Overview (January 2021) – Lexology

A new administration at the federal level may lead to changes in tax law in 2021. While they are unlikely to be applied retrospectively, advisors to international families should keep an eye on tax developments in the United States, including increased reporting of information. This overview summarizes the general framework for US gift, estate, and generation transfer taxes and describes some of the many income tax and reporting requirements that are placed on both US and non-US residents.

Gift tax

US citizens and US citizens

U.S. citizens, regardless of where they are resident, and non-citizens residing in the U.S. for transfer tax purposes, are subject to federal gift tax on gifts that are worth over an annual exclusion of $ 15,000 per recipient (for the 2021 tax year, the indexed annually) for inflation). A taxpayer's annual exclusion amount can be doubled (to $ 30,000 for the 2021 tax year) by filing a gift tax return and sharing the gift with the taxpayer's spouse, if both spouses are U.S. citizens or residents. Gift tax is levied on gifts of real estate, tangible and intangible assets, wherever they are. However, gifts made through direct payments to a medical or educational service provider are exempt from gift tax. A charitable allowance is granted for gifts given to qualified domestic or foreign charities. A marital allowance is available for gifts to a U.S. citizen's spouse.

While a gift can be taxable, a tax payment does not have to be due. For gifts in excess of the Annual Exclusion Amount, US residents and residents will receive a tax credit that protects lifetime gifts up to $ 11.7 million (the "Exemption Amount") from taxes. Applying the exclusion amount to gifts for life will then reduce the inheritance tax credit on death. The Tax Cut and Employment Act, which went into effect on December 22, 2017, doubled the amount of the exemption to $ 10 million. The exemption amount is indexed for post-2011 inflation, bringing the exclusion amount for gifts in 2021 and bequests from those who die in 2021 to be $ 11.7 million. This increased exclusion amount will expire on December 31, 2025. The exemption will reset to the exclusion amount of USD 5 million provided under previous law. The gift and estate tax rates are uniform with a top tax rate of 40%. Additional gift taxes may be levied by state tax authorities.

The Biden government may propose further reductions in the amount of inheritance and gift tax exemptions, possibly combined with an increase in the top tax rate. Both an exemption amount of $ 3.5 million and an exemption amount of $ 5 million and a maximum rate of 45% were discussed.

Non-resident foreigners

Non-US citizens and non-US residents for transfer tax reasons (non-resident aliens) are only subject to US gift tax on gifts of real estate and tangible personal property in the US (see "Estate Estate" for more details) and Gift Tax Location of Assets – Principles "). Therefore, gifts of intangible property from non-resident aliens are not subject to US gift tax, even if the intangible asset is US property (e.g., shares in a US company). Advisers to international families should seek advice from a competent U.S. tax advisor on the possible conversion of property from taxable property (e.g., tangible U.S. situs property) to tax-free property (e.g., intangible stocks) prior to gift giving.

U.S. gift tax on taxable gifts from non-resident aliens can be significant compared to gifts from a U.S. citizen or resident due to the following restrictions on credits, exclusions, and deductions:

No gift tax credit is available for a non-resident alien (as opposed to estate tax, where a credit protects $ 60,000 worth of assets from taxes on the estate of a non-resident alien).
A non-resident alien is eligible for the annual gift tax exclusion which allows for tax-free gifts of $ 15,000 per year per recipient (for the 2021 tax year indexed annually for inflation), but the non-resident alien can choose that amount Do not share duplicate gifts with the donor's spouse, even with a spouse of a US citizen.
The non-resident alien's charitable gifts to US property can only be given if they go to a US domestic charity.
The conjugal US gift tax deduction should also be limited for non-resident foreigners for practical reasons:
- Nonresident aliens, like a US citizen, are eligible for tax-free transfers under the US gift tax deduction. However, no such deduction will apply if the recipient's spouse is not a U.S. citizen regardless of the transferor's status. Therefore, gifts of US situs real estate and property to a spouse of a US citizen are not subject to gift tax. However, if the spouse is not a U.S. citizen, annual tax-free gifts are capped at an annual exclusion amount of $ 159,000 in 2021.
- The $ 11.7 million exclusion amount is not available to protect gifts of US Situs property from non-resident foreigners from gift tax. Therefore, tax advice is required for a non-resident foreigner giving gifts of U.S. situs homes and works of art.
- Trustless gifts typically qualify for the increased annual gift exclusion amount to a non-national spouse. However, careful planning is required for fiduciary gifts because the spouse's interest must be both a deductible interest under marital deduction schemes and a present of a present interest under the annual exclusion rules.

Return

The donor of a taxable gift must submit a federal tax return (Form 709) (1) no earlier than January 1 of the year following the year in which the reportable gift was made and no later than April 15. It is possible to extend the return filing time, but this does not extend the time it takes to pay any gift tax due. The recipient of the gift generally has no tax liability or reporting requirement, with the exception of a U.S. recipient of a taxable gift from a non-U.S. Individual. If the U.S. recipient receives gifts greater than $ 100,000 from a non-resident alien or non-resident estate (or $ 16,815 from a foreign corporation in 2021, indexed annually for inflation), must Submit Form 3520 to report receipt of the gift. although no gift tax is due.

Inheritance tax

US citizens and US citizens

The worldwide estate of a U.S. citizen or non-resident resident of the United States for transfer tax purposes is subject to U.S. estate tax. The Tax Reduction and Employment Act, which went into effect on December 22, 2017, doubled the amount of inheritance tax exemption to $ 10 million (indexed for post-2011 inflation, bringing the exemption amount for estates from deceased people who died in 2021 to 11 , $ 7 million) not used to offset gift tax on lifetime remittances. This exclusion amount will expire on December 31, 2025. After that date, the exemption will revert to the $ 5 million exclusion amount provided under previous law. The maximum estate tax rate is 40%. A charitable allowance is available for bequests to qualified domestic or foreign charities. A marital allowance is available for estates given to a U.S. citizen's spouse. Additional estate or inheritance taxes may be levied by state tax authorities.

"Portability" is available for a deceased spouse's unused exemption amount for the surviving spouse's estate. A portability choice must be made on the death of the first spouse. The deceased spouse's unused exemption amount can then be applied in relation to the surviving spouse's gift and estate tax. However, reliance on portability in succession planning does not necessarily lead to the most tax-advantageous result.

Although inheritance tax is subject to estate tax, the deceased's tax base for estimated assets included in the estate is adjusted to the market value of the asset, often referred to as topping up the base. This can result in the heir of those assets paying little or no taxes on capital gains when selling assets after death. The Biden administration has discussed possibly eliminating this increase in the tax base on death so that the heir would instead take a transfer base and pay capital gains tax on capital gains if the asset is later sold. A more drastic change would be to introduce a capital gains tax on death on valued assets.

The inheritance and gift tax exemption amounts are uniform, which means that U.S. taxpayers can use the exemption amount to offset gift tax throughout their lives and the remaining amount is used to offset inheritance tax upon death. The Biden government may propose reducing the exemption amount to $ 5 million or even $ 3.5 million, possibly with an increase in the top tax rate to 45%.

