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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22388
Experience:  Taxes, Immigration, Labor Relations
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First just to give you a brief of my situation, I am neither

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First just to give you a brief of my situation, I am neither US citizen nor green card holder. I came to USA in 2008 to work using H1B visa. In 2010, I started to apply for green card (EB3) and my I-140 was approved in 2010. Then I have been waiting for my priority date to become current. In 2012, my company sent me to another country on a 1.5-year assignment but still keeps me on US payroll and keeps my H1B, and I am supposed to come back to the old position in the US in 2014. Because I am outside USA in 2013 only except some short business trips to USA, which is less than 30 days, so I expect to fail the Federal "substantial presence test" in 2013 thus I plan to file my 2013 tax return as a non-resident alien. But I started to apply for US green card back in 2010 and have been waiting in the queue to file the paperwork for the next step (as you know, there is a long green card queue for Chinese people). And because I was physically working in USA from 2009 to 2012, so I always filed as tax resident in these years' tax return.

Now I am thinking about transferring some of my stocks of some public companies (already post tax in my US brokerage account) to my parents as gifts to them (they are not US resident and even have never been to US before), based on my current situation this year,

- Am I considered to be domiciled in the US for gift tax purposes or not ?

- If I am subject to gift tax, I can still use the lifetime estate basic exclusion amount ($5,120,000) to do tax-free gifting as long as it is below this limit, right ?

- If I am NOT subject to gift tax, my understanding is that the gifting should be tax-free, and if I become domiciled in the US to be subject to gift tax in the future, I still have the full lifetime estate basic exclusion amount ($5,120,000) by then, right ?

- Because such gifting has a standard way to evaluate the value (the fair market price on the day of transfer which my broker can clearly write it down in my account statement), my guess is that, I do not really need attorney to be involved in the process and I only need to fill out some forms to submit to IRS by myself, right?

- Or if I am NOT subject to gift tax this year as I am considered to be not domicile in the US, I do not even need to submit anything to IRS ?

- And any other tax implications/consequences if I am NOT subject to gift tax this year?
Submitted: 6 months ago.
Category: Tax
Expert:  Lev replied 6 months ago.

Lev :

Hi and welcome to our site!
Please be ware that your immigration nonresident status and your residency status for tax purposes - are determined separately.
For gift tax purposes - if you are a resident alien - you are required to file the gift tax return if you made a gift of more than $14,000 (in 2013) per person per year to any single person.
However - if you a nonresident alien (for tax purposes) the gift tax return is only required when you gift assets that are suited in the US - fro instance - real estate or personal properties.
For recipients - the gift is not a taxable income in the US - so regardless of tax or immigration status of your parents - as recipients of the gift - they do not have any tax reporting requirements.

Lev :

If you are a resident alien - and you made a gift of less than $14,000 (in 2013) per person per year - you are not required to file the gift tax return.
If you are a resident alien - and made a gift of more than $14,000 (in 2013) per person per year to any single person - the gift tax return is required. The gift above that limit will be classified as taxable gift - and will be counted toward the lifetime limit - which is $5,250,000 in 2013. However - there will not be any gift tax liability as long as that lifetime limit is not reached.

Lev :

If you are a nonresident alien - you may gift any amount without being required to file the gift tax return. Transferring the money from your account to the account of the donee will not be considered as gifting assets suitable in the US - and will in this case - the gift tax return is not required and there is no any gift tax liability. So your assessment of the situation is correct.
Let me know if you need any clarification.

Customer:

Because I am physically outside the US in 2013 (and I only come back to US for business trip for less than 30 days in 2013), I should be considered as nonresident alien for tax purpose, right?

Customer:

So in such case, if I transfer stocks from my US brokerage account to my parents brokerage account in other country, I should not need to file any gift tax return, right?

Lev :

That may be not that simple. You may consider yourself as a nonresident alien if you do not meet "substantial presence test". However - that test is based on three years - not only on the last year.

Customer:

Also, are stocks in US brokerage account considered as assets that are suited in the US ? It is intangible property.

Customer:

My understanding is that, to meet substantial presence test, I need to pass both 1-year and 3-year requirements, right? http://www.irs.gov/Individuals/International-Taxpayers/Substantial-Presence-Test

Lev :

Also, are stocks in US brokerage account considered as assets that are suited in the US ? It is intangible property.
That is correct - assets in a regular brokerage account are not considered assets suited in the US for gift tax purposes.

