U.S. persons are subject to federal income tax on their worldwide income, while non-U.S. persons (nonresident aliens) are subject to federal income tax only on their U.S. source income. Similarly, U.S. persons for federal gift or estate tax purposes are subject to federal gift or estate tax on their worldwide gifts or estate, but non-U.S. persons are subject to federal gift or estate tax only on their U.S. situs assets.
Under the Code, a “United States person” is a “a citizen or resident of the United States.” Interestingly, there is a different test to determine whether an individual is a U.S. resident for purposes of income tax and for gift and estate taxes. For income tax purposes, a U.S. resident is one who (i) is a lawful permanent resident of the U.S. (i.e., has a green card) or (ii) meets the substantial presence test (i.e., spends more than 31 days in the U.S. in the current year and the sum of the weighted average of their days in the U.S. over the prior 3 years equals or exceeds 183 days). By contrast, for gift and estate tax purposes, anyone domiciled in the U.S. is a U.S. resident. The determination of domicile is subjective, based presence in a location and the intention to remain living there. As a result of the different tests, an individual can be a U.S. resident for income tax purposes but not for gift or estate tax purposes, and vice versa.
If you have any questions about your residence status or are considering a change to this status (either by immigrating to or expatriating from the U.S.), it is important to speak with a lawyer who specializes in this area.
Thank you to David Goldstein, our newest Tax Tracker contributor, for this week’s post!