evaluating whether to maintain or relinquish your Green Card, careful tax and legal planning can help manage risk and avoid unintended consequences, particularly in light of the 8-year rule, potential “covered expatriate” status, and exit tax exposure.

Dilendorf Law Firm advises individuals on expatriation planning, U.S. tax compliance, and cross-border structuring. Our work includes analysis under 26 U.S.C. § 877A, modeling potential exit tax outcomes, reviewing prior U.S. tax filings and reporting obligations (including FBAR and FATCA), and assisting clients in meeting certification requirements to avoid adverse tax treatment.

We also assist with pre-expatriation planning, including net worth and income tax threshold analysis, timing of asset dispositions, and coordination with foreign advisors to address post-exit tax treatment. In addition, we support clients with final U.S. tax filings, including Form 8854, and advise on ongoing U.S. tax obligations for nonresident individuals.

Contact us at info@dilendorf.com to discuss your matter.

Resources

U.S. Tax and Expatriation Guidance

Internal Revenue Service (IRS) — Expatriation Tax (Exit Tax) Guidance for U.S. Taxpayers

https://www.irs.gov/individuals/international-taxpayers/expatriation-tax

26 U.S.C. § 877A — U.S. Exit Tax Rules for Covered Expatriates (Mark-to-Market Regime)

https://www.law.cornell.edu/uscode/text/26/877A

26 U.S.C. § 877 — Covered Expatriate Definition and Tax Thresholds

https://www.law.cornell.edu/uscode/text/26/877

26 U.S.C. § 6039G — Expatriation Reporting Requirements and Penalties

https://www.law.cornell.edu/uscode/text/26/6039G

IRS Form 8854 — Initial and Annual Expatriation Statement

https://www.irs.gov/forms-pubs/about-form-8854

Immigration (Green Card Status)

U.S. Citizenship and Immigration Services (USCIS) — Green Card (Lawful Permanent Resident) Overview

https://www.uscis.gov/green-card

Form I-407 — Record of Abandonment of Lawful Permanent Resident Status

https://www.uscis.gov/i-407

Additional Considerations

IRS Guidance — Foreign Bank Account Reporting (FBAR)

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

IRS Guidance — FATCA (Form 8938)

https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca

IRS Guidance — Digital Assets (Cryptocurrency)

https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets

U.S. Tax Treaties — IRS Treaty Table and Information

https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z

Independent Sales Organizations (ISOs) play a key role in the payment processing industry. They connect merchants with processors and acquiring banks, help onboard businesses, and generate revenue through ongoing residual payments.

But not all ISOs operate the same way.

One of the most important decisions when launching or scaling an ISO is whether to operate as a retail ISO or a wholesale ISO. This is often framed as a business decision—but in reality, it is a legal one.

The structure you choose affects how risk is allocated, who bears responsibility for merchant activity, and how liability may arise if something goes wrong.

How Courts View the Role of an ISO

Courts consistently describe ISOs as intermediaries rather than financial institutions.

In Process America v. Cynergy Holdings, the court explained:

“An ISO’s primary role is to solicit new merchants and then provide first-line customer support.”

At the same time, ISOs operate within a system controlled by processors and acquiring banks. ISOs are often involved in facilitating contracts for credit card processing services, including negotiating pricing, monitoring fraud, and supporting merchants.

This dual role—sales-driven but contract-bound—defines how courts analyze ISO liability.

Retail ISO: Control Comes With Responsibility

A retail ISO works directly with merchants. It sources business, manages onboarding, and maintains ongoing relationships.

This model offers a high level of control. The ISO decides which merchants to bring in, how they are onboarded, and how the relationship is managed over time. From a business perspective, this can create a more stable and predictable portfolio.

But legally, that control comes with exposure.

Because the retail ISO interacts directly with merchants, it is often the first point of scrutiny in disputes involving misrepresentation, fraud, or improper onboarding. If a merchant claims they were misled or improperly enrolled, the retail ISO is typically the party closest to that conduct.

Wholesale ISO: Scale Through Networks, Risk Through Supervision

A wholesale ISO operates by building and managing a network of agents or sub-ISOs, rather than working directly with every merchant. This structure allows for rapid growth, as merchant acquisition is distributed across multiple independent channels.

However, this model shifts the nature of legal risk.

Even where the wholesale ISO does not directly interact with merchants, courts may still impose liability based on failure to supervise, control, or respond to misconduct within the network. The use of agents does not insulate the organization from responsibility—particularly where the ISO benefits from the conduct and retains some level of oversight.

In Matter of People of the State of New York v. Northern Leasing Sys., Inc., the court found liability based on:

“[…] respondents’ failure to oversee the Independent Sales Organizations, the forgeries, material misrepresentations […]”

The court further concluded that this structure “created an enterprise conducive to fraud.”

This reflects a broader legal principle: when an ISO builds a network-driven model, it must also implement meaningful oversight. Without it, the same structure that enables scale can expose the ISO to significant liability.

Agency Law: Why Control Matters

The legal relationship between an ISO, its agents, and other parties is often analyzed under agency law. In this context, the key issue is not how the relationship is labeled, but how it actually functions.

Courts focus on control.

As explained in Westmas v. Creekside Tree Serv., Inc.:

“Agency” is defined as the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act”.

And more specifically:

“An important factor in determining whether a person is an agent is the extent of control retained over the details of the work.”

