Author Archives: Brian Dooley

About Brian Dooley

Brian Dooley, CPA, MBT is an international tax researcher and planner. He has written many books, testifies at Congressional and Department of Treasury hearings on matters regarding taxation.

Liechtenstein Anstalts, Liechtenstein Stiftungs, and Panama Foundations

Do it yourself tax planners have been easy prey for the IRS International Tax Auditors.  The internet is full of the article on the “check the box” election.  It seems simple.  Even the IRS makes it seems simple when you read page 4 of the instructions (to Form 8832), but only if you read the instructions as a layman.

Tax experts understand each word independently.  When you read the instruction, the IRS uses the term “foreign eligible entity.”  Our brains automatically give the words meaning.  However, a tax expert looks up each word independently.  Yep, we look up “foreign,” “eligible” and “entity.”

When you dive deep into the regulations, you learn that an “eligible entity” (domestic and foreign) must be a “business entity” (another tax define the term).  Anstalts, Stiftungs, and foundations may not be a business entity and thus the check the box election does not apply to them.

Regulation 301.  7701-2 defines Business entities as follows:
“a business entity is any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301. 7701-3) that is not properly classified as a trust under § 301.7701-4.”

“Not properly classified as a trust” is what destroys Liechtenstein Anstalts Liechtenstein Stiftungs, and Foundations tax classification and tax planning.   The IRS ruling at the end of this blog, (in blue ink) highlights the thin edge between a foreign corporation and a foreign trust.

This blog will tell you and your international tax accountant or international tax attorney all that they need to know.  The story started almost one hundred years ago with the birth (in 1913) of the income tax law.

The tax law defines a corporation as an entity that a state (or a country) classifies as a corporation and associations that have corporate characteristics.  The decision that a character is “corporate” is subjective.

It starts in the roaring 20s.  During that period, the Treasury Department issued regulations that defined the term “association” broadly enough to include unincorporated entities, such as business trusts.[1]

In Supreme Court case, Morrissey v. Commissioner [2] decided in 1935,  the Supreme Court held that a trust formed to develop and operate golf courses was taxable as an association classified as a corporation (for tax purposes).  The Morrissey case is significant because it developed an approach to entity classification that is known as the “resemblance test.”

The Supreme Court considered those features of a trust created to carry on a business enterprise that would make the trust the same as a corporation.

For example, the ability to hold title to the property; centralized management; continuity of life upon the death of an owner; a structure that facilitates the transferability of beneficial interest; and limited liability.[3]  The Court determined that the business trust at issue was an association taxable as a corporation because it had the preceding corporate powers.[4]

Of course, the IRS victory was a two-edged sword, and it became a new tax loophole.  Tax planners discovered the tax advantages in being taxed as corporations.

Corporations could set up tax-deferred pension plans, which were particularly advantageous at a time when individual tax rates were significantly higher than corporate rates.[5]  Professionals that were unable to incorporate under local law formed unincorporated associations that were structured to be taxed as associations under the Morrissey resemblance test.

Beaten up, the IRS found themselves in court trying to undo their Supreme Court victory.  in the Ninth Circuit in the 1954 case of United States v. Kintner[6].  In 1954, doctors could not incorporate their business.  So a group of California doctors formed a trust to own their medical practice.  This allowed them to avoid taxes with the use of “corporate” pension plan.

The Court case determined that an unincorporated professional association formed for the practice of medicine and surgery could be taxed as an association and its pension plan would qualify for tax-deferred benefits under the Code.

The IRS argued against corporate status (taking the opposite position from its Supreme Court case victory).  The Kintner court rejected the government’s argument.  The court held that the association should be taxed as a corporation.

Because of this defeat, six years later, the IRS issued new regulations.  It is these regulations that apply today in defining a business entity versus a trust.

These regulations, which came to be known as the Kintner regulations, adopted an approach to entity classification similar to the resemblance test outlined in Morrissey.  The Kintner regulations identified six corporate characteristics.

If an unincorporated organization possessed more corporate than non-corporate characteristics, it was taxable as an association.  In distinguishing between a trust and a corporation, characteristics common to both trusts and companies were ignored.  Accordingly, just two of the six factors were used to differentiate companies from trusts: (1) the presence of associates; and (2) the objective to carry on business and divide the gains.  As you will read below, the courts have consistently ruled that one trust beneficiary can be the “presence of associates.”

