Permanent vacation: a rundown on US taxation for foreign national tourists.

• Author: Oba, Torakichi Jesus
• Position: Foreign taxation

Odysseus battled many obstacles on his odyssey to reclaim the hand of his wife, Penelope, but none were more alluring and deadly than the Sirens who lured many a sailor to their untimely death--shipwrecked and drowning to the sound of sweet music.

It is in this same vein that the taxation consequences of foreign nationals in the U.S. and California on visas must be given special consideration, as they may end up unwittingly opening up their worldwide incomes to U.S. and California taxation, while potentially exposing their worldwide estate to taxation.

Tourist Visa

There are various visas a foreign national can use to be lawfully present in the U.S., the most concerning remains the tourist visa, commonly referred to as a B-2. Such visas are granted for tourism; vacation; visits with friends or relatives; medical treatment; and participation in fraternal, social, service, musical or sporting events.

Tourist visas last for up to 10 years. The intention for those using this visa initially begins as enjoyment of all the natural beauty and attractions the Golden State has to offer, and gradually these visa holders spend more and more time in the U.S., blissfully unaware of the coinciding tax consequences.

Foreign nationals should be particularly aware of the substantial presence test for federal taxation or establishing residency in California. The rules for tax residency differ between the federal government and California, but if someone qualifies as a tax resident under one set of rules, then there are legitimate concerns that arise for the other.

To further complicate things, depending on the individual's facts and circumstances, they also may be in a situation where their worldwide estate may be exposed to U.S. estate taxation. If the right (or wrong) facts and circumstances are met, an individual on a tourist visa who has no permanent immigration status can open themselves to the worldwide taxation of their income to the federal government and California, while also opening up their worldwide estate to federal taxation.

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Junior's Taxes

In practice, alarm bells are to be sounded if a nonresident alien client calls to say, '(Junior is going to polish up their English with the intent of continuing their education in the U.S. and I'm going to invest in some real estate where they can live and where I can vacation."

The taxation concerns for Junior are minimal, as those who are in the U.S. on a student or F Visa who...