This has practical consequences for ISOs. Even when individuals are described as independent contractors, an agency relationship may still exist if the ISO retains meaningful control over how work is performed.

In that case, liability can extend beyond the individual actor and reach the ISO itself.

For wholesale ISOs in particular, this means that growth through agents must be paired with clear supervision, defined responsibilities, and enforceable compliance standards.

Fraud Risk and Enforcement Exposure

Fraud and deceptive practices remain one of the most significant legal risks for ISOs, particularly where merchant acquisition is driven by aggressive sales practices or poorly supervised agents.

Regulators and courts do not focus only on individual misconduct—they examine whether the business structure itself enabled or failed to prevent fraud.

This is illustrated in Matter of People of the State of New York v. Northern Leasing Sys., Inc., where the court found that ISOs “misrepresented to those consumers the nature and terms of the EFLs” and, in some cases “forged the names of consumers or unilaterally altered the terms of the EFLs after they were signed.”

Importantly, the court did not treat these actions as isolated incidents. Instead, it focused on the broader system, concluding that the failure to supervise ISO activity contributed to widespread misconduct.

This reinforces a key point for both retail and wholesale ISOs: fraud risk is not limited to direct actions—it includes how the business is structured, how agents are managed, and whether adequate safeguards are in place.

Without proper oversight and compliance controls, an ISO may face not only contractual disputes, but also regulatory enforcement and significant liability.

Contracts Still Define the Business

Regardless of whether an ISO operates under a retail or wholesale model, its rights and obligations are ultimately defined by contract.

Processor and acquiring bank agreements determine key issues such as ownership of the merchant portfolio, entitlement to residual payments, transfer rights, and termination conditions. Courts consistently enforce these agreements according to their plain terms.

In Process America v. Cynergy Holdings, the court emphasized that:

“Cynergy “owns” the merchant agreements, and Process America’s “ownership” of the merchant agreements “will vest” only if certain contractual conditions are satisfied.”

Even where an ISO builds and services the merchant relationship, its ability to control or transfer that portfolio may be limited. The court further noted that:

“Section 2.6.B enumerates three conditions that must be satisfied before any transfer may take place […]”.

This highlights a critical reality of the ISO business model: the economic value of an ISO is not determined solely by its operations, but by the terms of its agreements.

Choosing the Right Structure

The choice between retail and wholesale ISO models depends on business goals—but must be evaluated through a legal lens.

A retail ISO may offer greater control and a more contained risk structure, while a wholesale ISO can enable faster scaling through a network of agents. However, each model carries different legal implications in terms of liability, supervision, and compliance.

Dilendorf Law Firm assists ISOs in evaluating and structuring their business models based on their specific goals, risk tolerance, and growth strategy. By aligning legal structure with operational needs, ISOs can position themselves for scalable growth while minimizing exposure.

Contact Us

If you are launching an ISO, negotiating a processor agreement, or planning to sell a merchant portfolio, experienced legal counsel can help protect your rights and structure your business for long-term value.

Dilendorf Law Firm assists and represents Independent Sales Organizations in negotiating ISO agreements, including provisions related to residuals, transfer restrictions, and Rights of First Refusal (ROFR), as well as in structuring retail and wholesale ISO models.

Contact us at info@dilendorf.com to discuss your matter.

The decision in United States v. Huckaby provides a precise illustration of how courts analyze creditor rights against trust-held real property—particularly where a Domestic Asset Protection Trust is used to hold assets located in another state.

Despite the trust being labeled as a Nevada spendthrift trust, the court permitted enforcement of a federal judgment lien against the underlying California real estate.

Background of the Case

The United States brought an enforcement action against Robert Huckaby arising from an unpaid federal judgment. As the court explained:

“This case is an action seeking to enforce a judgment against defendant Robert Huckaby entered on March 30, 2018 for failure to honor IRS levies.”

The property at issue was a residence in South Lake Tahoe, California. The key facts were not disputed:

“Defendants are the Trust’s settlors, trustees, and its sole beneficiaries during their lifetimes.”

The defendants had transferred the California property into the Circle H Bar T Trust, which they characterized as a Nevada spendthrift trust.

The central legal issue was whether that trust structure could prevent a creditor—in this case, the United States—from enforcing a judgment lien against the property.

Which Law Governs: Nevada or California?

A critical part of the court’s analysis focused on choice of law.

The defendants argued that Nevada law should apply because the trust was designated as a Nevada trust. The court rejected that position for purposes of creditor enforcement and instead focused on the location of the asset.

Relying on established conflict-of-laws principles, the court explained:

“[W]hether the interest of a beneficiary of a trust of an interest in land is assignable by him and can be reached by his creditors, is determined by the law that would be applied by the courts of the situs.”

Because the property was located in California, the court applied California law:

“[B]ecause the Property is located in California, the court will apply California law in determining whether it is subject to enforcement of a judgment lien by plaintiff.”

This determination was dispositive.

California’s Treatment of Self-Settled Trusts

Under California law, self-settled trusts are not effective against creditors.

The court stated this principle directly:

“[U]nder California law, a settlor of a spendthrift trust cannot also act as a beneficiary of that trust (i.e., California law prohibits ‘self-settled’ trusts). California law voids self-settled trusts to prevent individuals from placing their property beyond the reach of their creditors while at the same time still reaping the bounties of such property.”

