Introduction – All The World Is A Multiple Choice Test
Q.1 – A tax resident of the United States is taxable on his worldwide income. According to the Internal Revenue Code of the United States, which one of the following is NOT a tax resident of the United States of America?
(A) A Congresswoman “Born In The USA”, head of her household, who does not and has never had a U.S. Passport
(B) An unmarried Green Card Holder who has never filed an FBAR who lives in El Paso Texas
(C) A fifty year old U.S. citizen who is divorced has never set foot in the United States, doesn’t have a U.S. Social Security Number and lives in and pays full taxes in Germany
(D) A citizen of only Canada who lives four months a year in Florida with his U.S. citizen wife, in a house he owns where he parks a car he owns with Florida license plates
(E) A citizen of Grenada who lives full time in the USA with an E1 visa operating a fast food franchise
For help in finding the answer see …
Green Card holders are deemed to be U.S. tax residents under the Internal Revenue Code. In most circumstances Green Card Holders are also treated as U.S. tax residents under U.S. tax treaties.
U.S. Green Card holders have traditionally been able to use tax treaties to sever “tax residence” with the United States. This decision carries both burdens and benefits and should never be undertaken without competent professional advice. (For Green Card holders who are “long term residents“, the use of a “tax treaty tie breaker” will result in expatriation. Expatriation may trigger the imposition of the Sec. 877A Expatriation Tax.)
The tax treaty tie breaker is available if and only if the individual is, according to the tax treaty, a tax resident of BOTH the United States and the treaty partner country.
Typically the tax treaty tie breaker is a mechanism where one uses the provisions of the tax treaty to assign tax residency to one and only one country according to the tax treaty.
To repeat: a condition precedent to the use of the tax treaty tie breaker is that the individual be a tax resident of both countries according to the tax treaty.
There have been a number of suggestions in various blogs that South Africa is somehow taxing on the basis of citizenship. American citizens (whether by accident or design) are most sensitive to any discussion of “citizenship-based taxation”. After all, U.S. tax policies combined with FATCA (which is part of the Internal Revenue Code) are destroying the lives of those who have entered the U.S. tax system.
I recently received an email that asked:
They’re talking about SA expats, people who no longer live in SA, being taxed by SA. Like us, these people are residents and earners in countries other than their country of origin (and, I would assume, citizenship). http://www.internationalinvestment.net/regions/south-african-expats-hit-tax-exemption-removal-plans/ If this is not CBT, on what basis are they being taxed? If SA is just wanting to expand its definition of tax residency on what basis do they feel they can apply this to someone who no longer lives in their country? Read More
This is part of a series of posts on: (1) tax residency, (2) the use of treaty tiebreakers when an individual is a tax resident of more than one jurisdiction and (3) how to use treaty tiebreakers to end tax residency in an undesirable tax jurisdiction.
The advent of the OECD Common Reporting Standard (CRS) has illuminated the issue of tax residency and the desire of people to become tax residents of more tax favorable jurisdictions. It has become critically important for people to understand what is meant by tax residency. It is important that people understand how tax residency is determined and the questions that must be asked in determining tax residence. Tax residency is NOT necessarily determined by physical presence.
An introduction to “tax residency.”
Most people equate residency with physical presence. The thinking is that “your residence is where you live”. There is no necessary correlation between where one lives and where one is a “tax resident”. Residence for tax purposes may be only minimally related to residency for immigration purposes. It is possible for people to live in only one country and be a tax resident of multiple countries. The most obvious example is “U.S. citizens residing outside the United States”.