Non-resident foreigners

For non-resident aliens, a much broader list of properties is subject to U.S. estate tax compared to gift tax. Generally, the property is subject to US estate tax if it is located in the US. US real estate and property, plant and equipment that is physically located in the US, and any securities or liabilities issued by US persons or entities, is US real estate and is subject to tax unless expressly excluded by the Internal Revenue Code is. Determining the site can be difficult. For example, cash in a US bank deposit account is not classified as a US situs asset for estate tax purposes. Non-bank deposits, such as B. Cash accounts with US brokerage firms, but are considered US situs property (see "Estate and Gift Tax Status of Assets – Specific Examples" for more details).

Most importantly, US real estate contains stocks in a US company, but not stocks in a non-US company. Thus, the non-resident alien may be able to avoid estate tax by investing in US real estate through an offshore holding company or mutual fund. US estate tax regulations generally only provide for these offshore companies in special circumstances. With careful planning, non-resident investments in US real estate can be made through offshore companies, often owned by an offshore trust (see "Tax Planning for US Stocks in a Non-US Trust Structure" for more details). ). Except in certain circumstances, the offshore company must have the characteristics of a company and the form must be respected by the shareholder. Additionally, instead of letting the shareholder (i.e., the non-resident alien or the non-resident alien's trust) acquire the ownership and transfer it to the company, the company should acquire the US property.

Using offshore companies and trusts requires careful planning. Otherwise, a non-resident alien who financed the trust with US property and retained the right to modify the trust or receive trust income may be subject to US estate tax on the value of the trust property. The fact that the U.S. property is later converted to non-U.S. Property prior to the settler's death (e.g., by contributing to non-U.S. Corporation or by selling and investing in non-U.S. Real estate) does not change anything on earnings in the literal language of the Internal Revenue Code.

When US estate tax applies, the non-resident alien's remittances at the time of death are taxed more severely than those of a US citizen or resident. The threshold for tax-free transfers is low and the deductions are capped as follows:

The $ 10 million exclusion amount indexed annually for post-2011 inflation (currently $ 11.7 million for bequests from those who die in 2021) is not available to the estate of a non-resident alien. Instead, the loan available to a non-resident's estate protects only $ 60,000 from estate tax. This exclusion amount is not indexed for inflation and has not changed for many years.
The deduction for debts and expenses of the estate of a non-resident alien is limited. Only a portion of the recourse debt and the cost of the estate of a non-resident alien is deductible based on the value of US property and the value of the deceased's total worldwide estate. The estate of a non-resident alien must disclose the deceased's worldwide assets to the IRS in order to receive the full deduction in calculating U.S. estate tax on the deceased's U.S. situs property.
The estate tax deduction is also limited. The nonprofit estates of the non-resident alien may only be deducted from inheritance tax if they go to a US domestic charity.
Transfers to or on behalf of a surviving spouse, like a U.S. citizen, may be fully protected from U.S. estate tax through the conjugal deduction, except that property must be transferred to a qualified domestic trust if the surviving spouse is not a U.S. Citizen is eligible for the deduction even if the spouse is a resident of the United States.

The level of estate tax is significantly reduced for non-resident aliens who are deemed to be residents of contracting countries that have a modern treaty with the United States (e.g., the United Kingdom, France, and Germany). These modern treaties continue to allow the United States to tax its citizens wherever they reside. However, residents of Contracting Countries who are not nationals of the United States will benefit from the Treaty because estate and gift taxation for their transfers is generally limited to transfers of US real estate and amounts associated with a "permanent establishment" in America the United States – an art term that resembles a permanent place of business for the deceased (e.g., ownership or interest in a business partnership).

Thus, these individuals can transfer US stocks free of US estate tax. You may also be eligible for a prorated portion of the estate tax credit available to US residents based on the ratio of US real estate to all real estate. However, contract protection does not mean that the assets of a non-resident foreigner are actually tax-free, as the estate is likely to be subject to estate or inheritance tax of the home country.

Long-term stays in the United States are unlikely to receive such relief, even if there is a treaty between the United States and their home country. In practice, these individuals are unlikely to be deemed residents of their original home country under the treaty and are likely to be deemed residents of the United States instead.

Return

The federal estate tax return (Form 706 or Form 706NA) is due nine months after the date of death. It is possible to extend the deadline for filing the tax return, including an automatic extension of six months. However, this does not extend the deadline for paying any due estate tax. In addition to reporting trusts established by the deceased and trusts under which the deceased had powers, economic interests or trusteeship, the executor must transfer the deceased to a trust with interests in a partnership, limited liability company, or to a related party. Executors must file the estate tax return with the Cincinnati Service Center, regardless of whether the deceased was a US citizen, resident alien, or non-resident.

Qualified Domestic Trusts

Property that is transferred from a U.S. spouse to a qualified domestic trust in favor of a non-national spouse is eligible for estate tax deduction on the death of the U.S. spouse. A qualifying domestic trust will ensure that the trust principal may be liable to tax, either on the distribution of the principal from the trust during the life of the surviving spouse or on the death of the surviving spouse, as if it had been included in the estate of the U.S. spouse . A qualifying domestic trust can be formed by the U.S. spouse, surviving non-citizenship spouse, or the executor of the deceased U.S. spouse's estate. Only property that passes from the deceased U.S. spouse to a qualifying domestic trust or that passes to the surviving non-national spouse and is then irrevocably timely transferred or assigned to the qualifying domestic trust will qualify for matrimonial estate tax withholding.

A trust is a qualified domestic trust only if:

The escrow instrument requires at least one trustee to be a US citizen or a US corporation.
The escrow instrument provides that no distribution of the corpus may occur unless the U.S. trustee has the right to withhold the amount of estate tax from the distribution.
The trust meets any other requirements the Treasury Secretary may have to ensure the collection of estate tax. and
The executor of the estate of the deceased U.S. spouse elects the qualifying domestic trust terms to apply to the trust.

A qualifying domestic trust is not required if the surviving spouse becomes a US citizen prior to the filing date of the deceased's estate tax return, provided the surviving spouse resided in the United States on all days between the deceased's death and the date of citizenship. If the surviving spouse later becomes a US citizen after the qualifying domestic trust is formed, the spouse may receive unrestricted distributions from the qualifying domestic trust under certain conditions.

Generational transfer tax

US citizens and US citizens

When a US citizen or non-US citizen resident for transfer tax purposes makes a transfer to an individual two or more generations below that of the transferor (a “Skipping Person”), whether or not that transfer occurs during life or death In addition to any gift or estate tax that may be due, an intergenerational transfer tax is levied. The generation transfer tax exemption will be unified with the gift and estate tax exemption. Therefore, a $ 10 million exemption (indexed annually for post-2011 inflation, equivalent to an amount of $ 11.7 million for 2021) is available to protect gifts or estates from transfer tax for generations. The generation transfer tax is calculated at a flat rate and corresponds to the highest transfer tax rate of 40%.

Reducing the inheritance and gift tax exemption to $ 3.5 million, if proposed by the Biden government, would likely also reduce the generation skip transfer tax exemption to the lower estate and gift tax exemption amount. It has also been discussed to impose restrictions on the use of generation skip transfer trusts.

Non-resident foreigners

The scope of the intergenerational transfer tax for transfers from non-resident aliens is the same as the scope of the estate and gift tax on the underlying transfer. Therefore, a transfer of non-US resident property by a non-resident alien is not subject to generation skip transfer tax as it is not subject to estate or gift tax. However, the tax does apply when a non-resident alien transfers US property (excluding intangible assets transferred by gift).

