The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, significantly modified the U.S. tax system. Major shifts included tax rate reductions, expanded standard deductions, and an enhanced lifetime gift tax exclusion. Simultaneously, the TCJA eliminated several tax breaks, such as business entertainment deductions and other popular itemized deductions.

Nearly two dozen TCJA provisions related to personal and business taxes will lapse after December 31, 2025, unless they are legislatively extended. The following provides an overview of key expiring provisions and their potential implications:

Bonus Depreciation

Businesses could claim 100% bonus depreciation on eligible property from 2018 to 2022. The TCJA phases out this provision, allowing 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and zero thereafter. However, businesses can still utilize accelerated depreciation under Section 179. Taking full advantage of bonus depreciation before its 2027 termination is advisable.

GILTI Deduction

The TCJA introduced the GILTI regulations to minimize the tax advantages of deriving income from intangible assets in low-tax overseas regions. Between 2018 and 2025, companies could deduct 50% of GILTI, resulting in a 10.5% effective tax rate.  In 2026, this deduction drops to 37.5%, leading to a 13.125% effective rate.

Estate Tax Lifetime Exemption

The lifetime gift exemption doubled from about $6 million to $12 million per individual under the TCJA. Beneficial for wealth transfer, individuals who maximized the $12 million by 2025 will face no penalties when the limit reverts to its previous amount. Given this, asset disposition before 2025 is crucial for those with substantial estates.

QBI Deduction

The TCJA allowed a deduction of up to 20% of business income from entities like Schedule C businesses, S-Corps, and Partnerships. However, this deduction is scheduled to be phased out post-2025, potentially prompting businesses to prefer C-Corporation tax status.

State and Local Tax Deduction

Previously, individuals could claim an unlimited itemized deduction for state and local taxes. The TCJA capped this at $10,000. Post-2025, the cap will lift, reinstating full SALT deductions for itemizers. This deduction remains a contentious issue, and changes might emerge before 2025.  In the meantime, taxpayers with pass-through entity interest should consider utilizing pass-through entity tax election.

Moving Expense

The TCJA deemed reimbursed moving costs taxable and negated the deduction for non-reimbursed moving expenses, excluding U.S. military personnel. Post-2025, reimbursed expenses will become non-taxable, and non-reimbursed expenses will be deductible.

Individual Tax Rate

The TCJA changed tax brackets, highest rate being 37%, from previous rates. Without further legislation, these will revert to their pre-TCJA rates post-2025, highest rate being 39.6%. Capital gains tax rates remain unaffected.

Corporate Tax Rate

The TCJA slashed the corporate tax rate from 35% to 21%. Though framed as a permanent shift, there are ongoing discussions about possible future adjustments to address fiscal needs.

Overall, these changes underscore the importance of forward-thinking tax planning.

For US citizens and domiciliaries, the lifetime estate and gift tax exemption for 2023 is $12.9M ($25.8M for married couples). Estate in excess of the exemption amount would be subject to 40% tax upon transfer.  After 2025, the exemption will fall back to $5M ($10M for married couples), adjusted for inflation, unless Congress enacts to extend the higher amount. The odds of any extension depend on which party controls the White House and Congress after the 2024 election.
Rather than banking on these uncertain chances, numerous affluent individuals are currently taking advantage of the existing lifetime estate and gift tax exemption. Moreover, some strategies employed by these individuals enable them to remove the assets from their estate without relinquishing control, utility, or the income to be generated by these assets.  Additionally, many of these strategies involve setting up a separate entity, a vehicle used to hold and transfer assets, which provides asset protection from potential creditors.  Let's introduce some of the strategies that the wealthy individuals use to preserve and safeguard their legacy.

Family Limited Partnership (FLP)

A Family Limited Partnership (FLP) is a legal entity used by families to manage and control their assets, including businesses, real estate, and investments. The structure involves the creation of general and limited partnership interests.  One of the primary benefits of using an FLP for estate tax planning is the ability to take advantage of valuation discounts. When transferring limited partnership interests to heirs, the value of those interests can often be discounted for lack of marketability and lack of control. This means that the assets inside the FLP might be worth, say, $1 million, but when transferred as a limited partnership interest, they might be valued for estate tax purposes at a discounted value, such as $700,000. This can significantly reduce the taxable estate.  Yet the grantors, as general partners of the FLP, retain the control over the assets in the FLP.