The remainder of the blog summarizes the leading court cases and IRS ruling.  The point, for you the reader, is to learn you must analyze the laws of the foreign country to decide if the entity and its formation documents create a business entity.  The last IRS ruling at the beginning of this blog, drives home the tax risk.  If your tax planning is for a foreign corporation but your entity is a foreign trust or disregarded (because of the foreign laws), you are screwed.

From July through October of 1977, the IRS issued several private letter rulings (PLR) classifying certain foreign organizations with single owners.[7]  In these PLRs, the IRS held that the foreign organizations lacked “associates with an objective to conduct business and divide the gain therefrom” and therefore were not a “business entity”.

Even more startling, in some of the PLRs concluded that the organizations could not be classified as trusts.[8]   The taxpayer got the worst of all tax results. The foreign organizations were “an integral part” of the sole owner for tax purposes.[9]

Instead, the Tax Court determined that “where there is a single owner, the regulations are not intended to require multiple associates or a sharing of profits among them.”[10]  Thus, under Hynes, a trust carrying on business for profit could never be taxable as a trust because it would always possess the two characteristics that distinguish an association from a trust.  This of course, would cause chaos in the world of taxation.

In 1992 in the case of Barnette versus IRS Commissioner,[11] the Tax Court considered whether German an entity (organized as a GmbH) should be classified as a separate corporation or disregarded and classified as a branch.

The absence of “associates” and an objective to carry on a business for “joint” profit are common to both one-man corporations and sole proprietorships, so the Tax Court ignored this.  In looking at the Kintner regulation, the court held that the GmbH possessed more corporate than non-corporate characteristics and therefore was an association taxable as a corporation (a “business entity”).[12]

In 1973, IRS revenue ruling 73-254 provided that, for purposes of applying the Kintner regulations, the local law of the foreign country would be applied to determine the legal relationships of the members and their interests in the assets.

In 1977, IRS revenue ruling 77-214 applied the four-factor test in the Kintner regulations to determine that a German GmbH was taxable as an association.  The decision specifically noted that the GmbH at issue was a juridical person but that, under German law, a GmbH could assume the characteristics of an association or a partnership depending on its memorandum of association.  Thus, it could not be automatically treated as a partnership or corporation for federal tax purposes.

In 1988, IRS revenue ruling 88-8 [13] held that all foreign entities are considered unincorporated organizations and therefore must always be classified by application of the four-factor test of the Kintner regulations.  This means you must look at the laws for the foreign country and make a determination.

IRS revenue ruling 88-8 involved the classification a U.K. unlimited company.  The entity was formed under Great Britain’s “corporation” statute.  Nevertheless, the ruling held that the entity was not a corporation for U.S. tax law.  It lacked the corporate characteristics of limited liability and free transferability of interests.

In 2009, the IRS issued a legal opinion  (IRS Generic Legal Advice AM 2009-012) of this issue (see the full opinion on this blog).

Here is what the IRS stated about Liechtenstein Anstalts

Based upon the information submitted, we believe that, subject to the facts and circumstances of each situation, Liechtenstein Anstalts are not properly treated as trusts under § 301.7701-4(a) of the regulations because, in most cases, their primary purpose is to actively carry on business activities. Further, Liechtenstein Anstalts are not subject to special treatment under the Code.

Therefore, Liechtenstein Anstalts are classified as “business entities” under § 301.7701-2(a).  IRS’s Opinion with the reminder that their opinion would vary case by case(Author note:  Please note that the IRS is telling to look at the foreign law).

Here is what the IRS stated in Liechtenstein Stiftungs

Based on the information submitted, we believe that, subject to the facts and circumstances of each situation, Liechtenstein Stiftungs are properly treated as trusts under § 301.7701-4(a) of the regulations.  (Author note: Here the IRS has the opposite conclusion but in the same legal opinion)  In most cases, the Stiftung’s primary purpose is to protect or conserve the property transferred to the Stiftung for the Stiftung’s beneficiaries and is usually not established primarily for actively carrying on business activities.

However, it is important to note that if the facts and circumstances indicate in a particular case that a Stiftung was established primarily for commercial purposes as opposed to the purpose of protecting or conserving property on behalf of the beneficiaries, the Stiftung in such case may be properly classified as a business entity under § 301.7701-2(a).

Accordingly, it is important to analyze the facts and circumstances of each case to determine whether a particular Stiftung was established to protect and conserve property of the Stiftung or, was created as a device to carry on a trade or business.