Most importantly, the time to check if the tax is due is the same time as the estate or gift tax, even if the transfer is often later. In particular, the character of the transferor's property and non-resident alien status will only be assessed at the time of the initial transfer, as determined for estate tax purposes (on death) or for gift tax purposes (if the gift is complete). Therefore, the generation skip transfer tax generally does not apply to non-resident transfers of real estate outside of the United States at the time of the initial transfer.

The non-resident foreign transferee is entitled to the same $ 11.7 million exemption (for the 2021 tax year) from transfer tax for non-US citizenship or non-resident generations. However, given the limited scope of the tax on transfers by non-resident foreigners, this exemption is much less valuable than in domestic estate planning. For non-resident aliens, when a tax exemption is required for the transmission of generations, its application is fairly straightforward, but some special rules apply. If the non-resident alien transfer is fully taxable, the same principles apply as for U.S. aliens, so the non-resident alien generally decides when to assign their exemption. If the transfer by the non-resident alien does not skip the transfer tax at all, the exemption will not and cannot be allocated. The limited scope of the tax for non-resident foreigners can be summarized as follows:

Nonresident aliens are not required to consider the effect of their transfers on the transfer of generations unless the transfer otherwise requires filing a U.S. gift or estate tax return. For example, a non-resident grandfather who gave a U.S. grandchild a gift of $ 1 million in non-U.S. Property or intangible assets is not required to file a U.S. gift tax return and is not required to receive a tax exemption on transfers of Granting generations just doesn't apply.
An estate of non-US property avoids inheritance tax, and therefore transfer tax, which skips generations, so the exemption is not required.
If the transfer is mixed so that it only partially skips the transfer tax, a special rule applies to the non-resident alien to calculate the inclusion ratio of the transfer so that the tax can be collected. As in the domestic context, this regulation creates a separate trust in the amount of the granted exemption, simplifies administration and minimizes taxes.

Return

Federal Estate and Gift Tax Return Schedules (Forms 706 and 709) are used to report generations skipping transfers.

Income tax

US citizens and US citizens

A US citizen, regardless of where they reside, and any non-citizen residing in the US for income tax purposes, is subject to US income tax on their worldwide income (see "US Citizens Who Living overseas still face US tax and reporting requirements "). For the 2021 tax year, the highest income tax rate for any individual taxpayer with income greater than $ 523,600 remains 37% ($ 628,300 for married couples filing together). The highest tax rate on capital gains is 20% for individual taxpayers with income greater than $ 445,850 and for married couples who jointly submit income greater than $ 501,600. Personal exceptions have been eliminated. The standard deduction for married couples filing together is $ 25,100 for tax year 2021. For individual taxpayers and married individuals filing separately, the standard deduction is $ 12,250 for 2021. Taxpayers are no longer able to deduct various itemized expenses such as advisory fees and tax preparation fees . Home mortgage interest deduction has changed to limit the deduction for interest on purchase debt incurred after December 15, 2017 to $ 750,000 ($ 375,000 for married taxpayers filing separately). Deductions for state and local sales, income and property taxes are now capped at $ 10,000 total ($ 5,000 for married taxpayers filing separately). Foreign property taxes are not deductible. Medicare surcharge of 3.8% on net investment income, including capital gains, will continue to apply to taxpayers whose gross modified adjusted income exceeds $ 200,000 (for single registrants) and US $ 250,000 (for spouse joint registrations). The capital gains tax rate also applies to qualified dividends; For taxpayers with incomes below the relevant thresholds, tax rates of 0% and 15% are available for qualifying dividends.

Qualifying dividend income includes dividends from domestic corporations and from foreign corporations that are US-owned or entitled to the benefits of a US income tax treaty, provided the agreement includes a provision of information exchange. Dividends from overseas companies also qualify for the qualifying dividend tax rate of 15% or 20%, but only if the company's dividend-paying shares are easily traded on an established U.S. securities market. The Qualifying Dividend Rate is not available for dividends paid by a foreign personal holding company, foreign investment company, or passive foreign investment company. Payments in lieu of dividends (e.g. replacement dividends for stocks borrowed from margin accounts) also do not apply to the qualifying dividend tax rate.

The United States also has an Alternative Minimum Tax Structure (AMT). There is a 2021 AMT exemption amount of $ 73,600 for single applicants and $ 114,600 for married couples filing together. The AMT seeks to ensure that certain taxpayers claiming certain exclusions, tax deductions and tax credits pay a minimum amount of tax, and urges those taxpayers to recalculate their income tax using alternative rules that include income that is otherwise tax exempt, and certain exemptions, deductions and taxes prohibit other preferential elements.

Infolge der Steuerreform im Jahr 2017 sehen sich US-Personen, die in ausländische Unternehmen investieren, einer potenziellen Doppelbesteuerung ausländischer Gewinne auf jährlicher Basis im Rahmen des GILTI-Regimes (Global Intangible Low-Taxed Income) ausgesetzt. Die GILTI-Steuer war ein Kompromiss, um zum Teil die Senkung des US-Körperschaftsteuersatzes von 35% auf 21% zu finanzieren. Das Einkommen eines ausländischen Unternehmens wird in der ausländischen Gerichtsbarkeit besteuert, in der es verdient wurde, und dann muss der US-Investor gemäß dem überarbeiteten US-Steuerregime die GILTI-Steuer auf laufende Gewinne zahlen. Das US-amerikanische Körperschaftsteuergesetz hat ein ähnliches Regime namens Unterabschnitt F, das vor der Steuerreform 2017 bestand und weiterhin gilt, nach dem Einkünfte bestimmter kontrollierter ausländischer Unternehmen für US-Aktionäre im verdienten Jahr steuerpflichtig sind, auch wenn keine Dividende gezahlt wird (für Weitere Einzelheiten finden Sie unter "US-Personen, die in ausländische Unternehmen investieren, sollten eine Wahl nach Section 962 in Betracht ziehen, um die GILTI-Steuerbelastung zu verringern").

Von der Biden-Regierung und den Demokraten im Allgemeinen vorgeschlagene Änderungen umfassen die Streichung von Vorzugssätzen für qualifizierte Dividenden und langfristige Kapitalgewinne für Steuerzahler mit einem Einkommen von mehr als 1 Million US-Dollar, wodurch der Spitzensteuersatz für Personen mit normalem Einkommen auf 39,6% für Einkommen über 400.000 US-Dollar erhöht wird unter anderem den Vorteil von Einzelabzügen auf 28% begrenzen.

Nicht ansässige Ausländer

Ein gebietsfremder Ausländer unterliegt im Allgemeinen nur der US-Einkommensteuer auf US-Einkünfte. Es wurden jedoch besondere Ausnahmen für bestimmte Arten von Einkünften aus US-Quellen erlassen, die von gebietsfremden Ausländern erzielt wurden, um Investitionen in den Vereinigten Staaten zu fördern, die Durchsetzung zu erleichtern oder um zu vermeiden, dass Regeln erlassen werden, die nicht durchgesetzt werden können. Die folgenden zwei Ausnahmen sind die wichtigsten.