Applying that rule, the court found that the trust at issue fell squarely within this prohibition:

“[T]he Trust is a self-settled trust because it was formed by defendants Robert Paul Huckaby and Joyce Ann Tritsch as trustors, settlors, trustees, and beneficiaries of the Trust.”

As a result, the trust’s spendthrift provisions did not protect the property:

“[B]ecause the trust ‘is a self-settled trust, its spend-thrift provisions are void against defendants’ creditors, including the [United States].’”

Property Interest: Why the Creditor Could Reach the Asset

The court also addressed whether Huckaby had a sufficient property interest for the judgment lien to attach.

The answer was yes.

The court emphasized that both legal and equitable interests were present:

“[T]rust beneficiaries hold an equitable interest in trust property and are regarded as the real owners of that property.”

And:

“[L]egal title to property owned by a trust is held by the trustee.”

Because Huckaby was both a trustee and a beneficiary, the court concluded:

“Defendant Huckaby possesses both a legal and equitable interest in the Property.”

That was sufficient to allow enforcement of the judgment lien.

Court’s Holding

The court ultimately ruled in favor of the United States:

“The United States’ judgment lien encumbers defendant Huckaby’s one-half ownership interest in the Property.”

It further authorized foreclosure proceedings consistent with the judgment.

Key Takeaways

This decision reinforces several important principles for asset protection planning:

1. Governing law clauses are not dispositive
   Designating a trust under Nevada law does not control creditor rights when the asset at issue is real property located in another state.
2. Real property is treated differently
   Courts consistently apply the law of the situs when determining whether a creditor can reach real estate held in trust.
3. Retained control remains critical
   Where the same individuals serve as settlors, trustees, and beneficiaries, courts are unlikely to treat the trust as a barrier to creditor claims.
4. Substance prevails over form
   The court did not rely on labels or formal designations but instead focused on ownership, control, and applicable law.

Conclusion

United States v. Huckaby reinforces a consistent judicial approach: asset protection strategies are evaluated based on legal substance, not structural labels.

When real estate is involved—particularly in jurisdictions like California—the combination of asset location and retained beneficial interest can override otherwise favorable trust designations.

For individuals structuring trusts that hold U.S. real property, this case illustrates the importance of aligning trust design, asset type, and governing law with how courts actually analyze creditor rights.

Contact Us

At Dilendorf Law Firm, we assist U.S. and international clients with sophisticated cross-border estate, tax planning, and asset protection strategies. In addition to structuring trusts, we guide clients in protecting and optimizing traditional assets, including real estate, stocks, bonds, and diversified investment portfolios.

Our practice spans domestic asset protection trusts (DAPTs) in leading U.S. jurisdictions—such as Wyoming, Alaska, Nevada, and South Dakota—as well as offshore trust structures in key jurisdictions including the Cook Islands, Nevis, and the Cayman Islands.

In each jurisdiction, we have developed a network of experienced trustees, financial institutions, and vetted legal partners who help ensure that every structure is professionally administered and compliant with local regulatory standards.

To discuss how our experience and network can support your planning goals, contact us at info@dilendorf.com or by calling us at 212.457.9797 to discuss your needs.

Starting an Independent Sales Organization (ISO) in the payment processing industry can be highly profitable. ISOs generate recurring revenue through merchant portfolios and residual payments tied to transaction volume.

But building a successful ISO is not just about signing merchants. It is about structuring a business where you actually control your rights, revenue, and exit options.

As courts and industry practice consistently show, these issues are determined not by sales performance—but by contracts.

Dilendorf Law Firm assist businesses launching ISOs, negotiating processor agreements, and structuring merchant portfolio rights to protect long-term value.

Step 1: Define Your ISO Business Model

Before launching, you need to decide how your ISO will operate, as this decision will shape your growth strategy, risk exposure, and contractual relationships.

Retail ISO

A retail ISO functions primarily as a sales and relationship-driven business. It focuses on sourcing and onboarding merchants, often working with one or more processing partners to place those merchants with the provider best suited to their needs—based on pricing, service, risk profile, or technical integration.

Retail ISOs typically do not control the back-end processing, adjudicate merchant applications, or manage servicing at the processor level. Instead, their value lies in building and maintaining merchant relationships and steadily growing a portfolio through internal sales teams or independent agents.

When structured properly, this model can offer relatively low startup costs and scalable, recurring revenue through residual income.

Wholesale ISO

A wholesale ISO, by contrast, operates at a higher structural level, building and managing a network of sub-ISOs, agents, or referral partners.

Rather than focusing solely on direct merchant acquisition, the wholesale model emphasizes distribution and scale. This approach can accelerate growth but introduces additional legal and operational considerations, particularly around supervision, compliance, and contractual risk allocation.

Choosing between these models is a foundational decision. It determines not only how the ISO acquires merchants, but also how liability is distributed, how agreements with processors are structured, and how the business can scale over time.

Step 2: Form Your Legal Entity

Once you have defined your business model, the next step is to establish the legal entity through which your ISO will operate.

Most ISOs are structured as limited liability companies (LLCs) or corporations, depending on ownership, tax considerations, and long-term business goals.

This step is more than a formality. The entity you choose will serve as the contracting party in your agreements with processors, acquiring banks, and partners. It will also determine how liability is allocated and how profits are distributed.

