Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

A Non-US resident is the sole shareholder of a U.S Corp. The…

A Non-US resident is the...
A Non-US resident is the sole shareholder of a U.S Corp. The U.S Corp is the owner a Real Estate Property in NY City. The shareholder of the U.S Corp is affray that if she passes away, there will be a high estate tax since she is a non-us resident. The question is whether since the property is in the name of the U.S Corporation, there will be a $5 million exemption even though the shareholder is a nonresident. Please provide the IRC code number to support the response.Also, would be beneficial to transfer the shares of the U.S Corp to an offshore? The nonresident would be the sole owner of the offshore. Would that transfer lead to capital gain taxes to U.S Corp that will be transferring the property to the offshore? Please provide the IRC code number to support the response. Does U.S. Code 367 apply? Is there an exemption since the owner of the foreign entity will be the same owner of the U.S Entity?The main goal is avoid paying a high estate tax since the owner of the U.S Corp is a non-US Resident and to defer any capital gain taxes. Thank you.
Show More
Show Less
Ask Your Own Tax Question
Answered in 19 hours by:
12/12/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,299
Experience: Taxes, Immigration, Labor Relations
Verified

Estate taxes are applied to the estate of the decedent - and not on the corporation.

The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death.

The personal owns shares of the US corporation - so these shares will be included into his estate - and we will need to identify the value of shares.

.

Deceased nonresidents who were not American citizens are subject to U.S. estate taxation with respect to their U.S.-situated assets.

A nonresident’s stock holdings in American companies are subject to estate taxation even though the nonresident held the certificates abroad or registered the certificates in the name of a nominee.

The issue is that nonresident aliens may not use unified credit ($5,490,000 in 2017, and $5,600,000 in 2018), but may only use $60,000 exclusion.

.

So far - in your situation - the person will be subject to the estate tax (unless they will be eliminated).

Estate tax treaties between the U.S. and other countries often provide more favorable tax treatment to nonresidents by limiting the type of asset considered situated in the U.S. and subject to U.S. estate taxation.

I might suggest to verify the country where the nonresident alien is a resident.

See code sections here

https://www.law.cornell.edu/uscode/text/26/subtitle-B/chapter-11/subchapter-B

Regarding transfer - based on your information - that will be a revocable transfer - see here

https://www.law.cornell.edu/uscode/text/26/2104

(b) Revocable transfers and transfers within 3 years of death

For purposes of this subchapter, any property of which the decedent has made a transfer, by trust or otherwise, within the meaning of sections 2035 to 2038, inclusive, shall be deemed to be situated in the United States, if so situated either at the time of the transfer or at the time of the decedent’s death.

Ask Your Own Tax Question
Customer reply replied 2 months ago
Hi, thanks for the response. I am ok with the explanation for the estate taxes related to the non-resident. However, it is still not clear if it will be a taxable event if the non-US resident transfers the share of the corporation to a foreign corporation (the non-US resident also owns the shares of the foreign corporation). Also, the non-resident is not deceased. She is just trying to avoid the estate taxes if she passes away while owning the shares of the corporation that owns the property.
So, the main question now is whether there are taxes to be paid if the non US resident transfers the shares of the corporation that owns the property TO a foreign corporation of which the shares are owed by the same non US resident person.
I was reading 26 U.S. Code § 367 - Foreign corporations and it seems that this scenario would be a taxable event. Can you please take a look? I really appreciate the response…..

section 367 you referenced is not directly related to estate taxes (subtitled B) - but to income tax (subtitle A) liability.

https://www.law.cornell.edu/uscode/text/26/367

So - the person who is NOT a US person (nonresident alien) what to transfer shares of US corporation to a foreign corportaion which is not a US person either.

That is NOT a transfer of the property from the US as required by section 367 - because shares of US corporation (subject of such transfer) will remain US suited asset.

.

However - when shares of the US corportaion (or other assets) are transferred to a foreign corportaion solely for the exchange of shares of that foreign corportaion (and there is no sale transaction) - that transfer is NOT subject to US income tax based on section 361

But section 367 limits such exclusion for US persons.

It would be a case when US corportaion transfer the real estate to a foreign corporation - and that is not a case in this situation.

Ask Your Own Tax Question
Customer reply replied 2 months ago
If I understood your response, in this scenario, there will be a taxable event correct? I apologize but I reference the wrong code before. The code that I was reading was 26 U.S. Code § 897 - Disposition of investment in United States real property. It seems that based on your response for a non US person and based on section 897, there will be a taxable event. Do you think I am making the correct assessment? Thanks again.
Customer reply replied 2 months ago
Hi. Did you see my last follow up questions? Thank you!

Sorry for delay... looking now...

Ask Your Own Tax Question
Customer reply replied 2 months ago
Take your time. I did not mean to rush you....thanks!

https://www.law.cornell.edu/uscode/text/26/897

We are talking about Disposition of US real property interest - so whether that planned transfer of US corporation shares is treated as Disposition of US real property?

And again - that is related to income tax liability - not to estate taxes.

Specifically the US real property interest included any shares (interest) in US corporation which owns US real estate - section 897(c)(1)(A)(ii).

Moreover - that foreign corporation will be classified as United States real property holding corporation section 897(c)(2)(B)(ii).