Befreiung von Portfoliozinsen

Zinsen auf US-Bankkonten und auf bestimmte Portfolio-Schuldtitel sind von der US-Einkommensteuer befreit, wenn sie von einem gebietsfremden Ausländer verdient werden. Im Allgemeinen handelt es sich bei Portfolio-Zinsen um Zinsen auf eine Schuldverschreibung, die ein US-Steuerpflichtiger gegenüber einem Inhaber ausgegeben hat, dessen Status als gebietsfremder Ausländer in einer bestimmten, durch die Steuervorschriften festgelegten Weise belegt wurde. Dies hat zur Folge, dass die Zinsen weder der regulären US-Einkommensteuer noch der Quellensteuer unterliegen.

Befreiung von Kapitalgewinnen und Auslandsinvestitionen im Immobiliensteuergesetz

Die zweite wichtige Ausnahme besteht darin, dass Kapitalgewinne im Allgemeinen von der US-Einkommensteuer befreit sind. Kapitalgewinne aus Immobilien oder Aktien von US-Immobilienholdinggesellschaften werden jedoch aufgrund des Gesetzes über ausländische Investitionen in die Immobiliensteuer (allgemein als FIRPTA bezeichnet) mit einem abgestuften Steuersatz besteuert. Dieses Gesetz behandelt lediglich die Gewinne eines gebietsfremden Ausländers aus US-Immobilien als „effektiv verbunden“ mit einem US-Handel oder Geschäft, was bedeutet, dass die Gewinne demselben Steuersystem unterliegen wie inländische Steuerzahler. Diese Steuer wird durch ein spezielles Quellensteuersystem abgesichert.

Effektiv verbundenes Einkommen

"Effektiv verbundenes Einkommen" ist ein Einkommen, das als auf die Ausübung eines Handels oder Geschäfts in den Vereinigten Staaten zurückzuführen angesehen wird. Im Großen und Ganzen soll das Konzept zwischen Geschäftseinkommen und Kapitalerträgen unterscheiden. Somit ist ein effektiv verbundenes Einkommen zu abgestuften Sätzen auf Nettobasis steuerpflichtig, die es ermöglichen, entsprechende Abzüge zur Bestimmung des steuerpflichtigen Betrags zu verwenden, wie dies beim Einkommen eines US-Bürgers oder eines in den USA ansässigen Personen der Fall ist. Dieses Ergebnis wird vom Steuergesetz als angemessen für Einkünfte aus Vermögenswerten angesehen, die in einem aktiven Geschäft mit Sitz in den USA verwendet werden oder wenn ein solches Geschäft ein wesentlicher Faktor für die Erzielung des Einkommens war – was im Wesentlichen definiert, was unter „ effektiv verbundenes Einkommen “.

„Passive Kapitalerträge“ (dh Erträge, die nicht einer US-Handels- oder Geschäftstätigkeit zugeordnet werden) sind entweder unter den besonderen Ausnahmen für Kapitalgewinne und Portfoliozinsen vollständig von der US-Steuer befreit oder werden auf andere Weise pauschal besteuert (mit 30% Quellensteuer auf) was als "festes oder bestimmbares Jahreseinkommen" bezeichnet wird).

Immobilienvermögen rechtfertigen häufig eine Sonderwahl durch den nicht ansässigen ausländischen Eigentümer, da sie zu diesem Zweck als Gewerbe oder Geschäft angesehen werden können oder nicht. Die Miete kann daher als festes oder bestimmbares Einkommen besteuert werden, das pauschal mit 30% besteuert wird, und nicht als effektiv verbundenes Einkommen. Die Nettobesteuerung von effektiv verbundenem Einkommen führt aufgrund des Vorteils von Abzügen häufig zu niedrigeren Steuern im Vergleich zur Quellensteuerregelung von 30%. Diese Sonderwahl ist die sogenannte "Nettobasis" -Wahl.

Quellensteuer

Die Quellensteuer bezieht sich auf einen pauschalen Steuersatz von 30%, der vom US-Zahler an der Quelle für Dividenden, Zinsen, Mieten, Lizenzgebühren und dergleichen erhoben wird. Die Quellensteuer wird auf Bruttobasis ohne Abzüge erhoben, im Allgemeinen jedoch durch ein anwendbares Einkommensteuerabkommen zwischen den Vereinigten Staaten und dem Heimatland des gebietsfremden Ausländers erheblich gesenkt. Der US-amerikanische Zahler dieses Einkommens muss die Steuer von jeder Zahlung an den ausländischen Steuerzahler einbehalten und dann den einbehaltenen Betrag dem IRS vorlegen. Da viele andere Steuersysteme auf der ganzen Welt ein ähnliches Konzept haben, wird die Frage des Steuersatzes in Verträgen häufig auf gegenseitiger Basis behandelt. Das System für steuerpflichtige Immobilientransaktionen nach dem Gesetz über ausländische Investitionen in die Immobiliensteuer ist ähnlich, es gelten jedoch je nach Art der Zahlung unterschiedliche und unterschiedliche Quellensteuersätze und -regeln.

Rücksendung

Bundeseinkommensteuererklärungen (Formulare 1040 und 1040-NR) sind in der Regel am 15. April für Einzelpersonen fällig. Es ist möglich, die Zeit für die Einreichung der Rücksendung zu verlängern, einschließlich einer automatischen Verlängerung um sechs Monate. Dies verlängert jedoch nicht die Zeit für die Zahlung einer fälligen Einkommensteuer (weitere Einzelheiten finden Sie unter "US-Berichterstattung: Beantragung von IRS-Anmeldeverlängerungen").

Einkommensteuerwohnsitz und Transfersteuerwohnsitz

Wohnsitz für Einkommensteuerzwecke

Es ist möglich, zu Einkommensteuerzwecken in den Vereinigten Staaten ansässig zu werden, ohne absichtlich den Status zu erwerben. Die folgenden zwei Tests werden verwendet, um den Wohnsitz für US-Einkommensteuerzwecke zu bestimmen.

Green Card Test

Ein rechtmäßiger ständiger Wohnsitz in den Vereinigten Staaten für Einwanderungszwecke (dh ein Inhaber einer Green Card) ist endgültig für Einkommensteuerzwecke ansässig.

Wesentlicher Anwesenheitstest

Der Wohnsitz in der US-Einkommensteuer wird von einer Person erworben, die regelmäßig Geschäfte tätigt oder auf andere Weise eine physische Präsenz in den Vereinigten Staaten unterhält und die nicht sehr bewusst plant, um zu vermeiden, dass die in den Vereinigten Staaten verbrachte Tage überschritten werden, selbst wenn dies der Fall ist Der ständige Wohnsitz einer Person liegt außerhalb der USA. Der wesentliche Anwesenheitstest besteht aus zwei getrennten und alternativen Tests: dem 183-Tage-Test und dem Dreijahres-Formeltest.

Under the 183-day test, a person who is physically present in the United States for at least half of the year (ie, 183 days or more) in a given calendar year and who does not qualify for any special treatment as a student, teacher, diplomat or similar will be conclusively considered a US income tax resident, unless a treaty tie-breaker provision applies. Relief may be available to qualified residents of treaty countries. If a modern US tax treaty applies, the income tax residency of an individual who is considered resident by the domestic law of both countries can be resolved under a treaty tie-breaker rule that generally looks to the following factors in descending order:

where the individual has a permanent home;
the centre of vital interests;
habitual abode; and
citizenship.

