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International Taxation
Rutgers University, Newark School of Law
Blum, Cynthia A.

INTERNATIONAL TAX OUTLINE

Residency Classification Rules:
Individuals:
– US Person: ß §7701(a)(30).
o Citizen. ß Reg. §1.1-1(c) – “Every person born naturalized in the US and subject to its jdx is a citizen.”
§ Noncitizen that filed a declaration of intent to become a citizen but has yet to be granted citizenship is an Alien.
o Resident Alien: ß §7701(b)(1)(A)
§ Green Card Test (GCT): ß §7701(b)(1)(A)(i)
· Lawful permanent resident of US at any time during calendar year.
· Individual is a lawful permanent resident of US is they hold a GC.
· NRAs in the process of applying for a GC do not meet this test.
§ Substantial Presence Test (SPT): ß §7701(b)(3)
· Actual presence in the US more than 30 days current year, and 183+ days under formula in the current and past 2 years
([current] X 1 + [current – 1] X 1/3 + [current – 2] X 1/6).
· Tax Home Exception: ß §7701(b)(3)(B)
o SPT is not satisfied if (i) present in US for less than 183 days during current year, (ii) has a separate tax home, and (3) a closer connection with the other tax home than US.
§ Tax Home à principal place of business; if none, principal place of abode. [§162(a)(2)] § Closer Connection à unequivocally demonstrates a significant life style nexus to that country. [Reg. §301.7701(b)-2(d)(1)] § This exception is not available for any yr. in which an individual has applied for a GC or taken other affirmative steps to become a permanent resident or has an application for adjustment of status pending.
· 30-Day De Minimis Rule: ß §7701(b)(3)(A)(i)
o If the alien is present in the US for 30 or less days in current calendar year, irrespective of presence in preceding years, she does not meet the SPT.
· Exempt Individuals: ß §7701(b)(5); Reg. §301.7701(b)-3
o Foreign government-related individual
o Teacher or trainee
o Student
o Medical Conditions ߧ7701(b)(3)(D)
§ Actual presence does not arise for any day on which an individual objectively intended to leave the US but was unable to leave due to a medical condition arising while the individual was present in US.
§ The condition causing the failure to leave must not be a known pre-existing problem/condition. ß Reg. §301.7701(b)-3(c)
o Days in Transit Between 2 Foreign Points ß §7701(b)(7)(C); Reg. §301.7701(b)-3(d)
§ Days in transit between foreign points are excluded as days of presence for the SPT b/c such a traveler most likely cannot utilize their brief stay in the US for any purpose sufficiently significant to extend residency nexus.
§ The individual is in transit between 2 points outside the US, is physically present in the US for less than 24 hours, and is not treated as “actually present” in the US on such a day.
§ This exemption is to protect individuals traveling between airports to change planes or experience brief US layovers.
o Commuters from Canada or Mexico ß §7701(b)(7)(B); Reg. §301.7701(b)-3(e)
§ Regular commuters residing in Mexico and Canada are shielded from resident status.
§ A “regular” commuter is an individual who commutes to his place of employment or self-employment in the US on more than 75% of the workdays during the working period.
§ Commuting is determined on a daily basis; overnight or extended stays will not qualify as commuting for purposes of this exemption.
· First-Year Residency Election: ß §7701(b)(4)
o Not resident under SPT or GCT in current year.
o Not resident in [current – 1] year.
o Meets SPT for [current + 1] year.
o Present in US for at least 31 consecutive days in election yr.
o Present in the US for 75% of period beginning with the first day of the 31-day period and ending with the last day of election year. (May claim 5 days, when in reality absent.) ß Reg. §301.7701(b)-4(c)(3)(B)(iv)
– Foreign Person:
o Defined as a Non-US person.

Residency Commencement and Termination:
– Residency Starting Date ߧ7701(b)(2)(A)(i) – (iv).
o GCT ß §7701(b)(2)(A)(ii); Reg. §301.7701(b)-4(a)
§ 1st day physically present in the US during calendar yr as a lawful permanent resident.
§ If GCT is satisfied but individual is not physically present in US during the current yr., RSD is the 1st day of the following yr.
o SPT ß §7701(b)(2)(A)(iii)
§ If SPT is met, 1st day the individual is present in the US.
§ De Minimis Rule ß §7701(b)(2)(C)
· If an individual can establish a closer connection to a foreign country than to the US, up to 10 days of presence can be disregard for purposes of determining the RSD.
o Both tests are satisfied ß Reg. §301.7701(b)-4(a)
§ Earlier of the residency dates is the RSD.
– Resident Termination
o GCT ß §7701(b)(2)(B); Reg. §301.7701(b)-4(b)
§ Last day deemed to be a lawfully admitted permanent resident provided the individual has a closer connection to a foreign country for remainder of the yr. and is not a US resident any time during the next calendar yr.
· Date GC is surrendered/abandoned ß Reg. §301.7701(b)-1; or
· Date judicial order of abandonment is issued
o SPT ߧ7701(b)(2)(B)
§ Last day of physical presence so long as after that date, the individual has a closer connection to a foreign country for the remainder of the yr. and is not a RA next yr.
o Expatriate ß §§ 877A(g)(2); 7701(n)
§ Residents and citizens who give up their status (expatriate) are subject to §877.
· Under §877, those individuals may be taxed on certain US source income under progressive rates if it results in a higher total tax than would be achieved if they were taxed as NRA.
§ Any individual subject to §877 must notify the US gov. by giving notice about the termination by filing a statement in accordance with §6039G. Until such requirements are met, residency/citizenship will not be terminated.

