inasmuch as his United States citizenship is based on birth in the United States and is notbased solely on being a citizen of a possession or solely on birth or residence in a possession.oExample: N, who acquired United States citizenship by reason of being a native of the Virgin Islands and a resident thereof, made a gift, at which time he was domiciled in the Virgin Islands, of tangible personal property situated in Wisconsin. N is considered to have acquired his United States citizenship solely by reason of his birth or residence in the Virgin Islands. N’s transfer is subject to gift tax just like any other NRA who makes a gratuitous transfer of tangible property held in the U. S.Residents: The “citizens” rule applies to all residents of the U. S. A resident is defined as “an individual who has his domicile in the United States at the time of the gift.” “A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of moving therefrom. Residence without the requisite intention to remain indefinitely will not constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal.”Nonresident Alien (NRA): A NRA is an individual who is not a citizen and does not reside in the U.S. Obviously, the U. S. would have trouble taxing foreigners on gifts they made in their home countries. However, if a foreigner has tangible property in the U. S., then a gift of such property is subject to the U. S. gift tax. There is an exception described below for transfers of intangible assets held in the U. S. by a foreigner.Exception to the gift tax on completed gifts:The gift tax does not apply to transfers of intangible property by a nonresident alien (NRA) under IRC § 2501(a)(2). An NRA is an individual who is not a U.S. citizen and who does not reside in the U. S. Intangible property means securities like stocks and bonds. This provision allows NRA’s to transfer stocks and bonds held in a U. S. brokerage account to another brokerage account owned by another individual without being subject to the gift tax. The policy of the U. S. is to not discourage use of U. S. financial institutions and brokerage houses by foreigners and is thought to induce foreign investment in U.S. securities. Consider a prince of Saudi Arabia who gives up his ambassadorship in the U.S. As a result he gives a 95 acre property in Lake Tahoe to his grandson. The gratuitous transfer would be subject to gift tax since it is not intangible. This exception only exempts the gift of intangible assets by a NRA.
oExpatriation: Caution for foreigners who were once U.S. citizens but gave up citizenship to avoid federal income taxes. If IRC §877(b) applies, then the transfer of intangible assets by the NRA will be subject to U. S. gift tax laws.
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Taxes, Taxation in the United States, Gift tax in the United States, taxable gifts