What is a “United States Person”?
In the context of income tax, a “United States Person” is defined broadly by the U.S. Internal Revenue Service (IRS). The term encompasses:
- A citizen or resident of the United States.
- A domestic partnership.
- A domestic corporation.
- Any estate or trust (except certain foreign estates and trusts).
Categories of United States Persons
Citizens and Residents
This category includes:
- Citizens: Individuals born in the U.S. or naturalized as U.S. citizens.
- Residents: Individuals meeting the substantial presence test or possessing a valid green card.
Domestic Partnerships
A domestic partnership is any business entity constituted as a partnership under U.S. law, maintaining its operations within the United States.
Domestic Corporations
This refers to corporations that have been incorporated under the laws of the United States or its states.
Estates and Trusts
- Estates: The total property, real and personal, owned by an individual at the time of death.
- Trusts: Legal entities holding property for the benefit of another. U.S. laws apply to domestic trusts, while foreign trusts are generally excluded, except under special circumstances.
Tax Implications
Tax Responsibilities
United States Persons are subject to several tax responsibilities:
- Worldwide Income: Required to report all income, worldwide.
- Filing Requirements: Annual tax returns must be filed if income exceeds certain thresholds.
- Form 1040: The primary document for filing individual tax returns.
- FATCA Compliance: Foreign Account Tax Compliance Act (FATCA) necessitates reporting of foreign financial assets.
Specific Cases
- Foreign Earned Income Exclusion (FEIE): Allows exclusion of a specific amount of foreign earnings for U.S. Persons working abroad, subject to certain conditions.
- Tax Treaties: International agreements may impact tax liabilities; awareness of such treaties is crucial for U.S. Persons abroad.
Historical Context
The concept of a United States Person has evolved alongside tax laws. Initially, income taxation applied to citizens’ domestic earnings. As globalization expanded, the reach of the IRS grew to encompass worldwide income, leading to more comprehensive regulations.
Comparisons
Non-resident Alien
Contrasts with U.S. persons, Non-resident Aliens are individuals not meeting residency criteria, taxed only on U.S.-sourced income, subject to different forms and reporting standards.
Resident Alien vs. Non-resident Alien
Tax implications differ significantly; understanding resident versus non-resident status impacts tax obligations and benefits.
Related Terms
- Substantial Presence Test: Determines residency status based on the number of days spent in the U.S.
- Green Card Test: A threshold for residency, where holding a valid green card qualifies one as a resident.
FAQs
What is the substantial presence test?
How does FATCA affect U.S. Persons living abroad?
What forms must a U.S. Person file for foreign income?
References
- Internal Revenue Service (IRS). “Publication 519: U.S. Tax Guide for Aliens.”
- FATCA Guidance. U.S. Department of the Treasury.
- U.S. Tax Code, 26 U.S.C.
Summary
The term “United States Person” for income tax purposes includes citizens, residents, and various domestic entities like partnerships, corporations, estates, and trusts. Understanding the scope and tax responsibilities of this categorization helps ensure compliance with U.S. tax law, particularly for those with global financial affairs.
