~ Immigration Tax Planning ~
Domicile
Domicile
for estate and gift tax purposes is not the same as residence for income
tax purposes. For income tax purposes, residence is based upon certain
statutory rules such as whether a person has been admitted for permanent
residence or the number of days that the person is physically present
in the United States. Determining residency status is often relatively
straightforward. On the other hand, domicile is based upon a less clear
cut standard. The general rule is that a person is domiciled where they
reside if they intend to remain there indefinitely - or if they do not
have a present intention of returning to their former residence. Since
the rule is based on the person's intent, the IRS and the courts look
to a long list of external factors which are deemed to indicate the person's
intent. These factors include:
- where the person's primary residence is located;
- where the person's primary business activity is located;
- where the person votes;
- where the person has a driver's license;
- where treasured personal possessions are stored;
- where the other members of the person's family live;
- where the person observes religious ceremonies; and
- where the person's major social and cultural contacts are located.
Since many of these contacts may remain in the former residence even after a person has become a U.S. resident for income tax purposes, it is often the case that such a person is not domiciled in the U.S. for estate and gift tax purposes.
Consequences of not Having U.S. Domicile
Many jurisdictions either do not have death taxes or, more frequently, these taxes do not apply to assets located outside the taxing jurisdictions. In those cases, if the U.S. resident can avoid becoming a domiciliary there may be no death tax imposed on assets located outside the United States. Given the high rate of U.S. estate tax on large estates, this can literally save the family a small fortune in taxes.