Puerto Rican resident was not subject to U.S. estate and gift taxes.

• Author: Fiore, Nicholas J.

A is a U.S. citizen and a resident of Puerto Rico. He proposes to transfer property with a value in excess of $10,000 to his children.

Analysis

Under Sec. 2501(a)(1), a tax computed as provided in Sec. 2502 is imposed for each calendar year on a transfer of property by gift during such calendar year by any individual, resident or nonresident. Under Sec. 2501(a)(2), Sec. 2501(a)(1) does not apply to a transfer of intangible property by a nonresident who is not a U.S. citizen.

Under Sec. 2501(b), a donor who is a U.S. citizen and a resident of a possession, is, for purposes of the gift tax, considered a U.S. "citizen" within the meaning of that term, unless the U.S. citizenship was acquired solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Sec. 2501(c), a donor who is a U.S. citizen and a resident of a possession is, for purposes of the gift tax, a "nonresident not a citizen of the United States," but only if the donor acquired his U.S. citizenship solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Sec. 2511(a), the tax imposed by Sec. 2501 applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; however, for nonresidents who are not U.S. citizens, the tax applies to a transfer only if the property is situated within the U.S. Under Regs. Sec. 25.2501-1(d), a "nonresident not a citizen of the United States" includes a U.S. citizen domiciled in a U.S. possession who acquired his U.S. citizenship solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Sec. 2209, a decedent who was a U.S. citizen and a resident of a possession at the...