Grantor Retained Annuity Trust (GRAT)

A Grantor Retained Annuity Trust (GRAT) is an advanced estate planning tool designed to transfer appreciating assets to beneficiaries while minimizing estate or gift tax impact. The grantor transfers assets into the GRAT and retains the right to receive an annuity payment for a fixed term of years. At the end of the term, any remaining assets in the GRAT pass to the beneficiaries (usually family members) tax-free, as long as the grantor survives the term.

The present value of the remainder interest (what is expected to be left for beneficiaries) is subject to gift tax. However, by setting the annuity payments appropriately, the present value of the remainder interest can be minimized or even "zeroed out." This means the grantor can transfer a potentially significant future value without utilizing any of their lifetime gift tax exemption.

Grantor Retained Unitrust (GRUT)

A Grantor Retained Unitrust (GRUT) is another sophisticated estate planning tool similar in some respects to the Grantor Retained Annuity Trust (GRAT) discussed previously. However, while the GRAT provides for a fixed annuity payment, the GRUT provides for a payment that varies based on a fixed percentage of the trust's annually recalculated value.

When a grantor establishes a GRUT, they transfer assets to the trust and retain the right to receive an annual payment, which is a fixed percentage of the trust's current value. This payment is recalculated each year based on the new value of the trust assets. At the end of the trust term, any remaining assets are transferred to the named beneficiaries, typically the grantor's heirs.

When the GRUT is established, the IRS calculates the present value of the remainder interest (what's expected to be left for the beneficiaries). This amount might be subject to gift tax. However, like with the GRAT, the value of the remainder interest can be reduced by increasing the retained payment, possibly reducing the taxable gift when the GRUT is established.

Qualified Personal Residence Trust (QPRT)
A Qualified Personal Residence Trust (QPRT) is an advanced estate planning tool that can offer significant estate tax savings. When a residence is transferred into a QPRT, the value of the gift for tax purposes is discounted based on the term during which the grantor retains the right to live in the home. This can reduce the taxable size of the grantor's estate. Additionally, any appreciation of the residence's value after the transfer is locked into the QPRT, ensuring that future appreciation remains outside of the grantor's taxable estate. If the transfer value is below the grantor's available lifetime gift tax exemption, no gift tax may be due, and by the end of the QPRT term, if the grantor is still alive, the residence will be entirely excluded from their estate for estate tax purposes.

Grantor Trust

Grantor trusts are a type of irrevocable trust where the grantor retains certain powers or rights that cause the trust's income and/or principal to be taxable to the grantor, not the trust. The primary mechanism through which grantor trusts achieve estate tax savings revolves around the separation of income tax responsibility from the transfer of assets out of the grantor's estate. Here's how grantor trusts can help save on estate taxes:

When assets are transferred to a grantor trust, their value for gift or estate tax purposes is "frozen" at the time of transfer. Any appreciation in the value of those assets after the transfer will occur outside of the grantor's estate. If the assets are expected to appreciate significantly, this can result in substantial estate tax savings.

Qualified Terminable Interest Property Trust (QTIP)

The Qualified Terminable Interest Property Trust (QTIP) serves as a strategic tool for married individuals, particularly those in second or subsequent marriages, who want to ensure that their assets are eventually passed on to their own descendants (like children from a previous marriage) while still providing for their current spouse. Here's how the QTIP achieves estate tax savings and ensures the intended beneficiaries are the grantor's descendants:

The primary advantage of a QTIP trust is its ability to use the unlimited marital deduction. When one spouse dies and leaves assets to the QTIP trust, these assets qualify for the marital deduction, meaning that they can be transferred to the trust free of estate taxes. This allows the estate to defer estate taxes that would have been due on those assets until the surviving spouse's death.

The QTIP trust provides the surviving spouse with a "life estate" interest, meaning the surviving spouse receives income from the trust assets (and under some conditions, may also receive principal). Crucially, however, the surviving spouse does not have the power to determine the final beneficiaries of the trust. The deceased spouse, when establishing the QTIP trust, dictates who the remainder beneficiaries will be after the surviving spouse's death. This design ensures that, after the surviving spouse's passing, the remaining trust assets will go to the beneficiaries specified by the first spouse (e.g., the grantor's children from a previous marriage).

