LAW OFFICES GIVNER & KAYE BRUCE GIVNER PHONE (310) 207-8008 (bruce@GivnerKaye.com) A PROFESSIONAL CORPORATION OWEN D. KAYE (818) 785-7579 SUITE 445 (owen@GivnerKaye.com) 12100 WILSHIRE BOULEVARD KATHLEEN GIVNER FAX (310) 207-8708 LOS ANGELES, CALIFORNIA 90025 (kathy@GivnerKaye.com) (818) 785-3027 NEDA BARKHORDAR www.GivnerKaye.com (neda@GivnerKaye.com) JACQUELINE BURBANK (jacqueline@GivnerKaye.com) November 17, 2016 It’s A Small World After All: Opportunities Working With Wealthy Global Citizens 1. Wealth Migration. 1.1. 468,000 to 482,000 immigrant visas issued every year since 2009. 1.2. Additional immigrant visa under the EB-5 Immigrant Investor Program: conditional visa that allow families to live, work and attend school in the U.S. with a minimum of $1,000,000 in new or recently created businesses or $500,000 in businesses in rural or high-unemployment areas. 1.3. Foreign direct investment in U.S. businesses on a cumulative basis reach $2.9 Trillion at the end of 2014, including $236 Billion in 2013. 1.4. Foreign investment in U.S. real estate, commercial and residential, is large, including $68 Billion in 2013 in SFRs. 2. Income Tax. 2.1. Citizenship. 2.2. Residency. Note that this is an objective test. Taxed on worldwide income. 2.2.1. Lawful permanent resident (“Green Card”). 2.2.2. Substantial presence test: 2.2.2.1. 183 days in the current year; or 31 in the current year and sum of current plus 1/3 rd of prior and 1/6 th of 2.2.2.2. 2 nd prior equals or exceeds 183. So 120 per year is a safe harbor. Exception: • tax home in a foreign country during the year and a “closer connection” during the year to the foreign country. • Full time student on a student visa, teacher or trainee 2.2.3. First year election to be taxed as a resident alien. 2.3. Non-resident alien (“N.R.A.”): only taxed on… 2.3.1. U.S. source income. 2.3.1.1. F.D.A.P.: interest, dividends, rents and royalties. • Taxed on dividends from a U.S. corporation but not the proceeds of sale of U.S. securities (capital gain exemption). 2.3.1.2. E.C.I. 2.3.1.3. Capital gain: 2.3.1.3.1. Generally, not taxed. 2.3.1.3.2. Taxed if they are E.C.I. 2.3.1.3.3. From real estate taxed on a net basis with 10% withholding on gross sales price. [FRIPTA]. 2.3.2. Taxed more favorably than a U.S. person to encourage foreign investment in the U.S. 2.3.2.1. Interest on U.S. bank accounts, including time deposits and certificates of deposit, is not U.S. source income.
LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION It’s A Small World After All: Opportunities Working With Wealthy Global Citizens November 17, 2016 Page 2 of 10 2.4. Trade or business: does it have a Permanent establishment? 3. Transfer Taxes. 3.1. General rule: Gift and Estate Tax. 3.1.1. U.S. citizen or resident/ worldwide assets. • A U.S. resident for gift and estate tax is a person whose primary residence or domicile is in the United States. This means that the person lives in the U.S. and has no definite present intent to leave, as shown by the surrounding facts and circumstances 3.1.2. Non-citizen, non-domiciliaries: U.S. situs assets. 3.2. Domicile. Note that this is a subjective test. 3.2.1. No current intent to leave the U.S. 3.2.2. So can be U.S. resident but not a U.S. domiciliary. In other words you may be subject to U.S. income tax because you are a resident (“bright line test”) but you are not a domicile of the U.S. (“facts and circumstances test”).
LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION It’s A Small World After All: Opportunities Working With Wealthy Global Citizens November 17, 2016 Page 3 of 10 3.3. U.S. Sitused Assets [for estate tax purposes]: 3.3.1. U.S. real property. 3.3.2. U.S. tangible personal property • (jewelry, antiques, artwork, car unless the items are in transit or on loan for an exhibition). 3.3.3. U.S. intangible personal property. • Share of stock of a U.S. corporation; share of stock of a foreign corporation are not U.S. situs property. 3.4. Non-U.S. Sitused Assets: 3.4.1. Life insurance on the life of the N.C.N.D., no matter who owns the policy §2015(a). Big opportunity!! If an NRA owns a policy on another and that policy is a U.S. situs asset, its value, not the proceeds, are includible in the NRA’s gross estate for U.S. estate tax purposes. 3.4.2. Works of art on loan in the U.S. 3.4.3. Shares of Stock of a Foreign corporation. 3.4.4. Bank Account 3.5. Estate Tax Deductions/Exclusions. 3.5.1. Many are not allowed unless the return includes the value of the non-U.S. assets. 3.5.2. So most N.C.N.D.’s will forgo the deduction to avoid disclosure. 3.5.3. QDOT. 3.5.4. $60,000 v. $5,450,000 estate tax exemption. 3.6. Gift Tax. 3.6.1. Must be U.S. real and tangible assets is U.S. situs property for Gift Tax purposes 3.6.1.1. Planning : So convert tangible to intangible, e.g., contribute to an corp Gifts of cash (including checks) that take place within the United States
LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION It’s A Small World After All: Opportunities Working With Wealthy Global Citizens November 17, 2016 Page 4 of 10 may be subject to gift tax. Therefore, any gifts of cash by a non-U.S. person should be made outside of the U.S. 3.6.2. Same annual gift exclusion, e.g., $14,000. 3.6.3. Same medical and education expense exclusion. 3.6.4. Cannot elect to split gifts even with U.S. citizen spouse. 3.6.5. $60,000 estate tax exemption not available for gifts. 3.6.6. Annual spousal gift exclusion of $148,000, adjusted for inflation. 3.7. GSTT. Transfer by a N.C.N.D. is subject to GSTT only to the extent that it would also be subject to U.S. transfer tax. 3.8. Treaties. 3.8.1. Designed to reduce or eliminate double estate tax. 3.8.2. Double tax occurs when an individual dies domiciled in 2 countries or is domiciled in one and owns property in both. 3.8.3. Some individuals are not domiciled in any one country. 3.8.4. Treaties have tie-breaker provisions to determine which country has primary taxing authority. 3.8.5. Failure to disclose a treaty position on a return can result in penalties. 3.9. Gift vs. Estate Tax . 3.9.1. U.S. Real Estate. 3.9.1.1. Contribute it to a U.S. corporation makes it an intangible, the transfer of which is gift tax free. 3.9.1.2. N.C.N.D. will own home through a foreign corporation, and stock is not a U.S. situs asset for estate tax purposes. Note: transfer of theproperty might trigger capital gain tax and withholding under FIRPTA. 3.9.2. U.S. Tangible Personal Property. N.C.N.D.’s gift with a retained income interest (IRC §2036) within 3 years of death keeps the asset in his or her U.S. taxable estate. 3.9.3. Cash or currency. 3.9.3.1. Gift tax: is a tangible asset. So gifts should take place outside the U.S. or wire from N.C.N.D’s non-U.S. account to the U.S. donee. Debt obligation are not subject to gift tax. 3.9.3.2. Estate tax. Cash in a U.S. bank or bank deposit account is not U.S. situs (to encourage foreign deposits with U.S. banks and their offshore branches). Exception: if E.C.I. Accounts at brokerage houses do not qualify as bank deposits. 3.9.4. Stock In A U.S. Corporation. 3.9.4.1. Gift tax: intangible so N.C.N.D. can transfer without gift tax. 3.9.4.2. Estate Tax: U.S. situs so subject to estate tax. Not true if a treaty applies, e.g., the U.S. – U.K. treaty.
LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION It’s A Small World After All: Opportunities Working With Wealthy Global Citizens November 17, 2016 Page 5 of 10 3.9.5. Qualified Portfolio Debt Obligations. 3.9.5.1. Estate tax: Not U.S. situs. Does not apply to registered obligations with a maturity at issue of not more than 1 year, including U.S. Treasury instruments. Payment obligations must be payable outside the U.S. to non-U.S. Persons. 3.9.5.2. Gifts: transferring this obligation can potentially invalidate its status as a non-U.S. situated asset or trigger U.S. income tax. 3.9.6. Life Insurance. Estate tax: Insurance on the life of an N.C.N.D. is not deemed property within the U.S. Whether foreign or domestic issuer.
LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION It’s A Small World After All: Opportunities Working With Wealthy Global Citizens November 17, 2016 Page 6 of 10
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