A person who is a US income tax resident under the Internal Revenue Code but not under the treaty tie-breaker rule can claim non-resident status for all purposes of computing his or her US income tax liability, not just for treaty purposes.

It will still be difficult for the non-resident alien to avoid residency, even with fewer days of presence, once the limit under the three-year formula test is exceeded. The formula limit is exceeded if:

the time spent in the United States is at least 31 days in the current calendar year; and
the total days over the current year and the two prior calendar years exceed 183 days (after multiplying days in the immediately prior year by one-third and days in the next prior year by one-sixth).

If the formula limit is exceeded, the client will avoid US income tax residency only if he or she can qualify for a treaty tie-breaker or for the closer connection/tax home exception, which applies if the taxpayer maintained closer ties to another country for the year in question and files the required statement substantiating that claim.

Domiciled for transfer tax purposes

In the gift and estate tax context (sometimes referred to together as the 'transfer tax'), 'residence' means domicile, and a non-US citizen acquires a US domicile when physically present in the United States with the intention to reside there permanently. Once acquired, the person may move from the United States while continuing to be considered domiciled in the United States. In general, this means that the immigrant must also have become a lawful permanent resident of the United States for immigration purposes, but that is not necessarily determinative. US citizens are subject to US gift and estate tax regardless of where they reside.

Domicile, unlike income tax residency, is based on facts and circumstances in all cases. Most importantly, domicile is presumed to continue in the foreign jurisdiction until it is established in the United States. The location of business or employment activities does not necessarily determine domicile. Since domicile is less clearly related to current income-producing activities than the US income tax concept of residency, it may be easier to maintain a foreign domicile in a country to which the client currently has no prohibitively expensive tax-producing affiliation. A treaty may also provide relief from the application of the US transfer tax regime. Modern treaties (eg, those with the United Kingdom, France and Germany) provide a tie-breaker rule much like the income tax treaties, but also provide special protection (of varying degrees) for citizens of one country who were not present in the other country for a substantial period of time before the gift or death.

Anti-avoidance rules

US shareholders of foreign corporations

Several special US tax provisions address ownership in non-US corporations by US persons. Since the United States generally does not tax non-US corporations on foreign source income, these special tax rules are designed to prevent US persons from using non-US corporations to avoid tax by accumulating income offshore. The rules require that certain types of passive income of controlled foreign corporations and passive foreign investment companies be taxed to their existing US shareholders, whether or not distributions are made to them. The effect of these rules can be particularly disruptive if, for instance, a non-US trust in a tax-haven jurisdiction owns one or more such passive investment corporations and the trust has one or more US beneficiaries governed by these rules. Similarly, a non-resident alien shareholder's plan to immigrate to the United States triggers a need for US tax planning.

Temporary loss of residency

The US tax laws contain a special anti-avoidance rule that applies to certain non-US citizens who temporarily abandon their status as a US income tax resident alien. This provision applies to any alien individual who is resident in the United States for at least three consecutive years and thereafter ceases to be resident, but subsequently becomes a resident again before the close of the third calendar year after the close of the initial residency period.

This anti-avoidance rule can have a serious effect. An alien individual who falls within this provision will generally be subject to tax in the same manner as a resident alien on all US source income or gains derived during the intervening period of non-residence – including, for this purpose, all of the special source rules applicable to expatriated citizens and long-term residents. Thus, US income tax will apply to interest income on portfolio debt and any gains from the sale or exchange of property situated in the United States and securities of US issuers.

In computing gain, the IRS has allowed a special step-up provision to apply, so the original pre-residency appreciation can avoid tax. Additionally, gains on US property cannot be avoided by exchanging the property tax free for non-US property, and certain income in controlled foreign corporations will be attributed to the alien.

The principal purpose of this anti-avoidance provision is to prevent resident aliens from avoiding tax on non-recurring US source capital gains by temporarily abandoning resident status. Apart from this rule, US domiciliaries or income tax residents who are not US citizens or long-term residents can immediately shift from worldwide taxation to the limited taxation applicable to non-resident aliens. This rule is of particular importance for persons who have not invested in US real estate and who can leave the United States for a longer period of time and thus avoid the rule.

US citizens and green card holders living abroad

US citizens and green card holders are taxed on their worldwide income, regardless of where they live and work. A credit for foreign taxes paid may offset a portion of the US income tax or, alternatively, the taxpayer living abroad may be entitled to a foreign-earned income exclusion, which is adjusted annually for inflation. The amount eligible for exclusion in 2021 is $108,700. Income over this amount is taxed at the marginal tax rates applicable as if the exclusion did not exist, instead of applying the lower tax rates.

An individual who elects to use the foreign income exclusion may also exclude a portion of housing costs. The base excludable housing cost is $15,218 for 2021. Housing costs less than this base amount are not excludable. There is a cap on the excludable housing costs of 30% of the foreign earned income exclusion. The difference between these two amounts is generally the maximum excludable housing costs. The IRS can adjust the 30% cap on excludable housing costs on the basis of geographic differences in housing costs relative to costs in the United States. For example, for 2020 the cap in Hong Kong was set at $114,300 and the cap in London was set at $71,500.

Expatriation

Exit tax

US citizens and long-term residents who relinquished their citizenship or terminated their US residency on or after 17 June 2008 may be subject to mark-to-market deemed sale rules, often referred to as an 'exit tax'. Previously, an expatriating individual who had complied with the required notice and tax filing requirements was thereafter subject to either the US income tax imposed on non-resident aliens or the 10-year alternative income tax imposed on expatriates who met specified income tax or net-worth criteria (for more details please see the "Overview (March 2008)").

Covered expatriates

The current exit tax rules are found in Section 877A of the Internal Revenue Code and are applicable only to covered expatriates. A 'covered expatriate' is an individual:

whose average annual net income tax for the period of five taxable years ending before the date of the loss of US citizenship is greater than $172,000 (for tax year 2021, subject to an annual cost-of-living adjustment);
whose net worth is $2 million (not indexed for inflation) or more, as of the date of the loss of US citizenship; or
who fails to certify under penalty of perjury that he or she has met the requirements of the Internal Revenue Code for the five preceding taxable years, or fails to submit evidence of compliance as required by the IRS.

A covered expatriate is not:

a dual national from birth where, following expatriation, the individual continues to be a citizen and tax resident of the other country, provided that he or she has not been resident in the United States (under the income tax substantial presence test, discussed above) for more than 10 of the last 15 years; or
a person under 18-and-a-half years of age who has not been a US resident for more than 10 years under the income tax substantial presence test.

A covered expatriate may spend time in the United States without becoming taxable as a US person, unless he or she becomes a US tax resident under the substantial presence test.

Deemed sale rule

The exit tax rules treat most of a covered expatriate's worldwide property as if it had been sold for its fair market value on the day before expatriation. The covered expatriate will owe income tax on any resulting recognised gain in excess of a $600,000 exemption amount (adjusted annually for inflation and set at $744,000 for 2021), but only with respect to appreciation that occurred while he or she was a US citizen or a US lawful permanent resident. There are special rules with respect to eligible deferred compensation items (eg, most interests in pension or similar retirement plans, certain annuity plans and property to be received in connection with the performance of services) and specified tax deferred accounts (eg, individual retirement accounts and health savings accounts) (for further details please see "New tax law applicable to expatriates").