In situations where there's concern that a surviving spouse might remarry and potentially divert assets away from the deceased spouse's children or other intended beneficiaries, a QTIP trust provides assurance. The trust ensures that the final beneficiaries (e.g., the grantor's descendants) will receive the assets regardless of any subsequent marriages or changes in the surviving spouse's circumstances.

***

Many might recall that due to the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was temporarily eliminated in 2010. This led to a humorous quip among professionals, labeling it the "prime year to pass away." Alas, neither the timing of our demise nor the intricacies of governmental fiscal policies, such as estate and gift taxes, can be dictated by us. As highlighted earlier, in 2023, U.S. citizens and domiciliaries have a lifetime exemption for estate and gift taxes set at $12.9M, and $25.8M for couples. Should an estate surpass this amount, a 40% tax rate applies. Notably, after 2025, the exemption is projected to reduce to $5M ($10M for married couples), adjusted for inflation, unless the higher limit is sustained by Congress. The fate of this potential revision heavily hinges on the political landscape post the 2024 elections. Given the intricate nature of estate tax, forward-thinking strategies are essential to protect one's accumulated wealth and legacy. Collaborating with well-versed experts in estate tax, like attorneys and CPAs, can guide you in distributing your assets in alignment with your intentions and making the most of the legal advantages available.

내년부터 다수의 소규모 비즈니스가 미국 재무부 산하 Financial Crimes Enforcement Network (FinCEN)에 BOI 보고서를 제출해야 한다. 이를 준수하지 않을 경우 상당한 민형사상 처벌을 받을 수 있으며, 심지어 징역형에 처해질 수도 있다는 점을 인지해야 한다.

BOI reporting 요건은 2021년 Corporate Transparency Act (P.L. 116-283)을 통해 제정된 자금세탁 방지 대안으로, FinCEN에 BOI를 보고하도록 의무화한다. 이 요건은 대부분의 회사에 적용된다.

BOI 보고는 불투명한 기업 구조 뒤에 정체를 숨기고 미국 금융 시스템을 악용하는 악의적 행위자를 적발하는 데 도움이 될 기업투명성법을 시행하기 위한 중요한 단계다.

신고해야 하나요?

비즈니스가 법인(S 법인 또는 C 법인) 또는 유한책임회사(LLC) 인 경우, 면제 자격이 없는 한 BOI 보고서를 제출해야 할 수 있다. 주요 고려 사항에는 회사 설립 과정에서 secretary of state 또는 유사한 office에 서류를 제출해야 했는지 여부가 포함된다. The Corporate Transparency에는 정규직 직원 수 20명 이상, 총 수입액 500만 달러 이상 등의 기준을 포함하여 23가지 면제 요건이 명시되어 있다.

제출 날짜는?

2024년 1월 1일 이후에 설립 또는 등록한 보고 기업은 회사 설립 또는 등록 통지를 받은 후 30일 이내에 최초 BOI 보고서를 제출해야 한다. 2024년 1월 1일 이전에 비즈니스를 시작하거나 등록한 보고 기업은 2025년 1월 1일까지 초기 BOI 보고서를 제출할 수 있는 추가 기한이 주어진다.

무엇을 신고해야 하나요?

기본적인 비즈니스 세부 정보 외에도 BOI 보고서에는 회사의 각 실소유주에 대한 개인 정보를 포함하도록 규정하고 있다. 수익적 소유자는 보고 회사에 대한 실질적인 통제권 또는 소유권(최소 25%)을 가진 모든 개인이 될 수 있다. 이름, 생년월일, 집 주소 등과 같은 구체적인 세부 정보가 필요하다.

업데이트 및 수정

신고한 세부 정보에 변경 사항이 있거나 제출 후 부정확한 내용이 확인되는 경우, 30일 이내에 FinCEN에 정보를 업데이트하거나 수정할 수 있다.

소규모 기업 규정 준수 가이드

FinCEN이 월요일에 게시한 소규모 기업 규정 준수 가이드는 각 BOI 보고 규칙 조항을 설명하고, 주요 질문에 대한 답변을 제공하며, 대화형 체크리스트, 인포그래픽 및 기타 도구를 제공하여 기업의 규정 준수에 도움을 준다.  이 가이드는 BOI 보고 규칙을 준수하기 위한 6가지 주요 질문을 다룬다:

• 회사에서 수익적 소유자를 신고해야 하나요?
• 회사의 실소유주는 누구인가요?
• 회사에서 회사 지원자를 신고해야 하나요?
• 회사에서 보고해야 하는 구체적인 정보는 무엇인가요?
• 우리 회사는 언제 어떻게 초기 BOI 보고서를 제출해야 하나요?
• 보고된 정보에 변경 사항이나 부정확한 내용이 있으면 어떻게 하나요?

