Tax services and planning for foreign nationals (nonresident aliens) who engage or plan to engage in economic activities in the United States. nonresidentaxdotcom is a service of Cezary Tchorznicki, CPA LLC.
How do we define a nonresident alien?
More relevantly so, who is considered a nonresident alien in the context of the U.S. tax law (Title 26 U.S.C., which is also referred to as the Internal Revenue Code or in short, the IRC)?
Although the IRC provides a brief definition of nonresident alien under §7701(b)(B), a mere glance at it suggests that one has to first understand who is classified as a resident alien (for tax, not immigration purposes) in order to be able to answer the original question.
This the actual language of §7701(b)(B): “An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)”. That subparagraph “A” essentially defines who is a resident alien.
Far more comprehensive are the various regulations under the caption 301.7701(b). These regulations constitute the United State’s Treasury Department’s official interpretation of this section of the Internal Revenue Code.
Those who have held the nonresident alien status for quite a while, should familiarize themselves with the unique consequences of being considered a long-term resident as defined under §877(e)(2).
Can a nonresident alien have tax reporting obligations in the United States?
The nonresident aliens are subject to tax on income sourced in the U.S. Furthermore, nonresident alien spouse of a U.S. citizen (or a U.S. resident alien) may be liable for tax on his or her worldwide income if an election was made under IRC §6013 for that person to file joint returns with his or her U.S. citizen/resident spouse.
Unlike some countries, the United States taxes the inter-generational transfers of wealth. A nonresident alien’s property located, or deemed located, in the U.S. is subject to the U.S. transfer tax regime. In case of nonresident alien’s death, all of the following assets, if situated in the United States, would be included in the decedent’s gross estate and be subject to estate tax: (a) cash, (b) all personal tangible property (except certain works of art), (c) all real property (real estate), and (d) some categories of intangible personal property. Shares of stock issued by a U.S. corporation that are owned, or beneficially owned, by the nonresident alien at death would also be included in the gross estate, regardless of their physical location.
An existing tax convention and/or estate tax treaty between the United States and a given country may supersede the requirements of the IRC. That sort of a determination is made on case-by-case basis.
It has to be also noted that resident aliens (known colloquially as “green card holders”) who have used a tax treaty tiebreaker rule, and consequently are treated as nonresident aliens for tax purposes, still have the meet the FBAR and FATCA filing requirements.