Chapter 51 - § 51.2 • THE TAX NEXUS

• Jurisdiction: Colorado

§ 51.2 • THE TAX NEXUS

§ 51.2.1—NRNC/Transfer Taxes

For transfer tax purposes, individuals are treated as NRNCs if they are neither U.S. citizens nor residents of the United States. Resident or nonresident status turns on the individual's domicile as determined in accordance with traditional common law principles: physical presence plus an intent to remain indefinitely. Treas. Reg. §§ 20.0-1(b)(1), 25.2501-1(b). In addition, under traditional common law principles, domicile once established is presumed to continue. The elaborate tests for determining residency for income tax purposes under I.R.C. § 7701(b) have no application in the transfer tax area.

U.S. Citizenship

U.S. citizenship is determined under the Immigration and Nationality Act, 8 U.S.C. §§ 1101, et seq. In general, any individual acquires U.S. citizenship by:

1) Birth within the United States, even when the parents are non-citizens. U.S. Const. amend. XIV; U.S. v. Wong Kim Ark, 169 U.S. 649 (1898);
2) Birth outside of the United States to parents who are both U.S. citizens and one parent has a residence in the United States or one of its outlying possessions. 8 U.S.C. § 1401(c); see also Weedin v. Chin Bow, 274 U.S. 657 (1927);
3) Birth outside of the United States to one parent who is a U.S. citizen if that parent satisfies certain residency requirements. 8 U.S.C. § 1401(g); and
4) Naturalization.

If an individual has dual citizenship, i.e., both U.S. citizenship and that of another country, that person is fully taxed as a U.S. citizen and citizenship in the other country is ignored, subject to any applicable treaty override. United States v. Matheson, 532 F.2d 809 (2d Cir. 1976); Atlantic Bank of New York v. Comm'r of Internal Revenue (In re Estate of Vriniotis), 79 T.C. 298 (1982).

U.S. citizenship can be lost by committing one of several different acts with the intent¹ of relinquishing U.S. nationality, including:

1) Voluntarily obtaining citizenship in another country;
2) Swearing an oath of allegiance to a foreign country;
3) Entering the armed forces of another country;
4) Formally renouncing U.S. citizenship before a foreign service officer abroad; and
5) Committing treason.

I.R.C. § 6039G requires any individual who relinquishes U.S. citizenship to report loss of citizenship to the Department of State along with certain other information required by the Treasury Department. See Notice 97-19, 1997-1 C.B. 394, as modified by Notice 98-34, 1998-27 I.R.B. 30. The Department of State is required to notify the Internal Revenue Service (IRS or Service). I.R.C. §§ 877 and 877A define the full scope of the information to be reported and must be reviewed for full compliance.

U.S. Residency — "Domicile"

For a non-U.S. citizen, residency also establishes the tax nexus for estate and generation-skipping transfer tax purposes, and is the primary nexus for gift tax purposes...