International Tax Concepts: Dual-Status Taxpayers

A taxpayer’s status as a resident or nonresident is not always straightforward.  A dual-status taxpayer, for example, may qualify as both a nonresident alien and a resident alien during the same tax year.  Typically, this dual status occurs in the year that the taxpayer arrives in, or departs from, the United States.  A dual-status taxpayer may be subject to one set of rules for part of the year and another set of rules for the other part of the year — and may qualify for certain elections, such as the first-year election discussed below.

Keep in mind, we are talking about tax status here.  Dual status, as used here, does not imply citizenship.  It simply refers to whether a person is a “resident” of the United States for tax purposes.

Who is a Dual-Status Taxpayer? 

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Biden Administration Overriding Tax Treaties

(The above tweet was a response to a recent article in the Financial Post.)


This post is a comment on yesterday’s Tax Connections post “Ranking Members Warn Against Bypassing Treaty Process“. As is well known the United States has been hugely supportive of the International Tax Reforms known as “Pillar 1” (granting source country taxing rights to certain profits earned by certain multinationals) and “Pillar 2” (establishing a global minimum tax on the profits of certain multinationals). Apparently 136 of 140 countries have agreed to the two Pillars of international tax reform. The agreement signified a country’s commitment to make the necessary domestic changes to meet its international obligations.

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Tax Treaty United States/Canada

Quick Summary.  In 1867, the United Kingdom passed a Parliamentary act establishing what is now known as Canada.  Today, Canada, the largest country in the Western Hemisphere, is a federation of ten provinces and three territories.

Following its formation in 1867, Canada’s new government was provided with the power to raise money by taxation.  Moreover, the new government was divided between the federal government and the provincial governments.  Generally, the federal government was tasked with providing railways, roads, bridges, and harbors.  Conversely, the provincial governments were responsible for providing its citizens with education, health, and welfare.

Canada’s federal government did not initiate a formal income tax until World War I.  Due to its involvement in the war and its need for war funds, Canada’s federal government established a corporate tax in 1916.  A year later, the federal government introduced the Income War Tax Act, which added an income tax regime on individuals.  In 1948, the Income War Tax Act was replaced with the Income Tax Act.  Today, the Canada Revenue Agency and various provincial governments administer the federal and other tax laws in Canada.

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Hugo Lesser

Inpats, or inpatriates, are foreigners who have been transferred to work in the United States. So in a sense, inpats are also (from the perspective of their country of origin) expats.

As individuals working in the States, inpats normally become subject to the U.S. taxation system. This is probably the first time they’ll encounter the IRS, who from their side refer to inpats as Resident Aliens. Read More

American citizens and green card holders, including people who have the right to U.S. citizenship, are required to file a federal income tax return each year declaring their worldwide income, wherever in the world they live. They may also have to pay U.S. taxes.

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Hale Stewart

Today, more and more companies’ and individuals’ tax matters cross borders. These multi-jurisdictional transactions and structures are typically governed by tax treaties. Although there are three basic model treaties (the OECDs, the US’ and the UNs), each uses many of the same concepts.

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Tom Kerester

Foreign countries across the world have intricate tax treaties with the United States, which include topics such as exchanging tax information with tax authorities. In order for these tax treaties to come to fruition, they must first pass through the Executive and Legislative Branches of the U.S. Government for approval.

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An article from Stikeman Elliot includes the following:

For CRS purposes, the term ‘reportable person’ generally refers to a natural person or entity that is resident in a reportable jurisdiction (excluding Canada and the United States) under the tax laws of that jurisdiction, or an estate of an individual who was a resident of a reportable jurisdiction under the tax laws of that jurisdiction immediately before death, other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a related entity of a corporation described in clause (i); (iii) a governmental entity; (iv) an international organization; (v) a central bank; or (vi) a financial institution. See definitional subsection ITA 270 (1).

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I keep saying this, “The world is shrinking!”, ad nauseum perhaps, but I just cannot seem to get over that. When I went into the tax profession 15 years ago, I never thought I’d be reading as many tax treaties as I do now! I found out that the US had a Tax Treaty with Ukraine this year! Go figure!

Speaking of a shrinking globe, Inter-Governmental Agreements and Tax Treaties, it was uncanny this tax season, I had more than my share of clients who had a property or two in foreign countries by way of an inheritance or purchase and after having held it for a while as investments, they were now contemplating turning them into rentals.

I had written about owning foreign real estate a few blog-posts ago. You can read Read More

The United States market is a promising one for foreign investors and companies, but complicated issues must be addressed to avoid fines and penalties. One of these issues involves the completion of Form 5472.

US companies that are at least 25% owned by non-US shareholders and foreign companies that are engaged in a US trade or business must disclose information to the IRS on this somewhat confusing form. The IRS uses Form 5472 in developing information about the company and its related parties. Information provided on the form helps the IRS identify potential audit issues. Certain information on the Form 5472 might raise bright red flags for the IRS, too. Read More