From a legal perspective, proper entity structuring helps:

• limit personal liability for owners and principals
• create a clear ownership framework for partners or investors
• support future growth, including adding agents or sub-ISOs
• facilitate a potential sale of the business or merchant portfolio

In practice, processors and acquiring banks will evaluate the ISO entity itself during underwriting. They may review ownership structure, financial stability, and the backgrounds of principals before approving the relationship.

Because the ISO’s value is tied to contractual rights and revenue streams, forming the entity correctly at the outset is an important step in building a business that can scale and be monetized over time.

Step 3: Secure a Processor or Acquiring Bank Relationship

An ISO cannot operate independently—it must partner with a payment processor and an acquiring bank. This relationship is the foundation of the business, as the processor controls the infrastructure for transaction processing, settlement, and compliance.

To establish this relationship, the ISO must go through underwriting, which typically includes background checks, a review of the business model, and an assessment of risk and compliance procedures.

As recognized in Process America v. Cynergy Holdings, ISOs “[…] solicit merchants […] and provide first-line customer support,” while processors manage the core payment system.

Because processors control access to the network, they also retain significant authority over approval and termination, making this step critical when launching an ISO.

Step 4: Negotiate the ISO Agreement

Once you secure a processor relationship, the next—and most critical—step is negotiating the ISO agreement. This document defines the economic and legal foundation of your business.

The agreement governs key issues such as:

• ownership of the merchant portfolio
• how residuals are calculated and paid
• whether residuals continue after termination
• your ability to transfer or sell accounts
• termination rights and restrictions

As courts have made clear, these rights are entirely contractual. In Process America v. Cynergy Holdings, the agreement provided that the processor “owns” the merchant agreements, and even where ownership could “vest” in the ISO, transfer remained subject to strict contractual conditions.

This means that the value of your ISO—your residual income and your ability to sell your portfolio—depends directly on how this agreement is structured and negotiated at the outset.

For a more detailed breakdown of key provisions and negotiation strategies, see our article “Negotiating ISO Agreements: Key Tips for Agents & ISOs.”

Step 5: Complete Registration and Network Approval

After entering into an agreement with a processor or acquiring bank, the ISO must complete registration within the card network system. This typically involves sponsorship by an acquiring bank and registration with networks such as Visa and Mastercard.

The approval process includes underwriting and due diligence, where the processor and bank assess the ISO’s ownership, business model, and risk profile. They may also review compliance procedures and the types of merchants the ISO intends to onboard.

Although this step is often viewed as administrative, it is a key control point in the payment ecosystem. Approval can be delayed or denied if the ISO presents elevated risk, and ongoing compliance with network rules is required to maintain the relationship.

Step 6: Build Your Merchant Acquisition System

Once your ISO is approved and operational, the next step is building a reliable system for acquiring merchants. This can be done through a direct sales model or by working with agents and sub-ISOs, depending on your chosen structure.

In a retail model, the ISO develops its own sales channels—through internal teams, marketing efforts, or independent contractors—and manages merchant onboarding directly. In a wholesale model, the ISO scales by recruiting agents or partner ISOs who bring in merchants.

While this stage is focused on growth, it also introduces significant legal risk. The ISO is responsible for how merchants are onboarded and how services are represented. Misleading sales practices, onboarding high-risk merchants, or failing to supervise agents can lead to chargebacks, compliance issues, and potential termination by the processor.

For that reason, successful ISOs treat merchant acquisition not just as a sales function, but as a controlled process with clear guidelines, training, and oversight.

Step 7: Implement Compliance and Risk Controls

At this stage, the ISO must establish basic compliance and risk controls. This includes screening merchants, monitoring chargebacks, and ensuring adherence to card network rules and data security standards.

Even though ISOs are not always directly regulated, processors expect them to manage risk effectively. Weak compliance—especially onboarding high-risk merchants or failing to supervise agents—can lead to termination and loss of residuals.

Step 8: Structure Your Residual Income

Residual income is the core of an ISO business, but it is entirely defined by the ISO agreement. You need to understand how residuals are calculated, when they are paid, and under what conditions they can be reduced or terminated.

Key issues to review include:

• how residuals are calculated (percentage, split, tiered structure)
• when residuals are paid and whether there are delays or reserves
• whether residuals continue after termination
• conditions that may reduce or eliminate residuals (e.g., chargebacks, compliance issues)
• whether residuals depend on ongoing servicing obligations
• any rights of the processor to modify pricing or revenue splits

In many agreements, residuals are tied to merchant activity and continued compliance, and may not survive termination of the relationship. As a result, what appears to be recurring revenue can be subject to significant contractual limitations.

Because these provisions directly affect the long-term value of your business, it is important to review and structure them carefully.

If you are unsure how your residuals are defined or protected, seeking legal guidance can help you avoid costly mistakes. Contact Dilendorf Law Firm to discuss your matter.

Step 9: Understand Transfer Restrictions and Exit Strategy

Many ISO founders plan to eventually sell their merchant portfolio, but the ability to do so depends entirely on the terms of the ISO agreement.

These agreements often include transfer restrictions such as consent requirements, Rights of First Refusal (ROFR), and anti-assignment clauses. As a result, the processor may have the right to approve, block, or match a proposed sale.

