United States Person

Definition

A “United States Person” (USP), for income tax purposes, is a classification used by the Internal Revenue Service (IRS) to determine who is subject to U.S. taxation. A USP includes:

1. A U.S. Citizen or Resident: This encompasses all individuals who are either citizens of the United States or who have met the substantial presence test to be considered residents for tax purposes.

2. A Domestic Partnership: Any business entity formed as a partnership under U.S. state law.

3. A Domestic Corporation: Any corporation that is incorporated in the United States or under the laws of the United States or any State.

4. An Estate (other than a foreign estate): This includes the estate of a decedent who was a U.S. citizen or resident.

5. A Trust: As defined by regulations, specifically any trust wherein:

   • A court within the United States is able to exercise primary supervision over the administration of the trust.
   • One or more United States persons have the authority to control all substantial decisions of the trust.

Examples

1. U.S. Citizen: John Smith, who was born and has always lived in California.

2. U.S. Resident: Marie Dubois, a French national who has lived and worked in New York for seven years and meets the substantial presence test.

3. Domestic Partnership: A law firm operating as a domestic partnership under New York state law.

4. Domestic Corporation: TechInvent Inc., incorporated in Delaware.

5. U.S. Trust: The Smith Family Trust, wherein trust management decisions are made by Anna Smith, a U.S. person, and the court in Texas supervises the trust administration.

Frequently Asked Questions (FAQs)

Q1: What is the importance of being classified as a United States Person for tax purposes?

• A: Being classified as a United States Person is crucial because it determines whether an individual or entity is subject to U.S. federal income taxes.

Q2: How is the ‘substantial presence test’ calculated?

• A: It is calculated using a formula that takes into account the number of days an individual is physically present in the U.S. over the course of three years.

Q3: Are all trusts considered United States Persons?

• A: No, only those trusts that meet specific criteria related to U.S. court jurisdiction and U.S. person control over substantial decisions are considered U.S. Persons.

Q4: Can a non-resident alien be considered a United States Person?

• A: No, non-resident aliens are not classified as United States Persons unless they meet the substantial presence test or other specific criteria.

Q5: Do United States Persons have to pay taxes on worldwide income?

• A: Yes, United States Persons are generally taxed on their worldwide income.

Related Terms

• Foreign Person: An individual or entity that does not meet the criteria for being a United States Person.
• Non-Resident Alien: An individual who is not a U.S. citizen and does not pass the substantial presence test.
• Substantial Presence Test: A criterion used to determine if a non-citizen should be treated as a U.S. resident for tax purposes based on their physical presence in the United States.
• Domestic Entity: Any legal entity such as a partnership or corporation that is created or organized in the United States or under state law.

Online Resources

• IRS Tax Guide for Individuals
• IRS Definition of a United States Person
• Internal Revenue Code (IRC) Sections

Suggested Books for Further Studies

• U.S. Master Tax Guide by CCH Tax Law Editors
• Federal Income Taxation by Joseph Bankman, Daniel N. Shaviro, Kirk J. Stark
• International Taxation in a Nutshell by Mindy Herzfeld

Fundamentals of United States Person: Taxation Basics Quiz

Thank you for exploring the definition and intricacies surrounding the term “United States Person” and good luck with your study and quiz preparation!