Lev :

My understanding is that, to meet substantial presence test, I need to pass both 1-year and 3-year requirements, right?
That is right. However - if your residency was already established in previous years - you will be treated as a resident alien unless you specifically declare that your residency status changed.


You must file a statement with the IRS to establish your residency termination date. You must sign and date this statement and include a declaration that it is made under penalties of perjury.


If you were a U.S. resident in 2012 but are not a U.S. resident during any part of 2013, you cease to be a U.S. resident on your residency termination date. Your residency termination date is December 31, 2012, unless you qualify for an earlier date.

Customer:

Yes, I am US resident in 2012 and I moved out of US by end of 2012 and stay outside US for the whole year in 2013. In this case, do I still need to explicitly file a statement of residency termination? Or I can just do nothing but use Dec. 31, 2012 as the default termination date?

Lev :

For specific requirement s- see IRS publication 519 page 8 - http://www.irs.gov/pub/irs-pdf/p519.pdf - see right column - Statement required to establish your residency termination date.
Not all requirements might be related to your situation - so please review them carefully.
You may attach the required statement to your income tax return which you plan to file a nonresident alien.

Customer:

Thanks for the info. I will review it. Also, for cash that is in my US bank account, if I transfer it to another person, is it considered assets suited in US for gift tax purposes?

Lev :

If you gift actual currency - that would be assets suited in the US.
However the money transferred from one bank account to another would NOT be assets suited in the US for gift tax purposes..

Customer:

So if I transfer money from my US bank account to my Singapore bank account (now I live in Singapore this year), then I transfer money from Singapore bank account to other people, this process is not subject to gift tax, right?

Lev :

That is correct - if you are a nonresident alien for tax purposes - there will not be any gift tax considerations.

Customer:

And one hypothetical case, if I did some gifting that is subject to gift tax but I did not file gift tax return for that year, then years later, when government finds this out, can I still retrospectively claim this gifting to use my lifetime exclusion?

Customer:

just would like to see the consequence of doing gifting but forgot to file gift tax return for that

Lev :

For gift tax exclusion - yes - you may file a gift tax return later.
However if the gift tax return is not timely filed - there would be late filing penalties. You may ask to abate such penalty if you have a reasonable cause - but that would be based on the IRS acceptance.

Customer:

got it. thanks for the info!

Lev :

Please be aware that "forgot" likely would not be accepted as a reasonable cause...
Health issues - are likely to be accepted. So in this case - we need to be very careful when writing an abatement request.

Customer:

Got it. so for my case, if I am nonresident alien this year, what will happen if I still file form 709 for some gifting (even I do not need to) ?

Lev :

Most likely - there will not be any difference - unless you will gift assets with the total value above the lifetime limit - just additional paperwork and overhead for filing.
But as long as you are a nonresident alien - the gift tax return is not required for your situation.

Customer:

got it. thanks!

Lev :

You are welcome. I am glad to be helpful.

Lev :

Section 2501-1(a)(3) provides that the gift tax does not apply to any transfer by gift of intangible property on or after January 1, 1967, by a nonresident not a citizen of the United States (whether or not he was engaged in business in the United States), unless the donor is an expatriate who lost his United States citizenship after March 8, 1965, and within the 10-year period ending with the date of transfer, and the loss of citizenship -- (a) did not result from the application of § 301(b), 350, or 355 of the Immigration and Nationality Act, as amended (8 U.S.C. 1401(b), 1482, or 1487); and (b) had for one of its principal purposes (but not necessarily its only principal purpose) the avoidance of Federal income, estate, or gift tax.

Lev :

Specifically for shares in you brokerage account - see regulations - http://www.law.cornell.edu/cfr/text/26/25.2511-3
(2) Intangible personal property. Except as provided otherwise in subparagraphs (3) and (4) of this paragraph, intangible personal property constitutes property within the United States if it consists of a property right issued by or enforceable against a resident of the United States or a domestic corporation (public or private), irrespective of where the written evidence of the property is physically located at the time of the transfer.


(3) Shares of stock. Irrespective of where the stock certificates are physically located at the time of the transfer—


(i) Shares of stock issued by a domestic corporation constitute property within the United States, and


(ii) Shares of stock issued by a corporation which is not a domestic corporation constitute property situated outside the United States.