Grantor and non-grantor trusts

If a covered expatriate is treated as the owner of a trust (or a portion thereof) under the grantor trust rules, then the assets held by that trust (or portion of the trust) are subject to the deemed sale rule upon expatriation. The deemed sale rule does not generally apply to non-grantor trusts (see below for an explanation of when a trust is considered a grantor or non-grantor trust for US tax purposes).

In the case of a non-grantor trust, before making a direct or indirect distribution to a covered expatriate, the trustee must deduct and withhold an amount equal to 30% of such part of the distribution portion that would have been includable in the covered expatriate's gross income if he or she were still subject to US income tax. The covered expatriate is treated as having waived any right to a treaty reduction in the amount withheld. If the trustee distributes appreciated property to a covered expatriate, the trust is treated as having sold the property for its fair market value and must thus recognise any gain.

If a non-grantor trust converts to a grantor trust, the covered expatriate – who is considered the trust's owner – is treated as having received a distribution from the trust, which will trigger the 30% withholding tax. If a grantor trust converts to a non-grantor trust after the individual expatriates, such trust will continue to be treated as a grantor trust for purposes of the deemed sale rule. The impact of the deemed sale rule on the change of a trust's tax status is important because the expatriation of the trust's grantor can cause a grantor trust to become classified as non-grantor for US income tax purposes.

Election to extend time for payment

A covered expatriate may irrevocably elect to extend the time for payment of the tax resulting from the deemed sale on a property-by-property basis, provided that he or she is willing to provide the IRS with a bond or other form of security. The tax will thereafter be due when the applicable items of property are actually disposed of (or on the date of such covered expatriate's death, if earlier). The covered expatriate must also waive any right to claim treaty benefits with respect to such tax liability in order to qualify for the election. Interest on the deferred tax will be charged at the individual underpayment rate (currently 5%).

Tax on gifts and bequests from covered expatriates

In addition to the exit tax to be paid by the covered expatriate, Section 2801 of the Internal Revenue Code imposes a transfer tax on US persons who receive gifts or bequests from the covered expatriate.

Covered gifts and bequests

The tax applies to certain gifts and bequests in excess of the $15,000 annual exclusion amount (adjusted annually for inflation). Gifts and bequests to a US citizen spouse or US charity are not subject to the tax. Covered gifts and bequests do not include property on which the covered expatriate, or his or her estate, is otherwise subject to gift or estate tax and which is reported on a timely filed gift or estate tax return. Tax on covered gifts and bequests will be imposed at the highest gift or estate tax rate which is in effect at the time (40% for tax year 2021), less any foreign gift or estate tax paid.

Transferor who, at the time of the transfer, is a covered expatriate
A 'covered gift or bequest' is defined in Section 2801(e) as:

any property acquired by gift directly or indirectly from an individual who, at the time of such acquisition, is a covered expatriate, and any property acquired directly or indirectly by reason of the death of an individual who, immediately before such death, was a covered expatriate.

The reference to the individual being a covered expatriate "at the time of such acquisition" or "immediately before such death" seems to say that the income and net-worth tests are to be applied at the time of the transfer, regardless of whether the transferor was a covered expatriate at the time of expatriation. However, Section 2801(f) says that the term 'covered expatriate' is to have the meaning given to it by Section 877A(g)(1), which states that the term means an expatriate who meets the requirements of Section 877(a)(2). When one follows this trail, it leads back to the income and net-worth tests, which are to be determined as of the date of the loss of US citizenship.

Thus, when an individual relinquishes US citizenship and meets the income or net worth test so as to be considered a 'covered expatriate', thereafter any covered gift or bequest received by a US person from that covered expatriate will be subject to tax at the highest rate of transfer tax (currently 40%). Even wealth earned following expatriation is subject to the tax. For example, an individual may have left the US with a net worth of $2 million and paid the exit tax, but then lived for years outside the United States amassing wealth far in excess of that original $2 million. Such individual's US heirs will pay a flat 40% tax, reduced by any tax paid to a foreign country, on the entire fortune received.

Domestic and foreign trusts

The trustee of a domestic trust who receives a covered gift or bequest must pay the tax from the trust, unlike the trustee of a foreign trust, who does not. Instead, the US beneficiary of the foreign trust pays the tax when he or she receives a distribution attributable to such gift or bequest. A foreign trust may elect to be treated as a domestic trust for purposes of the gift and estate tax.

Taxation of trusts

The term 'grantor trust' is used to describe a trust in which the settlor is taxed for US income tax purposes as if he or she still owned the trust property. This result is true even though the settlement is valid and irrevocable under relevant trust law. The settlor of a grantor trust has retained certain rights, benefits or powers over the trust. A complex and technical set of statutory rules replete with exceptions, and exceptions to exceptions, governs the circumstances where the settlor will remain taxable on income from trust property.

Non-grantor trusts, on the other hand, rather than allocating income to the settlor, are treated as taxable entities that can pass through items of income and deductions to the beneficiaries (see below). Income not passed through to the beneficiaries is taxed to the trust itself (for further details please see "US reporting checklist for foreign trusts").

US settlors

A US citizen or resident settlor who is treated as the owner of a trust under the grantor trust rules is generally subject to income tax on the trust's worldwide net annual income and capital gains. This is the case regardless of whether the grantor trust is foreign or domestic. The rights and powers that result in a US citizen or resident settlor being taxable on income from the trust include:

any retained reversionary interest exceeding 5% of trust value;
the power to control the beneficial enjoyment of trust property;
the power to revoke the trust;
certain administrative powers, including the power to borrow trust funds and vote stock of closely held companies; and
any interest in trust income.

The retained powers giving rise to grantor trust status may relate to all or only a portion of the trust. Benefits and rights granted to spouses are treated as held by the settlor. Moreover, a settlor who is a US citizen or resident will be treated as the owner of trust property under the grantor trust rules with respect to any property transferred to a foreign trust which has or may have US beneficiaries, even if the settlor has no retained rights or powers. Even when such a trust is prohibited from making distributions to US persons, transfers of appreciated assets to the trust by a US citizen or resident will be subject to income tax on any unrecognised gain at the time of the transfer.

The grantor trust rules are similar to, but not the same as, rules that determine when a settlor has given up sufficient control for a transfer in trust to be considered complete for gift and estate tax purposes. Consequently, it is possible for a US citizen or resident to create a trust that is complete for estate and gift tax purposes, but nonetheless is taxable to the settlor for income tax purposes. This mismatch provides numerous tax-planning opportunities, as well as pitfalls.

Non-US settlors

A non-resident alien settlor of a grantor trust, on the other hand, is subject to US income tax only on the trust's income and gain from US sources. Again, this is the result regardless of whether the grantor trust is foreign or domestic. If the settlor is a non-resident alien, the trust is considered a grantor trust only if:

a power to revest (eg, revoke) absolutely title to trust property in the settlor exists which is exercisable solely by the settlor without the consent of any other person, or with the consent of a related or subordinate party subservient to the settlor; or
the only amounts distributable (whether income or corpus) during the lifetime of the settlor are distributable to the settlor or the spouse of the settlor.

