Coming to America? Watch out for gift and estate tax consequences.

• Author: Sheridan, Eileen F.
• Position: Overseasclients

As the world becomes integrated with high-net-worth individuals from foreign lands creating tics with the United States, some of them may inadvertently Fall under the U.S. estate and gift tax regime. These non-residents, non U.S. citizens (NRNC) are creating connections to the United States in many ways by investing in security markets, owning real properties and investing in closely held businesses. They are educating their children at U.S. schools alai colleges, getting married to U.S. citizens and increasing their social ties.

While many practitioners understand that there can be U. S. income tax consequences by spending time here, they often fail consider the impact of the U.S. estate and gill tax upon these individuals.

Income Tax Rules: Substantial Presence Test

Let's start with some of the basic rules. In the income tax area, an NRNC can avoid being, subject to U.S. income taxation on worldwide income by staying out of the United States. By keeping the number of days spent in the United States under the maximum allowed in the substantial presence test formula under IRC Sec. 7701 (b)(3) and by not holding a U.S. green card, an NRNC can avoid being taxed on worldwide income. 01 course, accurate travel records should be maintained for evidence and strict adherence to the rules should be followed.

Transfer Tax Rules: Domicile

There is no such test 14 avoiding the gift and estate tax (transfer tax) system. The determination of whether a non-citizen is subject to the transfer tax rules is based on whether the individual is "domiciled" in the United States at the time of death or at the time of a gift. Reg; Sec. 20.0-1(b)(1) states that "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." Additional legal authority clarifying whether or not an individual is domiciled in the United States is sparse.

Accordingly, it's a "facts and circumstances" test. Some of the major fact categories courts commonly look to in assessing domicile include:

1. Residential property in the United States compared to other countries. The courts will evaluate the residential properties's physical characteristics and sizes, relative values, the relative amounts of...