Chapter 51 - § 51.1 • INTRODUCTION

• Jurisdiction: Colorado

§ 51.1 • INTRODUCTION

§ 51.1.1—Controlling Law

This chapter cannot cover all issues and is not intended to go into great detail of the issues addressed. The chapter consists of a general summary of frequently encountered provisions of the Internal Revenue Code of 1986 as amended (Code or I.R.C.) that govern U.S. taxation of "nonresident alien" individuals who also are noncitizens. For purposes of the discussion, such an individual will be referred to either as a "nonresident/noncitizen" or "NRNC." The current principles of taxation with respect to such individuals are to a great extent based upon the Foreign Investors Tax Act of 1966, Pub. L. No. 89-809, which permitted an NRNC's investment income to be taxed at a flat rate and not at the graduated rates applicable to income derived from engagement in a U.S. trade or business. In the last decade and more, a number of legislative measures have had a substantial impact upon U.S. income taxation of NRNCs and foreign corporations (the taxation of which is beyond the scope of this chapter) and on the U.S. estate taxation of the estates of NRNC decedents. In addition to these statutory principles, treaties play a very significant role, often overriding or modifying the provisions of the Code, and must be consulted whenever doing any transfer or income tax planning for an NRNC.

The Tax Cuts and Jobs Act, Pub. L. No. 115-97 (2017 Act), was signed into law on December 22, 2017. While this law represents comprehensive income tax reform and affects a wide spectrum of U.S. taxpayers engaging in cross-border activities, except as may otherwise be noted herein, the 2017 Act had no substantive impact on the taxation of NRNCs and the principles discussed herein appear to remain in effect.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, Pub. L. No. 116-94 (2019 Act), was signed into law on December 20, 2019. This law requires all non-spousal beneficiaries of individual retirement accounts (IRAs), who are not Eligible Designated Beneficiaries (EDBs), to withdraw all of the IRA within 10 years of the IRA owner's death. Except as may otherwise be noted herein, the 2019 Act had no substantive impact on the taxation of NRNCs because transfers to non-U.S. citizen spouses continue to be ineligible for the unlimited marital deduction (which can reduce federal estate and gift tax liabilities) and distributions of income to a non-U.S. citizen spouse continue to be taxed at the top personal income tax rate...