FOOTNOTES

[1] See Art.  1502, Regulation No. 45, T.D. 3146 (1920) (associations and joint stock companies include certain common law trusts and other organizations that do business in an organized capacity); Art.  1504, Regulation No. 65, T.D. 3640 (1924) (reflecting decision of Hecht v. Malley, 265 U.S. 144 (1924), by treating operating trusts as associations, regardless of degree of beneficiaries’ control, where beneficiaries’ activities included more than collecting funds and making payments to beneficiaries); Art.  21-23, Regulation 64, T.D. 4575 (1935) (trust treated as an association if it is an arrangement conducted for profit where capital is supplied by beneficiaries and the trustees are in effect the managers of the arrangement, whether or not beneficiaries appoint or control trustees).

[2] 296 U.S. 344 (1935).

[3] Id. at 359.

[4] Id. at 360.

[5] See Kurzner v. United States, 413 F.2d 97, 101 (5th Cir. 1969).  See also Hobbs; supra note 334, at 481-83.

[6] 216 F.2d 418 (9th Cir. 1954).

[7] See PLR 77-43-060 (July 28, 1977) (classifying a German GmbH); PLR 77-43-077 (July 29, 1977) (classifying a French societe a responsabilite limitee); PLR 7747-083 (Aug. 26, 1977) (classifying a German GmbH); PLR 77-48-038 (Aug. 31, 1977) (classifying a German limited liability company); PLR 78-02-012 (Oct. 11, 1977) (classifying a Brazilian limited liability company).

 

[8]  See PLR 77-43-060; PLR 77-48-038.

[9]  Id. at 1280.

[10] Id.  The Tax Court determined that because the trust clearly had five of the six corporate characteristics, it would be taxable as an association.  Id. at 1286.  See General Counsel Memorandum 38,707 (May 1, 1981) (IRS will follow Hynes).

[11] T.C. Memo.  1992-371, 63 TCM (CCH) 3201 (1992).

[12] 63 TCM at 3201-12.

[13] 1988-1 C.B. 403.

Amazon Fulfillment International Tax Strategies with a Tax Treaty Corporation

Wow, the speed of change in business is leaving worldwide governments in the dust. From Netflix streaming to Google AdWords, the 21st Century business has many legitimate tax avoidance strategies.

This blog explains U.S. taxation (I should say lack of U.S. taxation) for the foreign corporation doing business via the Amazon fulfillment center (referred to as FBA). At the end of this blog is Amazon’s short video explaining their FBA.

Let me tell you about Sam. He is an entrepreneur. He also is wise. He has a tax team of a CPA and a business attorney.  He does not read a blog like this and then goes out and does his tax planning by himself. This blog gives the concept. But the tax savings are in the legal details that only your attorney and CPA can do for you.

Sam has decided to sell beauty products that he has manufactured in Switzerland to U.S. consumers. He will create a fantastic e-commerce and branding website. He will use Google Adwords as part of his marketing. Sam plans to have no employees.

Sam met with his CPA and attorney. After careful research, they have decided on an Irish company. His tax team explained that his Irish company must create the website, contract with the Swiss manufacturer of the products, pay for the marketing including Google Adwords and be the party to the contract with Amazon FBA.

His tax team informed Sam that he must request an IRS private letter ruling before he starts an international business.  Sam is a smart business person. He knows that working with the IRS is the best way to create wealth.

The Irish company needs a U.S. bank account and credit card processing. Sam’s bank required the Irish company to qualify to do business in the state where the bank is located. Sam and his bank are in Florida. The Irish company registers with the State of Florida.

Okay…now it is time to build the business. The Irish company hires an Irish web design firm to create and host the website. In Ireland, many chartered accountants and law firms provide the registered office. As part of this process, the firm provide directors and their staff to help with the management. The Irish company signs the contracts with Amazon and the Swiss manufacturer.

The beauty products are shipped to the Amazon fulfillment centers, and Amazon does the rest.

Back in Florida, Sam checks up on the operations. He gets fantastic reports from Amazon. He talks to the Irish web consultant about the SEO for his website.  He looks at the Google Adwords dashboard. From time to time, Sam travels to Europe to meet with the Swiss manufacturer of new products and to meet with his team in Ireland.

The Irish company files many tax returns. First, an Irish income tax return (the tax rate is about 12%). Here in the U.S., the IRS gets two returns, a Form 1120F (a foreign corporation income tax return) and a Form 5471 (an information return for controlled foreign corporations).  Sam’s CPA explains the tax treaty to the IRS using form 8833.