소규모 기업 규정 준수 가이드:
BOI Small Compliance Guide (fincen.gov)

Starting next year, a vast number of small businesses will need to submit a BOI report to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury. It is essential to be aware that non-compliance may result in significant civil and criminal penalties, which could even lead to imprisonment.

The BOI reporting requirement is an anti-money laundering initiative enacted through the Corporate Transparency Act, P.L. 116-283, in 2021 that mandates BOI be reported to FinCEN. The requirement would apply to most companies.

The BOI reporting a critical step towards implementing the Corporate Transparency Act, which will help the Treasury Department and FinCEN expose bad actors abusing the U.S. financial system by hiding their identity behind opaque corporate structures.

Do You need to File?

If your business is a corporation (S corp or C corp) or a limited liability company (LLC), you may need to file a BOI report, unless you qualify for an exemption. Key factors include whether you had to file any documents during the formation of your company with the secretary of state or similar offices. The Corporate Transparency Act outlines 23 exemptions, including criteria like having over 20 full-time employees and more than $5 million in gross receipts.

Filing Date?

Reporting companies created or registered on or after January 1, 2024, will have 30 days after receiving notice of their company’s creation or registration to file their initial BOI reports. Reporting companies created or registered to do business before January 1, 2024, will have additional time — until January 1, 2025 — to file their initial BOI reports.

What needs to be Reported?

Beyond basic business details, the BOI report mandates the inclusion of personal information for each beneficial owner of the company. A beneficial owner can be any individual with substantial control or ownership (at least 25%) over the reporting company. Specific details such as names, birthdates, home addresses, and more are required.

Updates and Corrections

Should there be any changes in the reported details or if inaccuracies are identified post-submission, you have a 30-day window to update or correct the information with FinCEN.

The Small Entity Compliance Guide

The Small Entity Compliance Guide, which FinCEN posted Monday, describes each of the BOI reporting rules provisions; answers key questions; and provides interactive checklists, infographics, and other tools to assist businesses with compliance.  The guide addresses six key questions for complying with the BOI reporting rule:

• Does my company have to report its beneficial owners?
• Who is a beneficial owner of my company?
• Does my company have to report its company applicants?
• What specific information does my company need to report?
• When and how should my company file its initial BOI report?
• What if there are changes or inaccuracies in reported information?

The Small Entity Compliance Guide:
BOI Small Compliance Guide (fincen.gov)

In Technical Advice Memorandum 2022-01 (TAM), California's Franchise Tax Board (FTB) examined the scope of P.L. 86-272's protections, especially in the context of online activities and remote work. This memorandum largely mirrors the Multistate Tax Commission (MTC)'s prior guidelines and concludes that various online activities can make a taxpayer ineligible for the protections under P.L. 86-272. Such disqualifying online activities include offering after-sales support via chat or email, accepting branded credit card applications, taking in job applications for non-sales roles, and installing cookies on users' devices.

For those of you who are not familiar with P.L. 86-272, it is a federal law preventing a state from imposing a net income tax on any person’s income derived within the state from interstate commerce if the only business activity performed in the state is the solicitation of orders of tangible personal property; such orders are sent outside the state for approval or rejection; and the orders, if approved, are filled by shipment or delivery from a point outside the state.

The TAM also stipulates that regular telecommuting from California would void these protections, unless the in-state activities are solely supportive of sales of tangible personal property. Businesses with websites or remote workers in California should critically evaluate how the TAM affects them, particularly if they currently depend on P.L. 86-272 protections or are subject to California's income tax apportionment throwback rule.

California is the pioneer state to enforce the MTC's definitions of protected and non-protected internet-based activities, applying its interpretation retroactively. States like New York, New Jersey, and Oregon are contemplating similar moves, although California's interpretation has already faced legal challenges from the American Catalog Mailers Association.

The future remains uncertain regarding how many states will adopt the MTC's updated guidelines and whether they'll enforce them retroactively or going forward. The evolving interpretation of P.L. 86-272 adds complexity for both states and taxpayers, limiting its original protective scope even further.  Taxpayers should engage in diligent review and planning to navigate these shifting tax obligations.