Courts enforce these provisions strictly. In Process America v. Cynergy Holdings, the court held that transferring merchant accounts without complying with contractual conditions constituted a breach of the ISO agreement.

For a detailed discussion of how ROFR provisions operate and how they can affect portfolio sales, see our article “Rights of First Refusal (ROFR) in Merchant Portfolio Transfers.”

For this reason, exit strategy should be considered from the outset. The value of an ISO is closely tied to whether its portfolio can be transferred—and on what terms.

Step 10: Avoid Common Mistakes When Starting an ISO

Across the industry, new ISOs often make the same mistakes—many of which only become apparent when the business faces termination, loss of residuals, or a failed sale:

• Signing ISO agreements without negotiating key terms
• Assuming they “own” merchant accounts without reviewing contract language
• Ignoring transfer restrictions and ROFR provisions
• Relying on “lifetime residuals” that are actually conditional
• Failing to implement proper compliance and risk controls
• Scaling too quickly through agents without adequate supervision
• Not planning for an exit strategy from the outset

Avoiding these issues early can make a significant difference in whether the ISO ultimately retains value and control over its business.

Contact Us

If you are launching an ISO, negotiating a processor agreement, or planning to sell a merchant portfolio, experienced legal counsel can help protect your rights and structure your business for long-term value.

Dilendorf Law Firm assists and represents Independent Sales Organizations in negotiating ISO agreements, including provisions related to residuals, transfer restrictions, and Rights of First Refusal (ROFR), as well as in structuring retail and wholesale ISO models.

Contact us at info@dilendorf.com to discuss your matter.

Stripe is one of the most widely used payment processors for online businesses. It allows merchants to accept payments, manage transactions, and operate globally.

But when something goes wrong—such as a suspended account or frozen payouts—the impact can be immediate. Payments stop, revenue is interrupted, and business operations can quickly stall.

At Dilendorf Law Firm, we help merchants negotiate disputes with Stripe, including account suspensions, frozen funds, compliance reviews, and chargeback-related issues.

Why Stripe Can Suspend Accounts or Freeze Funds

Stripe operates under its Services Agreement, which gives the platform broad authority to manage risk and enforce its policies.

For example, Stripe requires that:

“User must use the Services solely for User’s Business Purposes and in compliance with the Documentation.”

It also prohibits certain activities:

“User must not […] use the Services to engage in any activity that is fraudulent, deceptive, exploitative, or harmful.”

And importantly, Stripe can change or restrict its services:

“Stripe may modify or discontinue any aspect of the Services or Stripe Technology, including imposing conditions on use of the Services or Stripe Technology […]”

Stripe also makes clear that third-party tools are used at the merchant’s own risk:

“User’s use of any Third-Party Service is subject to that Third-Party Service’s terms […] and is at User’s sole risk.”

What this means in practice:
Stripe has significant discretion to suspend accounts or hold funds if it detects risk—even if the merchant believes their business is legitimate.

The Most Common Reasons Stripe Freezes Accounts

In practice, Stripe disputes usually arise from a few recurring issues:

• High chargeback rates

Too many customer disputes can trigger immediate review or restrictions.

• Unusual transaction activity

Sudden spikes in sales or changes in customer behavior may be flagged as risky.

• Compliance issues

Problems with identity verification (KYC) or regulatory requirements.

• Restricted or high-risk products

Certain industries are closely monitored or prohibited.

• Rapid business growth

Scaling too quickly can appear suspicious from a risk perspective.

Stripe’s systems are designed to:

“[…] monitor, prevent and detect fraudulent transactions and other fraudulent activity on the Stripe platform.”

Even legitimate businesses can be affected by these controls.

Chargebacks: A Leading Cause of Stripe Disputes

One of the most frequent—and misunderstood—reasons for Stripe account restrictions is chargebacks.

A chargeback occurs when a customer disputes a transaction directly with their credit card issuer (e.g., Visa, Mastercard, American Express) instead of contacting the merchant. The issuing bank may reverse the payment and initiate a dispute through the card network.

Why Chargebacks Trigger Stripe Enforcement

From Stripe’s perspective, chargebacks are not just isolated disputes—they are risk signals.

High chargeback activity may indicate:

• potential fraud
• customer dissatisfaction
• misleading product descriptions
• operational issues (e.g., shipping delays)

As chargebacks increase, Stripe may:

• freeze payouts
• impose rolling reserves
• increase monitoring
• suspend or terminate the account

Even a legitimate business can be flagged if its dispute rate exceeds acceptable thresholds set by card networks.

Chargeback Thresholds and Risk Exposure

Card networks (e.g., Visa, Mastercard) impose strict thresholds for acceptable dispute rates.

If a merchant exceeds these thresholds:

• additional fees may apply
• the business may be placed in a monitoring program
• the payment processor may take protective action

Stripe must manage this exposure, which is why enforcement can occur quickly and sometimes without detailed explanation.

What Merchants Should Do When Facing Chargebacks

When chargebacks arise, merchants should act promptly and strategically. If not addressed properly, disputes can lead to frozen funds, increased monitoring, and potential account suspension.

• Respond promptly

Submit responses within required deadlines to avoid automatic loss of disputes.

• Provide supporting documentation

Include basic evidence such as proof of delivery, transaction details, and customer communications.

• Identify and address the issue

Determine why disputes are occurring and take steps to reduce them going forward.