The U.S. Irish tax treaty provides that If an Irish company has what is known as a “permanent establishment” in the U.S., it owes tax on its U.S. source income (the sales to its U.S. customers). The definitions of a “permanent establish” are from the 1960’s, and they do not include the concept of a fulfillment center’s contract with the vendor(fn1).    While the Irish Tax Treaty has been updated many times, the updates have been for the exchange of information and the American concept of pass-through entities (such as an S-corporation or a trust).

Your tax team must carefully review the fulfillment center’s contract and compare it to the definition of a permanent establishment in the Tax Treaty.

If you me to review your fulfillment center contract then give me, Brian Dooley, CPA, MBT, a call at 949-939-3414. Tax opinions start as low as $5,000.

Footnote (1)  Treaty Article Five, Paragraph 6 states:  ” An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business as independent agents.”

If Sam was using a non-treaty corporation (such as the Isle of Man company) then  pursuant to tax code section 864(c)(5)(A), the office or other fixed place of business of an independent agent will not be attributed to a foreign corporation even if the agent has the authority to negotiate and conclude contracts on behalf of the foreign corporation or maintains as stock of goods from which to fill orders on the foreign corporation’s behalf.    

This is where the tax law is tricky.  The agreement with the fulfillment center must be carefully examined to determine if section 864(c)(5)(A) applies. 

Learn more about permanent establishment vs. fixed place of business, section 864(c)(5)(A)  on this link.  As in all international tax strategies, the company should apply for an IRS ruling before proceeding.  Learn about IRS rulings on this link.

 

Small Business Tax Planning and Strategy for Robots, Apps, Video Streaming and 3D Printing

21st Century business is nothing like 20th Century business.  Okay, it is as easy as remember in the cell phone you owned in 1999 with your smartphone now.

The tax planning on the internet is that 1999 style tax planning.  You know, that year-end meeting where you are told the same stuff year after year.  But you will never achieve the 14% tax rate paid by Big Business if you think like a small business (more on the 14% tax rate here).

The headline “Bank Of America Opens Branches Without Employees” got my attention.  B of A also has one of the better smartphone apps for online banking.  The important tax planning and business trend are “no people”.  Instead, machines that work 24/7 with no sick pay, employee suites, or family leave.

Next, Ford Motor Car announced it is using 3-D printing in manufacturing instead of robots, to produce much of their cars.  Ford is not the only big business moving beyond Robots.  Redbox (the DVD rental kiosk franchise) is laying off thousands of kiosk and is streaming the videos.

Streaming, like 3-D printing, has its value is the computer code.  The computer code may provide music, a movie, or instructions to a large printer to print a hood or even an engine block.

Big Business has avoided taxes with intelligent machines for almost half a century.  The first case was the Xerox photocopier.  The Tax Court treated this copier as if it a human being in a dark room developing pictures.

Brilliant small business tax planning started with Xerox taking the IRS to court. The Tax Court ruled that Xerox had a smart machine entitled to special tax savings.

Brilliant small business tax planning started with Xerox taking the IRS to court. The Tax Court ruled that Xerox had a smart machine entitled to special tax savings.

The U.S. Government was using thousands of these photocopiers.  If the Government was paying rent,  then  Xerox would be denied a ten percent tax credit on the value of the copiers.  If the photocopier was providing a personal service,  then Xerox had found the perfect tax loophole.  As I said, Xerox won.

Now, what is your tax planner doing?  Are you brainstorming with him or are you too busy?

If you need some ideas to help you start your journey to avoiding taxes, then get my book International Taxation in America for the Entrepreneur (on this link at Amazon).   While it is about foreign taxes, it does contain tax planning for the 21st Century.

Here is one of the secrets of small business tax planners.

Incomes character determines how it is taxed.  Separate tax laws exist for each type of income.   By working hard with their tax team, Xerox invented and won the argument that the machine can provide the same services as a human.  Today, half a century later, it is not a big deal.

The tax planning is in  what I wrote above, “invented”.  Xerox’s tax team invented a new tax concept. Once the court agrees, an invented tax theory becomes a tax law.  You can use this tax law to legally avoid taxes.

For example, Rosetta Stone (the language learning computer based program) started last Century.    They sold CD’s with containing their program and audio CD’s with language practice words.   The IRS taxes the sale of a CD the same as the sale of a book.  It is tangible property even though the contents are intangible (copyrighted program and audio).

Rosetta Stone’s management could have been like Blockbuster (which is out of business).  The management spent the time, the hard work and the risk of capital and invented a completed new business.