Link to TAM 2022-01  Technical Advice Memorandum 2022-01

IRS에서는 2024년 1월 1일부터 사업체가 Form 8300, 10,000달러 초과 현금 지급 보고서를 전자 방식으로 제출하도록 의무화하는 IR-2023-157을 발표했다.

10,000달러를 초과하는 현금을 수령하는 비즈니스의 경우 미국 정부에 거래를 보고해야한다. 대부분의 현금 거래는 합법적이지만, Form 8300에 제공된 데이터는 탈세, 불법 마약 거래, 테러리스트 자금 조달 및 기타 범죄 활동에 대처하는 데 도움이 될 수 있다.

Form 8300은 현금을 수령한 다음 날로부터 15일 이내에 제출해야한다. 이 기한이 주말이나 공휴일인 경우 다음 영업일에 제출해야한다.

Form 8300의 새로운 전자 제출 요건은 Form 1099 시리즈 및 Form W-2와 같은 다른 정보 보고서를 이미 전자 방식으로 제출하도록 의무화된 사업체에 적용된다. 전자 제출 및 커뮤니케이션 옵션으로의 전환은 IRS와의 상호 작용을 간소화하기 위해 고안되었다. 2024 회계연도부터 Form 8300 이외의 정보 보고서를 10개 이상 제출해야 하는 사업체는 모든 Form 8300(및 해당 연도에 필요한 기타 특정 유형의 정보 보고서)을 전자 방식으로 제출해야한다.

Form 8300을 정확하게 정시에 제출하지 않을 경우 과태료가 부과될 수 있다. 제출 지연 또는 부정확성에 대한 합리적인 사유를 입증하지 못하면 벌금이 부과될 수 있다. 현금 보고 요건을 고의 또는 고의로 무시하는 경우 최소 25,000달러의 벌금이 부과될 수 있다. 또한, 신고를 회피하도록 유도하거나 유도하려고 시도하는 경우, 중대한 누락이나 허위 진술이 포함된 신고서를 제출하는 경우, 신고를 회피하기 위해 거래를 구조화하는 경우에도 벌금이 부과될 수 있다. 이러한 위반 행위는 형사 기소될 수도 있으며, 개인은 최대 5년의 징역 또는 최대 25만 달러, 법인은 최대 50만 달러의 벌금 또는 두 가지 모두에 처해질 수 있다.

아래 링크를 클릭하면 IR-2023-157을 열람할 수 있다.

Businesses must electronically file Form 8300, Report of Cash Payments Over $10,000, beginning January 1, 2024 | Internal Revenue Service (irs.gov)

The Internal Revenue Service issued IR-2023-157 mandating that businesses must electronically file Form 8300, Report of Cash Payments Over $10,000, effective January 1, 2024.

For businesses receiving cash amounts exceeding $10,000, reporting transactions to the U.S. government is required. While most cash transactions are legitimate, the data provided on Forms 8300 can aid in combating tax evasion, illicit drug trade, terrorist financing, and other criminal activities. Timely, accurate, and complete submissions on Forms 8300 can often enable the government to trace funds linked to such unlawful activities.

Forms 8300 should be filed by the 15th day following the receipt of cash. If this due date falls on a weekend or holiday, the filing should occur on the next business day.

This new e-filing requirement for Forms 8300 is applicable to businesses that are already mandated to electronically file other information returns like the Forms 1099 series and Forms W-2. This shift to electronic filing and communication options is designed to simplify interactions with the IRS. Commencing from the calendar year 2024, businesses must e-file all Forms 8300 (and certain other specified types of information returns required for that year) if they are obligated to file at least 10 information returns other than Form 8300.

Noncompliance with the accurate and punctual filing of Form 8300 may result in penalties. Failure to demonstrate reasonable cause for filing delays or inaccuracies could lead to penalties. Intentional or willful disregard of cash reporting requirements may incur a minimum penalty of $25,000. Penalties can also be imposed for inducing or attempting to induce a business to evade filing, submitting a report with material omissions or misstatements, or structuring transactions to avoid reporting. These violations might also face criminal prosecution, potentially resulting in up to 5 years of imprisonment or fines of up to $250,000 for individuals and $500,000 for corporations, or both.

Clink the link below to view IR-2023-157.