If neither of these conditions is satisfied, a trust with a non-resident alien settlor is taxed as a non-grantor trust rather than a grantor trust.

Classification of trusts as foreign or domestic

Whether a trust is foreign or domestic affects the income tax liability of a non-grantor trust. A US domestic non-grantor trust, like a US citizen or resident individual, is generally subject to US federal income tax on worldwide income and gains derived from all sources. A foreign non-grantor trust, on the other hand, like a non-resident alien individual, is generally subject to tax only on income and gains derived from US sources. As discussed below, the status of a trust as foreign or domestic also dictates reporting obligations of US settlors and beneficiaries, regardless of whether the trust is a grantor trust or non-grantor trust for income tax purposes.

A specific two-part test is used to determine foreign trust status for US tax purposes – the 'court test' and the 'control test'. A trust that satisfies both tests is a domestic trust; a trust that fails one or both tests is a foreign trust (for further details please see "Establishing 'foreign' trusts in the United States").

Court test

A trust satisfies the court test if a US court can exercise primary supervision over the administration of the trust. A court can exercise primary supervision over a trust if that court has or would have the authority under applicable law to render orders or judgments resolving substantially all issues regarding the administration of the entire trust. The administration of a trust is the carrying out of duties imposed on a transfer by the terms of the trust instrument and applicable law, including maintaining books and records, filing tax returns, defending the trust from suits by creditors and determining the amount and timing of distributions. If both a US court and a foreign court can exercise primary jurisdiction over the administration of a trust, that trust will satisfy the court test.

Control test

A trust satisfies the control test if US persons control all substantial decisions of the trust. Substantial decisions include:

whether and when to distribute income and corpus;
the amount of any distributions;
the selection of a beneficiary;
the power to make investment decisions;
whether a receipt is allocable to income or principal;
whether to terminate the trust;
whether to compromise, arbitrate or abandon claims of the trust;
whether to sue on behalf of the trust or to defend suits against the trust; and
whether to remove, add or replace a trustee.

'Control' means having the power, by vote or otherwise, to make all substantial decisions of the trust, with no other person having the power to veto substantial decisions. Accordingly, if a trust has two trustees that must agree on all trust decisions, one of which is a US person and the other foreign, the trust will be taxed as a foreign trust, regardless of its place of administration. Ministerial decisions that are not considered substantial include bookkeeping, the collection of rents and the execution of investment decisions.

A trust will automatically fail the court test if the trust instrument provides that an attempt by a US court to assert jurisdiction over the trust will cause the trust to migrate from the United States. A trust will also automatically fail the control test if an attempt by any governmental agency or creditor to collect information from or assert a claim against the trust would cause one or more substantial decisions of the trust no longer to be controlled by US persons.

A trust that fails either the court test or the control test will be treated as a foreign trust for US federal income tax purposes, although that status does not prevent the trust from having a US situs and being administered in the United States. Under these circumstances, however, care must be taken to ensure that the trust is not considered a local trust for state income tax purposes.

Distributable net income

Non-grantor trusts pass through items of income and deductions to the beneficiaries for US tax purposes by means of a distribution deduction and distributable net income (DNI) calculation. Income not passed through to the beneficiaries is taxed to the trust itself. The calculation of DNI is somewhat modified for a foreign non-grantor trust.

Distribution deduction

A unique aspect of trust taxation is the method by which double taxation of trust income and capital gains is avoided. Non-grantor trusts are taxed like individuals, but allowed a deduction from taxable income for distributions made to beneficiaries, and beneficiaries pay tax on income so distributed. If the trustee retains trust income, the trust pays tax on the income based upon rates that are independent of the beneficiaries. In this way, income earned by the non-grantor trust is taxable either to the trust or to the beneficiaries in proportion to any distributions received by them.

A foreign non-grantor trust is also subject to the distribution deduction method designed to avoid double taxation in domestic trusts. The trust will be regarded for income tax purposes as a conduit, to the extent that it distributes (or is deemed to distribute) amounts to the beneficiaries. The tax treatment will flow through to the beneficiary, and the beneficiary will be taxed in roughly the same manner as if the beneficiary had earned that distributed income directly.

Distributable net income

To accomplish the pass-through tax nature of a non-grantor trust, DNI is calculated to measure the amount of income that a trust can deduct because of distributions to beneficiaries and that is to be reported by such beneficiaries as income. It also stipulates the character of the distributed income for purposes of the trust's distribution deduction and the beneficiary's income.

The calculation of DNI is a matter of specific and technical rules in the Internal Revenue Code. For most US domestic trusts, DNI will be equal to taxable income determined without the distribution deduction or the personal exemption, less net capital gains, plus tax-exempt income reduced by expenses (and any charitable deduction) allocated to such income.

Since the concept of DNI provides that distributed amounts will retain their tax character in the hands of the beneficiary, taxation to the beneficiary may be avoided where it would not have occurred in the absence of the trust. Thus, while a US citizen or resident beneficiary is subject to US tax on all items of distributed income, a non-resident alien beneficiary is subject to US tax only on items of distributed income and gain derived from US sources. The collection of such tax is accomplished through the US withholding regime.

In addition, non-resident alien beneficiaries of a domestic non-grantor trust benefit from deductions otherwise unavailable to non-resident alien individuals. This is because taxation of income distributions by a trust to its beneficiaries is limited by the trust's DNI, which in turn relates to taxable income. In effect, deductions are taken into account automatically and the beneficiaries are taxed on net rather than gross income.

Capital gains included in DNI of foreign non-grantor trust

In the case of a foreign non-grantor trust, DNI includes capital gains, as well as foreign-source income and income otherwise exempt by treaty. This does not lead to taxation of these income items to the foreign trust, but instead preserves the taxability of income items distributed to the beneficiaries.

The inclusion of capital gains in the calculation of a foreign trust's DNI results in the beneficiaries being liable for tax on distributed gains. This is in contrast to the case of a domestic trust, where the domestic trust is generally liable for such tax. Any capital gain accumulated in a foreign trust will lose its tax character as such and, to the extent distributed in a later year, be taxed to the beneficiaries as ordinary income.

Undistributed net income

When a trust does not distribute all of its available income to the beneficiaries, but instead accumulates ordinary income or realised capital gains, such accumulations are characterised as undistributed net income (UNI). The calculation of UNI no longer affects the taxation of domestic trusts which are themselves subject to US tax on recognised capital gains and undistributed income. UNI can have a big impact, however, on foreign non-grantor trusts, which generally escape US tax on undistributed income (with the exception of income from US sources).

Accumulation distributions

If UNI is present in a foreign non-grantor trust and the trust makes a distribution in a subsequent year which is greater than the greater of the current year's DNI or income (as defined by the Internal Revenue Code), such excess is considered an accumulation distribution and the beneficiary is subject to the throwback rules. These rules no longer apply to distributions from domestic trusts.

Under the throwback rules, an accumulation distribution is treated as a distribution of UNI from prior years of the trust and is included in the income of the beneficiary. The beneficiary's tax rate, the amount of the accumulation distribution and the tax years of the beneficiary to which the tax is applied are all determined by a complex formula set out in the Internal Revenue Code.