Classification of Entities:
– Domestic: ß §7701(a)(4) – Formed in US.
o Corporation – Reg. §301.7701-2(b)(1).
o Elective Entity Classification – Reg. §301.7701-3(b)(1)
§ Check-the-box. à Form 8832
o Not incorporated?
§ Need to look whether it has 1 or more members.
· Default:
o 1 à disregarded (sole proprietorship)
o 2 or more à partnership.
· Can elect to be treated as corps.
– Foreign:ß §7701(a)(5) – Not Domestic.
o Corporation – Reg. §301.7701-2(b)(8).
§ Per se corps.
o Elective Entity Classification – Reg. §301.7701-3(b)(2)
§ “Per se” Corp. List
§ Entities not listed are eligible entities, which can elect its classification; “check-the-box”
§ Check-the-box. à Form 8832
o Not incorporated?
§ Need to look whether it has 1 or more members.
· Default:
o 1 limited personal liability à corp.
o 1 unlimited personal liability à disregarded/sole prop.
o 2 or more all limited à corp.
o 2 or more not all limited à partnership.
· Can elect to be treated as corp./disregarded or corp/partnership depending on number of members.

Corporate Structure
– Corp. Subsidiary (separate entity from Parent)
o D Corp’s F Subsidiary (F entity) ß Subject to Limited US Taxation
o F Corp’s D Subsidiary (D entity) ß Subject to US Taxation on WWI
– Branch (not separate from Parent; thus, income attributable to Corp. Parent)
o D Corp’s F Branch Income ß Subject to US Taxation on WWI
o F Corp’s D Branch Income ß Subject to Withholding Tax (Branch Profits Tax)

Unit 1 – PROBLEMS

1-1 Determine the entity classification for US tax purposes of the following entities:
(a) A Public Limited Company formed in Singapore.

First – Is the entity foreign per §7701(a)(5) in conjunction with §7701(a)(4)?
Second – Is the entity on the “per se” list under §301.7701-2(b)(8)(i)?
Third – If not, the ent

– If the person is not a RA, they are a NRA per §7701(b)(1)(B).

In order to qualify as a RA for Year 1, Paulina must satisfy one of the three tests provided under §7701(b)(1)(A). She satisfies the GCT under §7701(b)(1)(A)(i) because she is in receipt of a green card that has not been revoked. She moved to the US after receiving her GC. Thus, by virtue of the GC, she is a lawfully admitted permanent resident.

In order to qualify as a RA for Year 1 under the SPT found in §7701(b)(1)(A)(ii), (b)(3), Paulina must have been present in the US on at least 31 days during the calendar year and the number of days in which she was present in the US during the current year and the 2 preceding calendar years equals or exceeds 183 days.

To utilize the SPT:
She also meets the SPT:
Days Present This Year 365 x 1 = 365
Days Present Last Year 0 x 1/3 = 0
Days present year before 0 x 1/6 = 0
TOTAL = 365 -> exceeds 183 days
Thus, Paulina satisfies the SPT test as well.

Additionally, per §7701(b)(2)(A)(ii) she has been a RA since January 1, Year 1 because that is the day she became a GC holder; thus, a lawfully permanent resident.

(b) How would the answer to (a) change if, instead, Paulina moved to San Francisco under a temporary visa on January 1, Year 1, and she lived there until her application for permanent residence was approved on November 15, Year 1?

First – Is the person a US Citizen per Reg. §1.1-1(c)?
Second – If not a US Person, is the person a RA per §7701(b)(1)(A)?
Check under §7701(b)(1)(A)(i) for the GCT
Check under §7701(b)(1)(A)(ii), (b)(3) for the SPT
Check under §7701(b)(1)(A)(iii) for the FYET
Third – If the person is not a RA, they are a NRA per §7701(b)(1)(B).

In order to qualify as a RA for Year 1, Paulina must satisfy one of the three tests provided under §7701(b)(1)(A). She satisfies the GCT under §7701(b)(1)(A)(i) because she is in receipt of a green card that has not been revoked.

In order to qualify as a RA for Year 1 under the SPT found in §7701(b)(1)(A)(ii), (b)(3), Paulina must have been present in the US on at least 31 days during the calendar year and the number of days in which she was present in the US during the current year and the 2 preceding calendar years equals or exceeds 183 days.

To utilize the SPT:
She also meets the SPT:
Days Present This Year 365 x 1 = 365
Days Present Last Year 0 x 1/3 = 0
Days present year before 0 x 1/6 = 0
TOTAL = 365 -> exceeds 183 days
Thus, additionally, Paulina satisfies the SPT because she has been physically present in the US since January 1, Year 1.

The starting date of Paulina’s lawful residency per §7701(b)(2)(A)(ii) is November 15, Year 1 by virtue of the GCT. Thus, by virtue of the GC, she is a lawfully admitted permanent resident on November 15, Year 1.

The starting date of Paulina’s residency per §7701(b)(2)(A)(iii) is January 1, Year 1 by virtue of the SPT because that was the first day during Year 1 on which she was physically present in the US.