Businesses must electronically file Form 8300, Report of Cash Payments Over $10,000, beginning January 1, 2024 | Internal Revenue Service (irs.gov)

The IRS has recently announced a new compliance campaign that will focus on large businesses suspected of inflating their cost of goods sold (COGS) to reduce their taxable income. This announcement was made on August 8, 2023, by the IRS Large Business & International Division (LB&I).  LB&I Active Campaigns | Internal Revenue Service (irs.gov)

Compliance campaigns are strategic initiatives aimed at identifying potential tax compliance risks. In this case, LB&I has utilized data analysis and suggestions from IRS compliance employees to identify areas of concern. The overarching goal of these campaigns is to enhance the selection of tax returns, pinpoint issues that carry a risk of non-compliance, and optimize the allocation of limited resources for enforcement.

While the exact details of the campaign's focus weren't explicitly provided, the use of the term "inflated" implies that the IRS is particularly concerned about taxpayers who may be overstating their expenses related to the cost of goods sold. This could involve situations where taxpayers are claiming costs that are not eligible to be counted as inventory or are using incorrect methods to determine their year-end inventory balance.

The introduction of this new campaign suggests that the IRS might intensify its scrutiny of companies that report substantial costs of goods sold. Companies selected for examination under this campaign could expect to receive detailed Information Document Request (IDR) notices pertaining to the calculation of inventory costs and the cost of goods sold for federal income tax purposes. These companies should be prepared to address these inquiries.

Taxpayers who fall under the scope of this campaign should review their current practices for determining inventory balances and making tax adjustments, such as those outlined in IRC (Internal Revenue Code) sections 263A and 471. Ensuring that these methods are accurately reflected in their tax returns will be important to avoid potential compliance issues under the new campaign.

It's important for affected taxpayers to work closely with their tax advisors to navigate these requirements and respond appropriately to any requests from the IRS. By doing so, they can minimize the risk of non-compliance and potentially avoid legal consequences.

In light of increasing tensions with China and to bolster economic ties with Taiwan's chip manufacturers, the United States Congress is moving forward to adopt a treaty-like agreement with Taiwan to provide relief from double taxation for businesses engaged in cross-border activities. The legislation, released on July 12, aims to reduce withholding taxes on certain US source payments received by or paid to residents of Taiwan and apply permanent establishment rules to determine tax liabilities. To qualify for the benefits of the legislation, foreign persons must meet specific criteria as "qualified residents of Taiwan." The provisions would only come into effect after Taiwan reciprocates the benefits to US persons.

Reduction of Withholding Taxes

The legislation seeks to reduce the current 30% statutory rate of US federal income tax on specific US source payments (e.g., interest, dividends, and royalties) received by or paid to residents of Taiwan.

Under the proposed legislation, the reduced rates would be 10% for interest and royalty payments, and 15% for dividends.  Dividends may be further reduced to 10% (excluding dividends paid by Regulated Investment Companies) if certain conditions are met. These conditions include being a qualified resident of Taiwan and holding at least 10% of the relevant stock directly for 12 months prior to the ex-dividend date.

Permanent Establishment

Currently, US federal income tax law taxes income that is "effectively connected" with a foreign person's trade or business within the United States at regular income tax rates. The legislation proposes substituting the term "a United States permanent establishment of a qualified resident of Taiwan" for "a trade or business within the United States" in determining tax liabilities.

The term "permanent establishment" may be established through a fixed place of business or through agents authorized to conclude binding contracts in the United States on behalf of the qualified resident of Taiwan.

Qualified Residents of Taiwan

To be eligible for the benefits of the legislation, foreign persons must qualify as "qualified residents of Taiwan."  A person is considered a "qualified resident of Taiwan" if they are subject to tax in Taiwan based on factors such as domicile, residence, place of management, place of incorporation, or similar criteria.  The person must not be a US person, and corporations must meet specific tests resembling the 2016 US Model Treaty's Limitation on Benefits (LOB) article.

Effective Dates

The provisions of the legislation will take effect upon enactment, applicable to amounts paid during relevant periods. The benefits will only apply after the US Treasury Secretary confirms that Taiwan has granted reciprocal benefits to US persons.

Residing in the United States offers varying degrees of flexibility for both resident and nonresident aliens. However, regardless of their duration of stay, non-US citizens may face significant US estate tax consequences if they do not engage in careful planning prior to their demise.