• Monitor dispute activity

Keep track of dispute rates to avoid exceeding thresholds set by payment processors and card networks.

• Seek legal assistance if issues escalate

If chargebacks begin to impact your account or funds, it is advisable to consult experienced counsel.

An attorney can help evaluate the situation and negotiate with Stripe or other payment processors to resolve disputes and protect your business.

At Dilendorf Law Firm, we assist merchants in negotiating chargeback-related disputes with Stripe, including matters involving frozen funds and account restrictions.

What Courts Say About Payment Processor Disputes

Courts have consistently addressed disputes between merchants and payment processors such as Stripe and PayPal. While outcomes depend on the facts, several key principles are clear.

Broad Discretion Under User Agreements

Courts generally enforce the terms of payment processor agreements, especially where those agreements grant discretion to manage risk.

In Zepeda v. PayPal, Inc., the court explained that:

“[…] the user agreement contained at least two other provisions that gave defendant broad discretion to place holds on its users’ accounts […]”

This principle is central to most disputes involving frozen funds or account suspensions.

No Contractual Duty to Provide Detailed Explanations

Merchants often expect detailed explanations when accounts are suspended or funds are frozen. However, courts look to the contract to determine whether such obligations exist.

In Zepeda, the court emphasized that the agreement itself controls the scope of duties owed to users. Where no provision requires disclosure, courts are unlikely to impose such obligations.

Exercising Contractual Rights Is Not a Breach

Courts consistently hold that a party does not breach a contract by doing what the contract allows.

In Chen v. PayPal, Inc., the court stated:

“A party cannot commit a breach of contract by exercising a right secured to him or her by the contract.”

This principle is critical in Stripe disputes, where the platform relies on contractual provisions to justify enforcement actions.

Discretion Must Still Be Exercised in Good Faith

Even where agreements grant broad discretion, courts recognize limits.

As explained in Chen:

“Where an agreement gives a party discretion, that discretion must be exercised in a reasonable, non-arbitrary manner.”

This creates an important framework: while processors have significant authority, their actions may still be challenged if exercised improperly.

Control Over Funds Is Not Always with the Merchant

Another key issue in payment processor disputes is who actually “holds” the funds.

In RealPage Inc. v. Nat’l Union Fire Ins. Co., the court held:

“[…] the funds that were maintained in a commingled account in a third party’s name, at a third-party bank, which the insured could direct but not access, were not funds ‘held’ by the insured”

This reflects how payment processors operate—merchants often do not have direct control over funds during processing or review periods.

Stripe’s Role Further Limits Dispute Obligations

Stripe’s own Terms reinforce this structure.

For example:

“Any contract of sale made using the Consumer Services is directly between you and the Business User.”

And:

“Stripe will not intervene in any dispute between you and a Business User […]”

These provisions clarify that Stripe positions itself as a payment intermediary rather than a party to the underlying transaction.

What This Means for Merchants

Taken together, these authorities show that:

• payment processors have broad contractual discretion
• courts often enforce those agreements as written
• merchants may not control funds during processing
• legal challenges require a fact-specific and strategic approach

For this reason, disputes with Stripe are rarely resolved through informal communication alone.

Contact Us

If your Stripe account has been suspended or your funds have been frozen, it is important to act promptly. These issues can significantly disrupt your business operations and cash flow.

At Dilendorf Law Firm, we assist merchants in negotiating disputes with Stripe and other payment processors, including matters involving account suspensions, frozen funds, and chargeback-related enforcement actions.

In addition to Stripe-related disputes, we also advise clients on broader payment processing and ISO-related matters. Whether you are negotiating an ISO agreement, planning to sell a merchant portfolio, or exploring the launch of your own ISO—whether retail or wholesale—legal guidance can help you structure your business, manage risk, and protect your rights.

To schedule a consultation, please contact us at info@dilendorf.com or 212-457-9797.

Independent Sales Organizations (ISOs) play a central role in the payment processing ecosystem. ISOs typically recruit merchants, assist with merchant onboarding, and facilitate relationships between merchants, payment processors, and acquiring banks.

Although ISOs are not always the primary regulated financial institution in the payment processing chain, their activities operate within a complex legal and regulatory framework governing electronic payments, fraud prevention, and data security.

These regulatory considerations are often reflected in ISO agreements with processors and acquiring banks, which must carefully allocate compliance responsibilities and risk. Dilendorf Law Firm helps ISOs with negotiating these agreements and addressing regulatory risk exposure.

As a result, ISOs face regulatory and legal risks related to fraud prevention, anti-money laundering obligations, data security requirements, and contractual liability within the payment card ecosystem. Understanding these risks is essential for ISOs seeking to maintain stable relationships with processors and avoid regulatory scrutiny.

Federal Statutory and Regulatory Framework

Several federal statutes indirectly affect the operations of businesses participating in the payment processing ecosystem.

Risk Management Standards

Under 12 U.S.C. § 5464, the Federal Reserve may establish risk management standards designed to promote the safety and stability of payment systems. These standards are intended to support sound risk management, reduce systemic risks, and maintain financial stability within the financial infrastructure.

Although ISOs may not always fall directly within the scope of these rules, their activities—particularly merchant onboarding and transaction facilitation—can create regulatory exposure if they contribute to operational or compliance failures within the payment system.

