Discussion:Estate/Gift Tax Nonresident Alien
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| Revision as of 00:07, 19 December 2008 Smktax (Talk | contribs) (A disregarded LL) ← Previous diff |
Revision as of 00:59, 19 December 2008 Dingodile (Talk | contribs) (Smktax, Thanks) Next diff → |
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| Also, I believe that gain may be recognized under Code § 897 on the transfer to the foreign corporation and 10% of the value of the property must be paid as a withholding tax by the foreign corporation under Code § 1445.}} | Also, I believe that gain may be recognized under Code § 897 on the transfer to the foreign corporation and 10% of the value of the property must be paid as a withholding tax by the foreign corporation under Code § 1445.}} | ||
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| + | {{ForumReplyPost|UserID=Dingodile|Date=19 December 2008|Text=Smktax, | ||
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| + | Thanks for the response. I too believe there might be gain upon the transfer to a foreign corp. Thank you for your response. | ||
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| + | OK, so a possible strategy to avoid the LLC from being disregarded might be to have my client gift an interest (less than or equal to the annual exclusion) in the real property and then have both owners form and contribute the real property to a domestic LLC and then the client could gift all of her membership interests free from gift tax? | ||
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| + | I really appreciate all of the feedback here as there is a lot of money on the line and I can't seem to find any concrete guidance.}} | ||
Revision as of 00:59, 19 December 2008
Discussion Forum Index --> Advanced Tax Questions --> Estate/Gift Tax Nonresident Alien
Discussion Forum Index --> Tax Questions --> Estate/Gift Tax Nonresident Alien
| 18 December 2008 | |
| I'm researching an issue for a new client who is a nonresident alien (NRA) from Taiwan, which does not have a treaty with the United States BTW, and owns real property in California. The client is at a fairly advanced age and wants to identify the best strategy to minimize her exposure to estate/gift taxation.
It appears that because the real property's situs is in the United States, it is included in the NRA's estate for estate tax purposes when she dies. BUT if the real property is transferred to a foreign corporation, then it's situs changes to outside of the United States and consequently it is not included for estate tax purpose. Is this correct? Also, the real property is a tangible asset so if it is gifted away, then the giftor is liable for gift tax. BUT if the real property is transferred into an LLC, then the membership interests of the LLC can be gifted away and no gift tax liability will exist because the interests are intangible assets. Is this correct? I've done a fair amount of research on this and these two strategies just seem too easy and good to be true, so my BS detector is going off and I'm doubting myself. Also, I can't find any case or revenue ruling or procedure that indicates one way or another. Thanks in advance. | |
| December 18, 2008 | |
| Yes, using a foreign corporation works. You do need to pay attention to formalities. See Fillman v. U.S., 355 F.2d 632 (Ct. Cl. 1966), a particularly egregious case.
An LLC gains you nothing if it's disregarded. If the LLC checks the box, then it can be a corporation and that will work; you probably would rather use a foreign corporation (including a box-checking LLC which will be disregarded in its home country). | |
| 18 December 2008 | |
| You'd also need to know which is the optimum tax structure in Taiwan or the advice could turn out to be poorly throught through. | |
| 18 December 2008 | |
| Thank you for your feedback.
LH2004, I'm curious why you believe a disregarded LLC will not work? It seems to me that the property interests in the LLC would still remain "intangible" for gift tax purposes regardless of the LLC's income tax treatment. Do you have any authority which suggests otherwise? Once more, thank you for helping me out. | |
| 19 December 2008 | |
| A disregarded LLC is disregarded for U.S. tax purposes. Thus, a gift of the interest in the LLC is treated as a gift of the assets of the LLC. If the LLC owns real estate, then a gift of the LLC is treated as a gift of the real estate. Real estate is tangible property situated in the U.S. and would be subject to U.S. gift tax.
Also, I believe that gain may be recognized under Code § 897 on the transfer to the foreign corporation and 10% of the value of the property must be paid as a withholding tax by the foreign corporation under Code § 1445. | |
| 19 December 2008 | |
| Smktax,
Thanks for the response. I too believe there might be gain upon the transfer to a foreign corp. Thank you for your response. OK, so a possible strategy to avoid the LLC from being disregarded might be to have my client gift an interest (less than or equal to the annual exclusion) in the real property and then have both owners form and contribute the real property to a domestic LLC and then the client could gift all of her membership interests free from gift tax? I really appreciate all of the feedback here as there is a lot of money on the line and I can't seem to find any concrete guidance. | |