In the United States, estate and gift taxation apply to US citizens and US domiciliaries, subjecting them to a maximum tax rate of 40%. They are granted an exemption amount of $10 million, adjusted for inflation. On the other hand, non-US domiciliaries are also subject to US estate and gift taxation on certain types of US assets, with the same maximum tax rate of 40%. However, they are eligible for a significantly lower exemption of only $60,000, which solely applies to transfers upon death.

Determining domicile for estate and gift tax purposes is a distinct process from determining US income tax residence. Various factors are considered to ascertain US domicile, including statements of intent found in visa applications, tax returns, wills, and other relevant documents. Additional factors include the length of US residence, possession of a green card, lifestyle both in the US and abroad, ties to the individual's former country, country of citizenship, location of business interests, and affiliations with clubs, churches, voting registration, and driver licenses. Failure to meet the established criteria through a facts and circumstances test results in the individual being considered a non-US domiciliary for estate and gift tax purposes. It's important to note that an individual can be considered a domiciliary by multiple countries, and certain assets may be subject to estate or gift tax in more than one jurisdiction.

Tax treaties play a crucial role in defining domicile, resolving dual-domicile issues, mitigating or eliminating double taxation, and providing additional deductions and tax relief. As of January 2022, the US has estate and/or gift tax treaties in place with 16 jurisdictions, including Japan, Canada, the United Kingdom, and Austria. These treaties establish rules and guidelines to ensure fair and equitable treatment of taxpayers. However, it's important to be aware that not all countries have such tax treaties in effect with the United States. For instance, there is currently no estate and gift tax treaty between the US and Korea.

Similar to US citizens, US domiciliaries are liable to be taxed on the value of their worldwide assets upon death, meaning that their estate, regardless of its location, is subject to US estate tax. Conversely, non-US domiciliaries are solely taxed on the value of their US "situs" assets. US situs assets generally include real estate, tangible personal property situated in the US, business assets located within the US, and stocks of US corporations. The definition of US situs assets may be influenced by applicable estate and gift tax treaties.

Regarding gift tax, US citizens and domiciliaries are subject to tax on all lifetime gifts, regardless of the location of the property. In contrast, non-US domiciliaries are only subject to US gift tax on transfers of tangible personal property and real property located in the US.

To minimize the impact of estate and gift taxes, individuals can take advantage of available annual exclusions or deductions, including marital or other deductions. The remaining exemption amount can then be used to offset taxable gifts or bequests. It's important to note that any portion of the exemption used during an individual's lifetime will not be available as an exemption upon their death. Non-US domiciliaries have no exemption amount available for lifetime transfers, and the exemption amount for transfers upon death by non-US domiciliaries is only $60,000.

Additionally, individuals should consider the generation-skipping transfer tax (GST tax) alongside estate and gift taxes. The GST tax is imposed in addition to estate or gift taxes and applies to certain transfers made to beneficiaries who are two or more generations below the donor, such as grandchildren. The GST tax also applies to gifts made to unrelated individuals who are more than 37.5 years younger than the donor. However, certain circumstances may allow for a GST annual exclusion, and there exists a GST exemption that exempts $12,060,000 (the same as the estate and gift tax exemption, adjusted for inflation) of assets from the GST tax.

Non-US citizens who reside, work, or own property in the US must have a comprehensive understanding of the potential implications arising from US estate and gift tax rules. Residency and domicile choices carry significant tax implications that can impact an individual's financial planning and wealth preservation strategies. It is highly advisable for individuals in such situations to seek the guidance of an international estate planning professional to assess the impact and develop an appropriate approach based on their individual circumstances.

A crucial caveat to consider is that the current exemption amount of $12,060,000 is temporary and applicable only until 2025. Unless Congress enacts permanent changes, the exemption will revert to $5.49 million (adjusted for inflation) after 2025. Therefore, it is essential for individuals to explore how to make the most of this increased exemption before it expires.

Additionally, US citizens who renounce their citizenship and long-term residents (as defined in IRC section 877(e)) who end their US resident status may be subject to expatriation tax under IRC section 877A. Covered individuals are subject to income tax on the net unrealized gain in the year of expatriation as if the property had been sold for its fair market value ("mark-to-market tax"). Additional information will be furnished on our next newsletter.

As global mobility becomes increasingly prevalent among individuals and companies, more people will be affected by multinational tax rules. It is crucial for individuals acquiring US property or planning to move to the US to carefully consider the necessary steps to ensure they are adequately prepared for potential US estate and gift tax implications.