Lev :

So - in your case - the gift tax applies only to the transfer of real property and tangible personal property situated in the United States at the time of the transfer - and because shares of stock are classified as intangible personal property - the gift tax would not be applied fro your situation.
I hope that clarifies the issue.

Lev :

Section 25.2501-1(b) provides that for gift tax purposes, a resident of the United States is an individual who has his domicile in the United States at the time of the gift.
That is why - the statement to establish your residency termination date would be very important fro your plan.

Customer:

got it. this is really helpful!

Lev :

You are welcome.

Lev :

So far - shares of stock issued by the US corporation constitute intangible property suited in the US.
However because you are not expatriate and did not have the US citizenship - that would not be your concern because that is neither real nor tangible personal property.

Customer:

i see. so I do not need to worry about intangible property at all even they are suited in the US

Lev :

That is correct - no need to worry about any intangible property based on your nonresident status.

Customer:

cool. thanks!

Lev :

You are very welcome.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22388
Experience: Taxes, Immigration, Labor Relations
Lev and 2 other Tax Specialists are ready to help you
Expert:  Lev replied 6 months ago.
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Customer: replied 5 months ago.

Hi Lev,


 


Just to follow up this question further, because on wikipedia http://en.wikipedia.org/wiki/Gift_tax_in_the_United_States#Non-residents, it says that,


 


For gift tax purposes, the test is different in determining who is an non-resident alien (NRA), compared to the one for income tax purposes (the inquiry centers around the decedent's domicile). This is a subjective test that looks primarily at intent. The test considers factors such as the length of stay in the United States; frequency of travel, size, and cost of home in the United States; location of family; participation in community activities; participation in U.S. business and ownership of assets in the United States; and voting.


 


So my questions are:


 


- To prepare for the worst case, assuming that, I did the gifting this year (but the amount was below unified lifetime credit), then a couple of years later, IRS catches my case and judges that I was actually a resident (not a NRA) when I did the gifting. If this happens, I will be forced to file gift tax return and pay gift tax by then. In this case, because I can still claim to count this gift towards my unified lifetime credit and by doing so, I should not owe any gift tax to IRS anyways, right? Just wonder, is there still any late filing penalty for this not-owing-any-tax case? If so, how to calculate it?


 


- For the hypothetical case above, when I claim to use the unified lifetime credit, I am actually claiming based on the credit amount in the year I did gifting rather than in the year I am filing the return (which could be a couple of years later than the year I did gifting), right?


 


- To prevent the worst case from happening, do you think it is OK to still file form 709 to notify IRS about this gifting regardless, even though I think I am still a NRA this year? So that I fulfill (actually over-fulfill) my responsibility. But if I do so, does it mean that IRS will just consider me as a resident alien and count this amount into my unified lifetime credit and there is no way for me to argue that "this should not be counted because I was a NRA when gifting" in the future anymore?

Expert:  Lev replied 5 months ago.

- To prepare for the worst case, assuming that, I did the gifting this year (but the amount was below unified lifetime credit), then a couple of years later, IRS catches my case and judges that I was actually a resident (not a NRA) when I did the gifting. If this happens, I will be forced to file gift tax return and pay gift tax by then. In this case, because I can still claim to count this gift towards my unified lifetime credit and by doing so, I should not owe any gift tax to IRS anyways, right? Just wonder, is there still any late filing penalty for this not-owing-any-tax case? If so, how to calculate it?

If your incorrectly determine your residency status for tax purposes - then - yes - you would need (1) amend your tax return - and file it as a resident alien and (2) file the gift tax return. And - yes - you may claim the unified lifetime credit against gift taxes.

That would be the donor who files form 709 - gift tax return - not recipients of the gift. The gift tax return is required when the total value of the gift is above $14,000 (for 2013) per person per year. There will not be any gift taxes unless the lifetime limit of $5,250,000 (for 2013 - adjusted every year for inflation) is reached.
So - it is likely that the gift tax return will be required to be filed by the donor, but there will not be any gift tax due. The US person is required to file the gift tax return if the gift he made per person per year is above the filing threshold.

.

- For the hypothetical case above, when I claim to use the unified lifetime credit, I am actually claiming based on the credit amount in the year I did gifting rather than in the year I am filing the return (which could be a couple of years later than the year I did gifting), right?

That is correct - all calculations are done on form 709.

Assuming you are a resident alien and gift in 2013 to another person $500,000.

Your taxable gift would be $500,000 - $14,000 (annual allowance) = $486,000.

