ALI-ABA Course of Study International Trust and Estate Planning ...

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12 of the United States will be classified as a nonresident with respect to the United States. 37 For estate and gift tax purposes, "domicile" is defined as follows: A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. 38 Among the factors that have been considered in determining the location of an alien's domicile for estate and gift tax purposes are the following: The duration of stay in the United States and in other countries; The frequency of travel both between the United States and other countries and between places abroad; The size, cost, and nature of the alien's houses or other dwelling places, and whether those places were owned or rented; The area in which the houses and other dwelling places were located (e.g., resort area v. non-resort area); The location of expensive and cherished personal possessions; The location of the alien's family and close friends; The places where the alien maintained church and club memberships and participated in community affairs; The location of the alien’s business interests; Declarations of residence or intent made in visa applications, wills, deeds of gift, trust instruments, letters, and oral statements; Motivation, especially health, pleasure, and the avoidance of the miseries of war or political repression; and Visa status. 39 The estate and gift tax concept of residence is markedly different from the income tax concept of residence. Thus, neither an alien's possession of a green card nor his spending a substantial amount of time in the United States will be controlling for estate and gift tax purposes, except to the extent that it is indicative of his intent to acquire or maintain a U.S. 37 38 39 States includes the states and the District of Columbia. Id.; §7701(a)(9). Treas. Reg. §20.0-1(b)(2); Treas. Reg. §25.2501-1(b). Treas. Reg. §20.0-1(b)(1). See also Treas. Reg. §25.2501-1(b) (containing similar language). See presentation of Virginia Coleman, infra, and Michael A. Helmos, Aliens: Estate, Gift and Generation-Skipping Taxation, BNA Tax Mgmt. Portfolio No. 837-2nd at A-25 to A-32 (2005). {00187507-1} 8
13 domicile. 40 Accordingly, even if an alien is classified as a U.S. resident for income tax purposes, he may continue to take the position that he is a nonresident for estate and gift tax purposes -- but only so long as he can plausibly maintain that he has not acquired a U.S. domicile. This is a very important distinction in practice. III. RESIDENCE TESTS FOR STATE TAX PURPOSES A. State tax rules for determining residency do not necessarily follow federal rules. B. New York 1. Any person domiciled in New York, unless such person does not maintain a place of abode in New York, maintains a permanent place of abode elsewhere and spends in the aggregate not more than 30 days of the taxable year in New York, or a. Derek Jeter (change of domicile). 2. Any nondomiciliary who maintains a permanent place of abode in New York and spends in the aggregate more than 183 days in the taxable year in New York. (Statutory resident.) C. California 1. Other than transitory presence -- not a day count 2. Domicile D. Relevance of Federal Nonresident Status In most (but not all) states, the tax base starts with income as determined for federal income tax purposes. Therefore, even if a nonresident of the U.S. is considered a resident for state tax purposes, such resident's tax base for state tax purposes may be zero. IV. RESIDENCE UNDER TAX TREATIES 41 A. Income Tax Treaties To be eligible for the benefits of an income tax treaty, an individual must qualify as a "resident" of one of the two countries that is a party to the treaty (sometimes referred to as a "contracting state"). The U.S. Model Income Tax Treaty defines "resident of a Contracting State" as "any person who, under the laws of that State, is liable to tax therein by reason of his 40 41 But see §877(g), pursuant to when a former long-term resident (i.e., an alien who held a green card for eight years during a 17-year period) who spends (at least) 30 days in the U.S. will be treated as a resident for estate tax as well as income tax purposes. This rule ought not place an alien in a worse tax position than if he had not relinquished his green card and thus may reflect a presumption that green card holders are U.S. domiciliaries. Given the vast number of tax treaties that have been concluded by the United States and the potential numerous variations (both significant and insignificant) that may result from negotiations between the United States and each of its treaty partners, the discussion in the text below is confined to the most recent model tax treaties published by the U.S. Treasury Department and the Organization for Economic Cooperation and Development ("OECD"). See presentation of Joseph Henderson, infra. {00187507-1} 9
Page 1 and 2: 1 ALI-ABA Course of Study Internati
Page 3 and 4: 3 PAGE 1 a. Derek Jeter (change of
Page 5 and 6: 5 I. INTRODUCTION 2 This outline ad
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Page 31 and 32: 31 the foreign trust. 164 In additi
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