By Anthony Diosdi
As discussed in previous articles, the determination of an individual’s residency status for U.S. income tax purposes is different than the determination of an individual’s residency status for U.S. estate and gift tax purposes. A U.S. citizen or a resident alien is subject to U.S. income tax on his or her worldwide income. An individual becomes a resident alien by violating the so-called “substantial presence test” or obtaining lawful permanent resident status (obtaining a Green Card). A nonresident alien is subject to U.S. income tax on certain passive income that is sourced in the United States and income that is effectively connected with the conduct of a U.S. trade or business.
A U.S. citizen or a resident alien domiciliary is subject to U.S. estate and gift tax on his or her worldwide assets. A nonresident alien nondomiciliary is subject to U.S. estate and gift tax on his or her assets situated within the United States. The determination of “residency” for U.S. income tax purposes should not be equated with the determination of “residency” for U.S. estate and gift tax purposes. The determination of resident alien/nonresidency alien nondomiciliary status is based on the individual’s “domicile” at the date of such individual’s death.
An individual’s “domicile” is determined by looking at the facts and circumstances surrounding the determination. One acquires “domicile” in a particular place by living there (for even a brief period of time) with no definite present intention of later removing oneself. Certain factors are considered when determining domicile, including, but not limited to, the amount of time one spends in the United States, frequency of travel between the U.S. and other foreign countries, the location of personal assets, the location of one’s family and close friends, the place where one’s club, church and civic league membership exist, and where one has his or her driving license.
Certain foreign individuals obtain temporary visas for several reasons (e.g., work or vacation), and according to the United States Court of Federal Claims, violation of an individual’s temporary visa will not bar the determination of an individual’s “domicile.” In Estate of Robert A. Jack, No. 01-410T (2002), the decedent had worked in the U.S., having been admitted under a work visa. In order to obtain the visa, the decedent had to prove to the immigration authorities that he did not intend to make the U.S. hs domicile. The decedent’s estate filed a “summary judgment,” claiming that there was no genuine issue as to the decedent’s domicile. Such a claim was based on the fact that the terms of the visa prohibited the decedent from establishing the intent to remain permanently in the United States. The government argued that while an individual may satisfy the inquiry of immigration authorities that he does “not intend to reside permanently in the United States in order to obtain” the visa, an individual can still change his or her intent, or at the time of inquiry, have a different intent than what was presented. The government claimed the terms of the visa (mandating no intent to remain in the United States) should not bar the determination of the decedent’s domicile because a genuine issue as to the decedent’s domicile existed. The court agreed and concluded that the decedent might have developed the intent to be domiciled in the U.S. although the terms of the visa were violated; therefore, no “non-domiciliary” summary judgment was issued as requested by the decedent’s estate.
In conclusion, the fact that the visa (or any temporary visa) implies that its holder does not have the intent to remain permanently in the U.S. will not bar a determination of “domicile” for purposes of U.S. estate and gift taxation.
Anthony Diosdi concentrates his practice on tax controversies and tax planning. Diosdi Ching & Liu, LLP represents clients in federal tax disputes and provides tax advice throughout the United States. Anthony Diosdi may be reached at 415.318.3990 or by email: Anthony Diosdi – adiosdi@sftaxcounsel.com.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.