Fraud Prevention in Electronic Transactions

Electronic debit transactions are governed in part by federal law, including 15 U.S.C. § 1693o-2, which focuses on fraud prevention and the use of cost-effective fraud prevention technologies.

While ISOs are not directly regulated under this provision, they play an important role in onboarding merchants and facilitating payment transactions. Weak merchant screening practices can expose processors and acquiring banks to fraud risks, which in turn can result in contractual or regulatory consequences for the ISO.

Anti-Money Laundering Compliance

Financial institutions must maintain anti-money laundering (AML) programs under 31 U.S.C. § 5318, which requires policies, procedures, and internal controls designed to detect and report suspicious financial activity.

Because ISOs often act as intermediaries between merchants and financial institutions, their onboarding and merchant monitoring practices may become relevant in AML investigations. Failure to perform adequate due diligence on merchants can lead to processor termination or regulatory scrutiny.

Industry Standards and Data Security Obligations

Beyond federal statutes, ISOs must comply with industry security standards and contractual obligations governing payment card transactions.

PCI Data Security Standards (PCI DSS)

Payment card transactions are governed by the Payment Card Industry Data Security Standards (PCI DSS), which establish requirements for protecting cardholder data across the payment processing ecosystem.

Courts have repeatedly emphasized the contractual importance of these security standards.

For example, in Paymentech, L.L.C. v. Landry’s Inc., the Fifth Circuit explained that the merchant agreement required compliance with payment brand security rules and imposed liability for security failures. The court noted that:

“The Merchant Agreement required Landry’s to comply with all applicable Payment Brand rules and data security standards, including its cooperation with any forensic investigation required by a Payment Brand in the event of a breach.”

When a major data breach exposed cardholder data, the payment networks imposed substantial financial assessments. The court further explained that:

“Visa levied approximately $12.5 million in assessments; Mastercard approximately $10.5 million.”

These cases illustrate how failures to comply with payment security standards can trigger contractual liability within the payment processing ecosystem.

Contractual Risk Allocation in the Payment Card System

The payment card system operates through a network of contractual relationships involving merchants, processors, acquiring banks, issuing banks, and payment networks.

Courts have recognized that these contractual relationships govern how losses are allocated when security failures occur. In Community Bank of Trenton v. Schnuck Markets, Inc., the court explained the structure of the electronic payment system:

“When a customer uses a credit or debit card at a retail store, the merchant collects the customer’s information […] the track data and the amount of the intended purchase are forwarded electronically to the merchant’s bank (the ‘acquiring bank’), usually through a payment processing company.”

The court emphasized that the system is governed primarily by contractual relationships among the participating entities in the payment network.

Fraud and Misconduct Risks in ISO Operations

ISOs may also face litigation or regulatory exposure when fraudulent conduct occurs in connection with merchant onboarding or equipment leasing arrangements.

In Matter of People of the State of New York v. Northern Leasing Systems, Inc., the court described allegations involving misconduct by ISO sales representatives in the credit card processing industry. The court noted that:

“The ISOs misrepresented to those consumers the nature and terms of the EFLs and failed to disclose that they were entering into contracts with two different companies.”

The court further explained that some agreements allegedly contained hidden or onerous terms and that in certain instances the ISOs “forged the names of consumers or unilaterally altered the terms of the EFLs after they were signed.”

Cases involving allegations of misconduct can also raise broader litigation risks. In Aghaeepour v. Northern Leasing Systems, Inc., plaintiffs asserted claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) based on alleged misconduct connected to equipment leases and collection practices.

These cases demonstrate that inadequate supervision of sales practices or merchant onboarding activities can expose companies operating in the payment processing ecosystem to substantial litigation risk.

Mitigating Regulatory Risks for ISOs

To reduce regulatory exposure, ISOs should adopt comprehensive compliance and risk management practices.

Key steps may include:

• Implementing compliance programs
  ISOs should establish policies addressing fraud prevention, AML compliance, and merchant due diligence.
• Conducting thorough merchant screening
  Proper vetting of merchants can reduce the risk of facilitating fraudulent or high-risk transactions.
• Establishing oversight mechanisms
  Monitoring sales agents and merchant onboarding processes can help prevent misconduct.
• Negotiating contractual protections
  ISO agreements should clearly allocate liability for fraud, data security breaches, and regulatory compliance obligations.
• Regularly reviewing compliance policies
  Payment system regulations and network rules evolve frequently, making periodic compliance reviews essential.

Conclusion

Independent Sales Organizations operate within a complex legal environment shaped by federal regulations, payment network rules, and contractual obligations within the payment processing ecosystem.

Although ISOs are not always directly regulated financial institutions, their activities can expose them to significant regulatory and litigation risks related to fraud prevention, data security, and merchant onboarding practices.

Careful compliance practices and well-structured contractual arrangements are essential to mitigate these risks and maintain stable relationships with processors and financial institutions.

Contact Us

If you are negotiating an ISO agreement, planning to sell a merchant portfolio, or exploring the launch of your own ISO—whether retail or wholesale—legal guidance can help you structure your business, manage risk, and protect your rights.

Contact us at info@dilendorf.com to discuss your matter.

This video explains why foreign nationals considering a move to the United States must understand how U.S. estate and income tax rules can apply to their U.S. and worldwide assets, and why pre‑immigration planning is essential.