That amount will go against the unified lifetime credit - so your remaining unified lifetime credit after 2013 would be $5,250,000 - $486,000 = $4,764,000

.

- To prevent the worst case from happening, do you think it is OK to still file form 709 to notify IRS about this gifting regardless, even though I think I am still a NRA this year? So that I fulfill (actually over-fulfill) my responsibility. But if I do so, does it mean that IRS will just consider me as a resident alien and count this amount into my unified lifetime credit and there is no way for me to argue that "this should not be counted because I was a NRA when gifting" in the future anymore?

To prevent so-called "the worst case from happening" - you need correctly determine your status. If you think that your status might be determined incorrectly - you may want to contact a tax attorney specialized with nonresident aliens - and ask for written determination. Then - you may attach the document to your tax return informing the IRS about your reasoning - so if the IRS disagree - they would send you a note. So - you would clearly disclose your position - if your position would be accepted - the IRS will not send any notice.

Filing gift tax return AND the tax return as a nonresident - are contradicting actions and might trigger additional questions from the IRS.

Customer: replied 5 months ago.

Thanks a lot for the reply!


 


So - it is likely that the gift tax return will be required to be filed by the donor, but there will not be any gift tax due.



This means that, as long as the gifting value is below the unified lifetime credit, even though I am doing late filing, there is 0 penalty for me because the owed tax is 0, right?


 


 


you may want to contact a tax attorney specialized with nonresident aliens - and ask for written determination. Then - you may attach the document to your tax return informing the IRS about your reasoning



Yes, I have a tax advisor to file my tax return as nonresident and he should have all the docs in place (including residency termination form and etc.). Just wonder, in addition to this, do I still need to attach a personal statement/letter specifically saying that "I did gifting this year by transferring intangible stocks to other people valued at XXX amount, but because I am filing as nonresident alien for this year's tax return, this gift is not applicable for gift tax thus I am not filing form 709"? Or do you think this kind of personal statement/letter is redundant ?


 


 

Expert:  Lev replied 5 months ago.

This means that, as long as the gifting value is below the unified lifetime credit, even though I am doing late filing, there is 0 penalty for me because the owed tax is 0, right?
There might be late filing penalty even there is no tax liability - if the tax return is required but filed after the due date.
.

Just wonder, in addition to this, do I still need to attach a personal statement/letter specifically saying that "I did gifting this year by transferring intangible stocks to other people valued at XXX amount, but because I am filing as nonresident alien for this year's tax return, this gift is not applicable for gift tax thus I am not filing form 709"?
You are NOT required to attach such statement. That is your choice. I personally do not see the value of such statement.

.

Or do you think this kind of personal statement/letter is redundant ?
Your only concern is the correct determination of your nonresident alien status. You may attach .- but certainly not required - a statement with your reasoning concerning that determination.

Customer: replied 5 months ago.

Thanks a lot for your reply! For "There might be late filing penalty even there is no tax liability - if the tax return is required but filed after the due date.", do you have some insights on normally how to decide/calculate such no-tax-liability late filing penalty? Just would like to get a sense of how much it would be...

Expert:  Lev replied 5 months ago.
Section 6651 imposes penalties for late filing , unless there is reasonable cause for the delay.
If the return is at least 60 days late, including extensions, a minimum Failure to File Penalty (FTF) applies:
See - http://www.irs.gov/irm/part8/irm_08-017-007.html
For returns filed (without regard to extensions) after 12/31/2008, the minimum penalty is the lesser of $135 or 100 percent of the tax required to be shown on the return that was not paid on or before the due date.
So - if no tax - $135 penalty will be applied.
Please be sure to rate my answers - so I would be credited for my work.

Customer: replied 5 months ago.

Thanks a lot for your help!


 


It is weird that when I tried to rate your answers, the website said, "you have rated this question-answer-chain already and if you want to rate again, you will pay the answer again"...because I am an unlimited subscriber of this website, I should not need to pay any additional money, which is different from what the website told me about the unlimited plan.


 


Since what you've answered is actually already a new topic beyond the old question and you deserve a new question's payment (it is already beyond one question-answer chain), how about I post a new question to you by copying my last question and you can paste your last answer, so that I can pay you this way through this new question?

Expert:  Lev replied 5 months ago.
If you subscribed for unlimited plan - there should not be any additional changes.
Most likely - that is a common message displayed for all users and not necessary related to your plan.
But you may post a new question as well.

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