For this new business, they are allowed to invent a new tax law.  Yep, when no tax law exists, you can think outside of the box (within limits) just as Xerox did.   Rosetta Stone now has the opportunity to legally avoid both U.S. income taxes and state income taxes.  Here is what they can do:
1.   Instead of receiving a CD with a program, the software is on the Rosetta Stone computer server.   The user logs into his account and learns the language.   Website is the same as a human teacher.  The software provides feedback on your foreign language speaking. 

 If the computer and the business are owned by a tax haven corporation with the computer located in a foreign country (such as Canada), the income is U.S. tax-free, state tax-free and Canada tax-free.

2.  The practice lesson is audio streaming and not on an audio CD.  Streaming music income is sourced at the place of the broadcast.   It too is tax-free.

3.  Live group lessons were completely new.  The source is the location of the person Rosetta Stone hired to lead the group.   If the person is outside of the U.S., the income is foreign source.

By becoming an E-commerce business, Rosetta stone had new tax planning choices.  E-commerce tax planning and strategies are being invented.     We always recommend that our clients apply for an IRS review of their tax plan.  The IRS’s National Office has excellent attorneys.  The process is known as a private letter ruling request (learn more on this link).

Provocative International Tax News

offshore tax planning, offshore tax strategies, controlled foreign corporation,

Tax Planning Small Business Are Taxed at 14%

Government Report Shames Businesses Paying More than 14% in Taxes.    Difficult to believe that Senator Bernie Sanders  (who paid tax at 13%) released the report.  It states that business that plan their taxes are taxed at 14%. Here’s what’s going on.   

Small Business Tax Planning. Try very hard to pay the least in taxes

Small Business Tax Planning. President Trump states that he try very hard to pay the least in taxes

Meanwhile, after the defeat of the Health Care Reform,  the Trump Tax Reform is looking at an August vote.   Keep up to date on this link.    As in the case of President Trump,  we all have to work hard to pay the least in taxes.   Tax savings is not as simple as a year-end call to your CPA.    On this link, you will learn how to get your tax rate down to 14%.

International tax planning for the Contract Manufactuere

International tax planning for the Contract Manufacturer

Amazing tax savings for importers of contracted manufacturer of their products.  This new IRS law gives tax savings to small businesses.  Learn more on this link and send it to your CPA.
For additional small business tax savings get my book International Taxation in America for the Entrepreneur on sale for $9.50 on this link.

 

Small businesses are now reaping big tax savings.  Importers, exporters, and e-commerce business can use the same loopholes as big business. I wrote my book to teach you these tried and true strategies in an easy two-hour read.

International tax planning

Buy at Amazon for only $9.50.

But, I did more.  I had an audiobook created.  It downloads onto your smartphone so that you can listen while you are commuting.   Get the 2017 edition of  International Taxation in America for the Entrepreneur for $9.50 at Amazon on this link.

 

saving taxes, how to save taxes, tax planning,

Saving taxes with an IRS approved tax plan is called a private letter ruling.

International Gift Tax Plans with this IRS internal letter on this link. Fantastic legal tax avoidance for the foreign person with family in the U.S. is explained in this letter.

  • Avoiding state income taxes this new IRS  designer  Nevada trust.  IRS tells how to use your Nevada corporation as your trustee to legally stop paying state taxes on your investment income. Here’s what’s happeningon this link.

New- Saving international taxes with this letter from the U.S. Department of the Treasury letter to the U.K. tax authorities on tax planning in the U.S. for UK and EU companies.

Tax planning, with the Supreme Court common tax laws

Tax planning with Supreme Court common tax laws

18th Century Supreme Court case destroys IRS tax penalty law. Using this case, the Tax Court gave the IRS a big defeat.  Here is what happen.   The Supreme Court is the “Law of the Land.”  It rules over the IRS and Congress.   

It works both ways.  The blog on this link explains the most missed Supreme Court Doctrine use by the IRS to blow up this offshore plan.

international tax planning, international, tax, planning,

International tax planning and international tax savings with this Treasury Department report. 

The secret report on tax savings international tax plans that the IRS cannot stop was issued by the U.S. Department of the Treasury (a branch of the White House).

They reported the successful foreign tax plans of international businesses. We have obtained a copy.  It is on this link.   Here you will learn the legitimate foreign tax plans that Congress likes. 

offshore trust, foreign trust, nevada trust, estate planning trust, esbt,    Since the Middle Ages, the wealthy have capitalized on trusts to avoid paying taxes. During the Great Crusades, upon the death of a knight, his entire estate went to the king.    Nine hundred years later, things have not changed much except the ‘King” takes only half.