Interest charge

In addition to the tax on such an accumulation distribution, the beneficiary of a foreign non-grantor trust is subject to an interest charge. For UNI derived from tax years beginning after 31 December 1995, the interest charge is computed in the same manner as interest applicable to underpayments of tax. For UNI derived from previous tax years, the interest charge is 6% simple interest.

Reporting obligations and IRS compliance campaigns

Reporting foreign gifts, bequests and distributions from foreign trusts

US citizens and residents who receive a gift or bequest from a non-US person must report to the IRS, on Form 3520, the date of the gift or bequest, a description of the property and its fair market value. If more than a specified amount ($16,815 in 2021) is received from foreign corporations or partnerships and treated as gifts, the US recipient has a reporting obligation. For gifts from foreign individuals and estates, the reporting threshold is $100,000. A US recipient's receipt of a distribution from a revocable trust that is considered to be owned by a foreign person is treated as a gift to the US recipient and reported as such. However, if the trust is a foreign trust, the US recipient has an obligation to report the receipt of the distribution regardless of the amount received.

The US recipient of a distribution from a foreign trust must file Form 3520 with the IRS to report the distribution, regardless of the amount of the distribution received or its tax consequences to the recipient (there is no such reporting requirement for distributions from a US domestic trust). The use of property held in a foreign trust after 18 March 2010, by a US grantor or US beneficiary (or any US person related to a US grantor or US beneficiary), will be treated as a distribution to the US grantor or US beneficiary of the fair market value of the use of the property. This deemed distribution rule will not apply to the extent that the foreign trust is paid the fair market value for the use of the property within a reasonable period of such use.

Form 3520 is generally due on the same date as the recipient's income tax return (for further details please see "Preparing US tax and information returns: Forms 3520 and 3520-A").

Reporting foreign bank accounts

US citizens and residents with financial interests in or signature authority over foreign bank accounts, securities accounts and other financial accounts must file a foreign bank account report (FBAR). Trusts with a US resident trustee (even if classified as foreign for US income tax purposes) and US limited liability companies (even if disregarded for income tax purposes) are also required to report foreign bank accounts. FBAR reporting is required if the aggregate value of such financial accounts exceeds $10,000 at any time during the prior calendar year, even if the accounts do not generate taxable income. Although there are many legitimate reasons to hold foreign financial accounts, the IRS stresses that account holders who do not comply with the reporting requirements may be subject to civil penalties, criminal penalties or both. Beginning with tax year 2016, the FBAR due date is April 15 and can be extended up to six months to 15 October. Filing must be done electronically through an e-filing system at bsaefiling.fincen.treas.gov. As it is not an income tax return, the FBAR is filed on its own and not with income tax returns.

Reporting specified foreign financial accounts

Separate from the FBAR filing requirement, individuals must report interests in specified foreign financial assets when filing their federal income tax returns. Individual taxpayers must disclose annually on Form 8938 any interest in a "specified foreign financial asset" for any year in which the aggregate value of such assets is greater than specified reporting thresholds based on marital status and whether the individual is living in the United States or abroad. Form 8938 asks for detailed identifying information on each specified foreign financial asset being reported and its maximum value during the tax year. 'Any interest in a foreign entity' includes not only an interest in non-US companies, but also an ownership interest in a foreign trust as grantor under the US grantor trust rules and an interest in a foreign trust as a beneficiary (for a detailed discussion please see "IRS releases new form to report specified foreign financial assets").

Reporting by US owners of foreign corporations

US persons owning, directly or through a trust, more than 10% of a foreign corporation must file Form 5471 with their income tax return. US persons investing, directly or through a trust, in a passive foreign investment company (PFIC) must file Form 8621 upon the disposition of stock, receipt of a distribution or making of certain elections. There is an annual PFIC reporting requirement as well, also on Form 8621.

Reporting by foreign-owned LLCs

Beginning in 2018 a limited liability company (LLC) created under the laws of a US state that is wholly owned by a single non-US person will be required to report transactions with its non-US owner and related parties to the Internal Revenue Service (IRS) on Form 5472. A single-member LLC is a disregarded entity for US tax purposes but, when foreign owned, is treated as a corporation solely for the purposes of the Form 5472 filing obligation (for further details please see "Completing US tax forms: Form 5472 – foreign-owned disregarded entities").

Reporting of beneficial owners

To combat abuse of anonymous companies, money laundering, the financing of terrorism and other illicit activity, the Corporate Transparency Act became law on 21 January 2021. The act requires certain new and existing small companies to disclose certain information about their true beneficial owners to the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). FinCEN will establish and maintain a national central registry of beneficial ownership information, which will not be publicly available.

International tax compliance campaigns

The IRS continues to add international tax compliance campaigns demonstrating its ongoing efforts and focus on offshore structures and information reporting obligations. FATCA has provided the IRS with information on US taxpayers' foreign accounts and foreign trusts, as well as distributions made from foreign trusts to US beneficiaries. The IRS is using this information to issue penalty notices for failure to timely file the appropriate forms.

FATCA

FATCA was enacted to obtain information from foreign financial institutions. It allows the IRS to check whether the US taxpayer has filed the various reports described above, thereby preventing tax avoidance by US citizens and entities that hold financial assets through offshore trusts and holding companies. The FATCA rules are dizzyingly complex and far reaching. Non-US trusts and holding companies will suffer a 30% withholding tax on certain US payments unless they provide details regarding their US beneficiaries and grantors, and one or more of the offshore entities in a family's structure may need to register with the IRS (for further details please see "Practical FATCA and CRS compliance for family trust structures").

In a nutshell, FATCA treats every non-US entity as either a foreign financial institution (FFI) or a non-financial foreign entity (NFFE). Generally speaking, trusts with a professional trust company as trustee or a professional investment manager are classified as FFIs. An FFI, unless it is otherwise deemed compliant, must register with the IRS and report its "US accounts". An NFFE, unless it registers to report directly to the IRS, must disclose its substantial US owners to US withholding agents. Even a trust settled by a non-US individual, with no US beneficiaries and no US investments, needs to know its FATCA classification so that it can provide the certificate necessary to prevent withholding or an account being marked as recalcitrant. Such a trust has no reporting obligation, but if it cannot provide a FATCA certificate – Form W-8BEN-E or W-8IMY – it cannot invest or transact business globally.

Intergovernmental agreements between the United States and offshore jurisdictions where international families often establish trusts include a deemed compliant status for trusts with professional trust companies as trustee. This status provides that the trustee will carry out the FATCA due diligence and reporting, if necessary, on behalf of the trust and the trust itself will not be registered with the IRS. As a "trustee-documented trust" the trust will be able to provide a W-8BEN-E or W-8IMY and avoid the adverse impacts of FATCA. The trustee will report to the IRS on distributions to US beneficiaries. International families with succession planning structures utilising trusts should check with their trustees and advisers to determine whether the structures are FATCA compliant, regardless of whether there are US beneficiaries or US investments (for further details please see "Time for non-US trustee companies and their trusts to prepare for FATCA").

The United States has not yet agreed to implement the Common Reporting Standard (CRS). Nevertheless, unless a trust structure is established in the US and holds only US accounts and entities, a US domestic trust investing outside the US and FATCA-compliant foreign trusts will need to comply with the CRS (for further details please see "Common Reporting Standard considerations for FATCA-compliant trusts").

Endnotes

(1) Tax forms are available from www.irs.gov.