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

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4 VII. PAGE 1 1. Resident Aliens ......................................................................................... 18 2. Nonresident Aliens.................................................................................... 20 C. Generation Skipping Tax ...................................................................................... 21 D. Estate & Gift Tax Treaties .................................................................................... 21 IMPACT OF CHANGE OF RESIDENCE ON ABILITY TO CLAIM TREATY BENEFITS........................................................................................................................ 21 VIII. CHANGE IN TREATMENT OF OFFSHORE ENTITIES ............................................. 22 A. Controlled Foreign Corporation............................................................................ 22 B. Passive Foreign Investment Company.................................................................. 23 C. Personal Holding Company .................................................................................. 25 D. Coordination of the Anti-Deferral Regimes ......................................................... 26 E. Transfers to Foreign Entities................................................................................. 26 1. Section 367................................................................................................ 26 2. Section 684................................................................................................ 26 3. Section 679................................................................................................ 26 4. Section 721(c) ........................................................................................... 27 IX. REPORTING AND DISCLOSURE REQUIREMENTS................................................. 27 X. PRE-IMMIGRATION PLANNING OPPORTUNITIES................................................. 28 A. General Income Tax Planning .............................................................................. 28 1. Acceleration of Income............................................................................. 28 2. Postponement of Deductions & Losses .................................................... 29 3. Step-Up in Basis ....................................................................................... 29 4. Avoiding Anti-Deferral Regimes.............................................................. 30 5. Transfers to Foreign Entities..................................................................... 30 6. Timing of Change in Residence................................................................ 31 B. Estate & Gift Tax Planning................................................................................... 31 XI. EFFECT OF SUBSEQUENT EXPATRIATION............................................................. 31 XII. NIRVANA ........................................................................................................................ 32 A. The enlightened state of non-taxation for non-U.S. citizens. ............................... 32 B. Falling between the cracks.................................................................................... 32 C. See Pfeifer on Expatriation, infra. Is current cost worth it? ................................ 32 {00187507-1} iii
5 I. INTRODUCTION 2 This outline addresses the taxation of resident aliens, nonresident aliens and preimmigration planning. Virginia F. Coleman will be discussing the transfer taxation of nonresident aliens. Joseph S. Henderson will be discussing the effect of tax treaties on U.S. activities of nonresident aliens. Henry Christensen III will be discussing trusts and alternative foreign vehicles. M. Read Moore will be discussing considerations for underlying foreign corporations. Douglas L. Siegler will be discussing marital deduction planning for non-citizen spouses. Bruce Zagaris will be discussing ethical issues in offshore planning. Robert C. Lawrence, III, Ellen K. Harrison, and Carlyn S. McCaffrey will be discussing outbound and inbound grantor trusts and foreign non-grantor trusts. Paul R. Hocking will be discussing foreign trust and entity reporting. Frederick J. Tansill will be discussing asset protection trusts. Leslie C. Giordani and Robert W. Chesner, Jr., will be discussing private placement life insurance in the offshore marketplace. Michael G. Pfeifer will be discussing expatriation. Finally, John C. McDougal will be discussing "hot topics" in offshore tax compliance. Thus, as a group, you will learn the ins and outs of U.S. taxation of aliens. II. RESIDENCE TESTS UNDER THE CODE A. Income Tax For U.S. federal income tax purposes, an alien is classified either as a resident or a nonresident with respect to the United States. An alien is classified as a resident if (i) he is a lawful permanent resident of the United States at any time during the calendar year, (ii) he meets the "substantial presence" test, or (iii) he makes the "first year" election. 3 An alien's residence status is determined separately with respect to each calendar year. 4 1. Lawful Permanent Resident An alien is considered to be a lawful permanent resident of the United States if he has been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws (i.e., he holds a "green card"). 5 An alien who holds a green card will continue to be considered a U.S. resident until such time as his green card is revoked or abandoned. 6 Note that the filing of a nonresident income tax return (Form 1040NR) may affect the determination by the Immigration and Naturalization Service as to whether the individual qualifies to maintain a residency permit. 2 3 4 5 6 This outline is an adaptation of earlier outlines. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended (the "Code"), or to the Treasury Regulations promulgated thereunder. §7701(b)(1)(A); Treas. Reg. §1.871-2(c). In addition, a former citizen or long-term resident who does not satisfy any of these tests will continue to be treated as a citizen or resident for tax purposes in certain circumstances. §§877(g) and 7701(n). See presentation of Michael Pfeifer, infra. §7701(b)(1)(A). Treas. Reg. §301.7701(b)-1(b)(1). §7701(b)(6)(B). {00187507-1} 1
Page 1 and 2: 1 ALI-ABA Course of Study Internati
Page 3: 3 PAGE 1 a. Derek Jeter (change of
Page 7 and 8: 7 Nevertheless, the following days
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Page 25 and 26: 25 nonresident alien decedent will
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