Page 3 - U.S. Tax Residency: Some Black-and-White Rules, Some Gray

COL. COLUMNS I Tax Practice & Procedure
for purposes of substantial presence, or the date on which the individual ceases to be a legal resident) if the individual 1) has a tax home in a foreign country for the balance of the tax year and 2) has a closer connection to that country for the balance of the tax year [Treasury Regulations section 301.7701(b)-4].
ject to tax on their worldwide assets, whereas individuals who are not U.S. per- sons are only subject to tax on their U.S. situs assets. U.S. citizens are automatically U.S. persons, but noncitizens are only U.S. persons if they are U.S. residents.
as factors such as immigration status or day count; no one factor is dispositive.
Moreover, under the substantial pres- ence test for purposes of determining the first day present in the United States or the residency termination date, up to 10 days of actual presence can be excluded if the individual had a tax home in and a closer connection to another country during that time.
Residency for estate and gift tax pur- poses is, however, determined completely differently from residency for income tax purposes. Residence for estate and gift (and generation-skipping transfer) tax purposes is not based on any bright-line rules, but rather on the amorphous con- cept of domicile [Treasury Regulations section 20.0-1, 25.2501-1(b)]. An indi- vidual acquires domicile by residing in a place with no present intention of leaving. Intent is, of course, entirely subjective, but the IRS will look to external indicia of intent, including many of the same fac- tors as the closer connection test, as well
Gray Area—Estate and Gift Tax Residency
It can be a challenge to give a clear answer to an individual who asks, “Am I a U.S. resident?” For income tax pur- poses, the baseline answer is usually based on black-and-white rules, but whether exceptions apply is largely a gray area; for estate and gift tax purpos- es, the entire answer is gray. Often, the best advice is to acknowledge that there may be some uncertainty, and therefore some risk, but to steer taxpayers to change their facts and circumstances to fit the tax treatment they seek. q
Ian Weinstock, JD, is a partner at Kostelanetz and Fink LLP, New York, N.Y.
Choosing a Tack
For federal estate and gift tax purposes, individuals who are U.S. persons are sub-
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