Advanced Tax Planning for Nonresident Aliens: Pre-Immigration Strategies

Description

The tax reform law changed the tax landscape and created new opportunities for nonresident alien taxpayers to establish residence in the U.S. Given some of the advantages for nonresident aliens to invest and become resident aliens in the U.S., tax advisers need to understand the more complex and powerful tax planning tools for foreign taxpayers.

One of the significant issues nonresident aliens face on establishing residency is the treatment of capital gains on the sale of assets held in the U.S. or their country of origin. Generally, nonresident aliens must take as their tax basis an amount equal to the U.S. dollar value of the purchase price of the asset. A nonresident alien does not get a step-up or mark-to-market adjustment on existing assets when he becomes a resident alien. So a critical task for tax advisers to nonresident aliens planning to seek resident alien status is to increase the basis in current assets or accelerate the sale of assets to avoid U.S. income tax.

Additional planning steps may include establishing a “drop-off trust” for high net worth individuals. Structured and funded correctly, these trusts can minimize income taxes. However, failure to fund the trust adequately or follow residency rules can create a transfer tax problem, such as inclusion in the individual’s gross estate. Advisers must plan for change from a resident alien to a nonresident alien in addition to the opposite.

Listen as our experienced panel provides a practical guide to tax planning for non-aliens and using the pre-entry nonresident alien tax planning to cover the exit process if the person determines he will be returning to the country of origin.