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Nonresident Aliens Can Still Be Subject to US Taxes

Nonresident Aliens Can Still Be Subject to US Taxes
Ines Zemelman, EA
12-Jan-19

The United States government’s reach can extend to non-citizens (including those who have recently expatriated), so it is important that you don’t assume you’re exempt from filing US tax returns just because you are not a US person. Here are five ways that you could find yourself drawing the attention of the government.

Estate Tax

Even as a non-citizen, owning “situs property” in your estate at the time of death could trigger estate tax. Situs property is property either in the United States, or being connected to the United States. Remember that property consists not only of tangible property, but also the stock of an American company, no matter where you keep that stock. In other words, holding a US stock in a Swiss account doesn’t keep the IRS away.

At the time of death, if the estate holds over $60,000 in situs property, estate tax can be triggered. A few treaties between countries do exist that might provide a little relief.

United States LLC

Previously, some non-citizens formed an LLC since there was no requirement for any kind of tax filing provided that the LLC was foreign-owned by a single person. But beginning in 2017, new tax reporting requirements are in place. Even if no taxes are owed, there are requirements for filing information forms. If these forms are not filed, penalties could be imposed.

See Death of a Straw Man

Real Estate

When real estate is sold, there is a requirement for withholding of 15%. It may be possible to recover some of this withholding via Form 1040NR, but it is complicated enough that you will likely need professional help. Although there are a few exceptions to withholding, this requires a timely application.

See FIRPTA

US Sourced Income (Passive & Active)

This is a very complicated area since the tax laws apply based on many different factors that affect each person differently. In addition, there can be differences between federal requirements and state requirements.

Tax on passive Income from the US (investments, dividends, etc) will usually be withheld by your broker. But, if the broker does not have correct information they may withhold the wrong amount. This means you might owe more, or might have overpaid and need a refund. Regardless, you need to submit a United States tax return in order to correct the problem.

These are just a few cases where US tax law could affect you, even as a non-citizen. If in doubt, seek the help of a tax professional.

 

Ines Zemelman, EA
Ines Zemelman, EA
founder of Taxes for Expats