Greenspoon Marder International Wealth & Asset Planning Blog: Are All US Citizens Created Equal In the Eyes of the IRS?

Oct 2, 2019 Denver, CO

People may think just because someone is a US citizen or US resident, that person is able to take advantage of the huge estate and gift tax exemptions allowed under the tax code. However, as highlighted again in the recent IRS Private Letter Ruling 201924009, if an individual is a US citizen solely by reason of living or being born in certain US possessions or territories (for example, Puerto Rico, US Virgin Islands, Guam), that individual will be treated as a non-resident non-US-citizen. As such, any US situs property that such individual gives away during lifetime or owns at death may be subject to US taxes much more readily (i.e., tax credits being limited to somewhere between $13,000 and $46,800 per Tax Code Section 2102) than had this person been born in, and remained a citizen of, the contiguous continental United States (who in contrast enjoys a $4,505,800 tax credit, which continues to climb in accordance with an inflation index). Then again, if such person owns no assets in the United States (meaning the fifty states and the District of Columbia), this individual can totally avoid US estate taxes and gift taxes that would otherwise have been imposed on such other United States citizens. In any event, planning options exist that can avoid unnecessary taxes. See Tax Code Sections 2102, 2107, 2208, 2501(b), 2501(c) and 877(b).

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