Trust are the most efficient tax tool. International tax planning should start with a Nevada trust to own the foreign company.  Learn trust tax planning and asset protection on this easy to read blog post.    It has the blueprint for successful trust tax planning.   IRS memo on asset protection and tax planning with an offshore trust.  Get it now on this blog post.

internet tax planning, saving taxes, cloud tax planning

Saving taxes with the cloud-based

Cloud tax planning. Learn how businesses are using the cloud to save taxes on this link.  E-commerce companies are avoiding state income taxes and in some cases deferring U.S. taxes.

Be an IRS tax wizard with our new custom Google search, on this link.  This custom Google app to read 400,000 pages deep inside the IRS’s website and the tax court’s website.

Tax Savings with International Tax Treaty Planning for the Resident Alien

Citizens of Canada, the U.K., Australia, New Zealand, the European Community, have a unique tax advantage while living in the U.S.  Tax treaties with these countries provide a unique and little-known tax savings. 

This video is an audio clip from my tax radio show, Tax Talk. You will learn why resident aliens are paying more in taxes than they should. 

If you have any questions, then please call me, Brian Dooley, CPA, MBT at 949-939-3414 or visit our website – https://www.intltaxcounselors.com.  

International tax planning starts with these essential concepts:
Resident Aliens

resident alien’s income is taxed in the same manner as a U.S. citizen.

They pay tax on their worldwide income including income from interest, dividends, wages, other compensation for services, rental property, and royalties.  The resident alien must report these amounts whether from sources within or outside the United States.  Depositing of income outside the U.S. is taxable.

If you are a citizen of a country with a tax treaty, the treaty decides if you are a resident or non-resident.  Otherwise, if you have a green card or spend too many days in the U.S., you are a resident alien.

Nonresident Aliens  

Nonresident aliens are usually subject to U.S. income tax on U.S. source income.  In some cases, foreign source business income can be subject to U.S. tax.  You will learn more in my book, International Taxation in America for the Entrepreneur.

Dual-Status Aliens  

dual-status alien is an individual that is both a resident alien and a nonresident alien in the same tax year.  This can occur when you obtain your green card.

Income Types

U.S. Investment income is taxed at a flat 30% of the gross income.  If the non-resident alien resides in a treaty country, the tax rate is usually between zero and 15%.

Business income is taxed on a net income basis.  The alien has the same tax rates as an American.  In some cases, an NRA’s foreign business income is taxed by the U.S.  This occurs when the NRA has an office or some other type of business facility or is in the U.S. on a business trip.

Tax Withholding on Foreign Persons

Payments of U.S. income to foreign persons are subject to the  withholding tax rules.  In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income.  This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.

The NRA that comes to the U.S. for business meetings owes U.S. tax on his foreign salary if he or she is paid more than $3,000 by his employer.

Taxpayer Identification Numbers (TIN) for the non-citizen

Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN).  Also, non-citizens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.

Sale of Real Estate 

Non-Resident Aliens are hit with a fifteen percent withholding tax on the sale of U.S. real estate.  In some cases, the withholding tax applies to refinancing.  The withholding tax does not replace the income tax.  Aliens must file an income tax return.  The tax withheld is a credit towards the total tax.  If the total tax exceeds the tax withheld, they get a refund.

Saving Taxes with Tax Treaties 

The U.S. tax liability of non-resident aliens is determined primarily by the provisions of tax treaties.  If the non-citizen is not a national of a treaty country, then the U.S. Internal Revenue Code applies.

Many foreign countries have tax treaties with the U.S. Tax treaties override or modify the provisions of the Internal Revenue Code.  Tax treaties allow you to pay less tax.

Estate Taxes

All though you are a resident alien for income taxes you may be a non-domiciled alien for estate (death) taxes.    Non-domiciled aliens are subject to estate taxes on all of their U.S. property (including stocks, bonds, and property) except bank accounts and life insurance.  They are not entitled to the $5,000,000+ exemption that is allowed for Americans.  Accounts with brokerage firms are frozen upon the alien’s death.   Tax treaties may allow the alien to avoid U.S. gift and estate taxes.

Become an Expert

Become an expert with my book, International Taxation in America for the  Entrepreneur, available on this link and feel free to call me with any questions that you have.