Tax Jurisdiction Jurisdictional Issues Bases for asserting jurisdiction Two basic questions in determining how to tax international transactions First, which persons should be taxed? Bases upon which countries assert tax jurisdiction First, a personal relationship between TP and the country E.g., a country may wish to tax any person who is either a citizen or a resident of the country Second, an economic relationship between TP and the country Exists whenever a person derives income from property or activities that are located w/in a country’s borders The set of persons deriving income from sources w/in a country includes n/ only citizens and residents, but also foreign persons Second, what income is subject to tax? Current U.S. system Personal relationships are the basis for taxing the following individuals: U.S. citizens, Resident aliens, and Domestic corporations Source of income is the basis for taxing the following individuals:
Issue # 2: How many days did T spend in the U.S. in each year under the carryover days test? Year 3 (2011) Year 3: Current year. As such, must count each day that NRA spent in the U.S. during year 3 as a full day Number of days that NRA spent in the U.S. in year 3: 120 days Number of days under the carryover days test: 120 days x 1 = 120 days Year 2 (2010) Year 2: First preceding year. As such, must count each day that NRA spent in the U.S. during year 2 as 1/3 of a day Number of days that NRA spent in the U.S. in year 2: 150 days Number of days under the carryover days test: 150 days x 1/3 = 50 days Year 1 (2009) Year 1: Second preceding year. As such, must count each day that NRA spent in the U.S. in year 1 as 1/6 of a day Number of days that NRA spent in the U.S. in year 1: 90 days Number of days under the carryover days test: 90 days x 1/6 = 15 days Adding it all up Year 3: 120 days Year 2: 50 days Year 1: 15 days
If TP is a resident in two consecutive years, TP’s second year of residency begins on January 1 in the second year Last Year of Residency An alien’s U.S. residency termination date depends on whether the alien qualified as a resident for the current year under the green card test or the substantial presence test If the alien qualified as a U.S. resident under the substantial presence test … the residency period extends until 12/31 Unless an exception applies Under the exception, the residency termination date is the last day of the year on which the individual was physically present in the U.S. (i.e., the day that TP leaves the U.S.), provided that for the remainder of the year, TP had a closer connection to, and a tax home in, a foreign country If this exception applies, the alien is taxed as a U.S. resident from January 1 to the residency termination date and as a nonresident for the remainder of the year If the alien qualified as a U.S. resident under the green card test … the residency period extends until December 31 Unless an exception applies Under the exception, the residency termination date is the first day during the year that the individual is no longer a green card holder (i.e., the day that TP gives up his green card), provided that for the remainder of the year, TP had a closer connection to, and a tax home in, a foreign country If an alien qualifies as a resident during the current year under both the green card and the substantial presence tests, the residency termination date is the later of: The termination date under the green card residency test, or The termination date under the substantial presence residency test