The $60,000 estate tax number

Under U.S. estate tax rules, a nonresident non‑citizen generally gets only a $60,000 estate tax exemption for U.S.‑situs assets (such as U.S. real estate and certain U.S. securities).

Above that amount, the federal estate tax under 26 U.S.C. § 2001 applies at graduated rates up to 40 percent.

In practice, this means that if a foreign national dies owning, for example, a $1,000,000 U.S. condominium while still a nonresident for estate tax purposes, roughly $940,000 could be exposed to the U.S. estate tax, potentially generating a tax bill in the hundreds of thousands of dollars.

How this differs for U.S. citizens and domiciliaries

By contrast, U.S. citizens and individuals domiciled in the U.S. benefit from a much higher federal estate tax exemption through the unified credit in 26 U.S.C. § 2010, which shields a multi‑million‑dollar amount per person from estate tax.

Married couples can generally combine their exemptions, effectively doubling the protection available to the family under current law.

This creates a dramatic gap between the treatment of nonresident non‑citizens with only a $60,000 exemption and U.S. taxpayers with multi‑million‑dollar exemptions.

The “domicile” trap for estate tax

The video then focuses on the concept of U.S. domicile for estate tax purposes, which is different from immigration status.

Under 26 U.S.C. § 2001(a), if an individual is a U.S. citizen or domiciled in the United States at death, the federal estate tax applies to their worldwide assets, not just U.S. property.

Domicile is determined under federal estate and gift tax principles by physical presence plus intent to remain indefinitely, not by the specific visa category (E‑2, H‑1B, L‑1, etc.).

Courts have repeatedly emphasized that intent and factual ties control domicile, including:

• Estate of Newcomb v. Commissioner (early leading authority on domicile focusing on intent and facts of life).

• Estate of Jack v. United States, 54 Fed. Cl. 590 (2002), where the court looked at factors such as family, residence, and long‑term ties rather than the temporary nature of the decedent’s immigration status.

• Estate of Khan v. Commissioner, T.C. Memo 1998‑22, which illustrates how lifestyle, statements, and connections to the U.S. can lead to a finding of U.S. domicile even for a foreign national.

Once U.S. domicile is found, U.S. estate tax can apply to foreign real estate, overseas investment portfolios, private companies, and other global assets owned at death.

Worldwide income tax after U.S. residency

The video also explains that once someone becomes a U.S. income tax resident—often by obtaining a green card (including via EB‑5) or meeting the substantial presence test—the U.S. generally taxes their worldwide income.

Key statutory rules include:

• 26 U.S.C. § 61(a), which defines gross income broadly as “all income from whatever source derived,” covering foreign and domestic income alike.

• 26 U.S.C. § 1, which imposes income tax on taxable income of individuals.

• 26 U.S.C. § 7701(b), which sets out who is treated as a U.S. resident for income tax purposes, including green card holders and those meeting the substantial presence test.

If you bought a foreign property for $100,000 and later sell it for $1,000,000 after becoming a U.S. tax resident, the $900,000 gain is generally taxable in the United States.

This is true even though the property is overseas and most of the appreciation happened before you moved.

The same worldwide‑tax principle typically applies to foreign securities, crypto, private equity, and operating businesses, unless specific planning, a tax treaty, or a targeted exception changes the result.

Why pre‑immigration tax planning matters

The core message is that many of the most effective strategies must be implemented before U.S. tax residency or U.S. domicile is established.

Pre‑immigration planning may include:

• Restructuring ownership of global assets using U.S. and non‑U.S. trusts, closely held entities, or holding companies, to manage estate and gift tax exposure under Subtitle B of the Internal Revenue Code (26 U.S.C. subtitles for estate and gift taxes).

• Coordinating cross‑border ownership of U.S. real estate, U.S. equities, and operating businesses to minimize U.S. estate tax under 26 U.S.C. §§ 2001 and 2101–2107 while preserving treaty benefits where available.

• Implementing insurance‑based planning, especially Private Placement Life Insurance (PPLI) arranged before U.S. residency, so that investment growth occurs inside a properly structured life insurance contract.

For PPLI and life insurance–based structures, the relevant provisions include:

• 26 U.S.C. § 7702, which defines what qualifies as a life insurance contract for U.S. tax purposes.

• 26 U.S.C. § 72, which governs the income tax treatment of amounts received under annuity and life insurance contracts.

• 26 U.S.C. § 101(a), which generally excludes life insurance death benefits from gross income for U.S. income tax purposes, subject to specific exceptions.

Properly designed PPLI can allow tax‑deferred growth inside the policy. The death benefit is generally received income‑tax‑free by beneficiaries under U.S. rules. At the same time, PPLI can be integrated with broader estate planning and asset protection structures.

This is especially powerful for international families who hold concentrated stock positions, private equity, crypto, or operating businesses.

The video stresses that, once U.S. domicile or income tax residency exists, many of these restructuring options either disappear or become far more limited and complex to execute.

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Max Dilendorf and Dilendorf Law Firm assist non‑U.S. residents with complex tax planning, structuring U.S. investments in U.S. equities and real estate, and a wide range of private client estate and asset protection matters.

Max has more than 15 years of experience advising U.S. and international high‑net‑worth clients on pre‑immigration tax planning, trust formations, cross‑border investment structures, and U.S. real estate transactions.

To discuss your situation in confidence, you can email Max directly at max@dilendorf.com or contact our firm to schedule a consultation