Because of the later - NO gain will realized on that transfer, but because of such classification of that foreign corporation -

See regulations

https://www.law.cornell.edu/cfr/text/26/1.897-2

That foreign corportaion will be under US jurisdiction and all assets still will be included into gross estate as suited in the US.

So that approach will not help to legally avoid possible estate tax liability.

Ask Your Own Tax Question
Customer reply replied 2 months ago
Thanks, ***** ***** helps.
So since the foreign entity will be classified as United States real property holding corporation and it will be under US jurisdiction, will that allow the estate tax credit of $5,490,000 in 2017, and $5,600,000 in 2018 as opposed to only $60,000 exclusion for non US Resident?

the unified estate tax credit of $5,490,000 in 2017 is NOT applied to corporations...

It is applied to the estate of the decedent.

The value of that foreign corportaion will be included into the estate.

So if the decedent will be US resident at the time he/she dies - then yes - that unified credit may be used.
For nonresident aliens - it may be only used based on the tax treaty with the country where the decedent will be a resident and only against the TOTAL estate - not only for the US suited part of the estate.

Ask Your Own Tax Question
Customer reply replied 2 months ago
Right, but will be exclusion of $5,490,000 in 2017 or $60,000 be used against the Total Estate? This should be the last follow up question. Thanks again.

For resident alien's estate - all worldwide assets are included and $5,490,000 unified credit is used

for nonresident alien's estate - only US suited assets are included - and $60,000 deduction will be used.

Ask Your Own Tax Question
Customer reply replied 2 months ago
Thank you!

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.

I am here to help you with all Social Security / Tax related issues.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,299
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Was this answer helpful?
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,299
31,299 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,312 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,362 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

14,120 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,652 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Is there a capital gain rate for corporations or the
HiIs there a capital gain rate for corporations or the corporation is taxed at the 21% rate as ordinary income ? In other words? if the crop earns only passive income then is it still the 21% tax brac… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,336 satisfied customers
What would my capital gains tax be on a commercial property
What would my capital gains tax be on a commercial property bought in 2005 for $835000.00 and if sold today for $2,770,000.00 in California? … read more
Lev
Lev
Tax Advisor
31,299 satisfied customers
What would the rate of capital gains tax on income property
what would the rate of capital gains tax on income property held for 25 years by an owner who of late had and will have income of less than20,oooIt is also my understanding we (my brother and I) are e… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
Is there an estate tax for a non resident alien for money he
Is there an estate tax for a non resident alien for money he has in a US bank savings account when the descendant is also a non resident alien?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,336 satisfied customers
I know that real estate taxes and interest on the note for
I know that real estate taxes and interest on the note for the property are not considered start-up expenses subject to amortization. So does that mean that they are deductible expenses to the busines… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
736 satisfied customers
What is the capital gain tax for a corporatized farm land
Hi What is the capital gain tax for a corporatized farm land sale … read more
Lev
Lev
Tax Advisor
31,299 satisfied customers
Are non resident aliens taxed at the same rates? Are there
Are non resident aliens taxed at the same rates? Are there certain credits/deductions NRAs cannot receive? I notice if I prepare a return both ways, the resident receives a larger refund.… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,336 satisfied customers
Foreign Corporation / US Tax Issue: Say I am a US person
Foreign Corporation / US Tax Issue:Say I am a US person living in New Zealand exclusively as of a few years ago, with no physical presence in the US. I operate as an independent contractor consultant … read more
Barbara
Barbara
Enrolled Agent, Paralegal
4,077 satisfied customers
An S Corporation & its 2 shareholders are selling the assets
An S Corporation & its 2 shareholders are selling the assets of the Corporation. The Corporation provides corporate credit card processing services and its primary assets are the contracts with its cu… read more
Carter McBride
Carter McBride
LLM
459 satisfied customers
The 2018 tax law will allow homeowners to deduct property
The 2018 tax law will allow homeowners to deduct property taxes and either income or sales taxes with a combined limit on these deductions being limited to no more than $10,000. What does this mean? w… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
I am currently a nonresident alien, but I anticipate that I
I am currently a nonresident alien, but I anticipate that I will be a resident alien for 2018, as I expect to be present in the US for the entire year. I am being asked my my employer to provide them … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
My question is about taxation of capital gains on equities,
Hello, My question is about taxation of capital gains on equities, like stocks, options, futures of F1 students. Here the facts:1. F1 student for 4 years in the US2. student does not get any income wi… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,336 satisfied customers
Is the interest one pays on a personal loan a tax deduction?
Is the interest one pays on a personal loan a tax deduction? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
4,077 satisfied customers
What is the substative regulation pursuant to assessment of
what is the substative regulation pursuant to assessment of income tax, published in the Federal register, according to 26 usc 6323 (1.6323) … read more
Carter McBride
Carter McBride
LLM
459 satisfied customers
I am a Card holder planning to sell foreign assets (property
Hi....I am a Green Card holder planning to sell foreign assets (property in India)...I am aware that I will have to pay the higher of the 2 tax liabilities (either Indian or American)..I expect my US … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,336 satisfied customers
Figure out how much is my tax liability + my capital gains +
Figure out how much is my tax liability + my capital gains + depreciation recapture tax … read more
Lev
Lev
Tax Advisor
31,299 satisfied customers
Can my LLC with US and Foreign members be a shareholder in
Can my LLC with US and Foreign members be a shareholder in an S Corporation? The K-1 would go to the LLC.… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x