United States Person

United States Person Income Tax U.S. Taxation Domestic Partnership Domestic Corporation Estate Trust
For income tax purposes, a United States Person (USP) refers to any individual or entity that falls under the umbrella of being liable to U.S. taxation, including citizens, residents, domestic partnerships, corporations, and certain estates and trusts.
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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.
  • 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

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

### For tax purposes, which of the following characteristics would NOT qualify an individual as a United States Person? - [ ] U.S. citizen - [x] Non-resident alien who has not met the substantial presence test - [ ] Resident alien - [ ] Individual having a U.S. green card > **Explanation:** Non-resident aliens who do not meet the substantial presence test are not classified as United States Persons and fall outside the scope of U.S. Persons for tax purposes. ### Can an individual be considered a United States Person if they only spend a short amount of time in the U.S. over three years? - [ ] No, only long-term residents are considered U.S. Persons. - [x] Yes, if the substantial presence test criteria over the past three years are met. - [ ] No, time spent in the U.S. is irrelevant. - [ ] Yes, if they are on a visa. > **Explanation:** An individual can be considered a United States Person if the total number of days spent in the U.S. over three years meets the substantial presence test. ### Are all domestic partnerships considered United States Persons? - [x] Yes, if they are formed under U.S. state law. - [ ] No, only those with substantial U.S. income. - [ ] Yes, but only if they have U.S. members. - [ ] No, domestic partnerships are never U.S. Persons. > **Explanation:** Domestic partnerships formed under U.S. state law are considered United States Persons for tax purposes. ### What type of corporation is referred to as a "Domestic Corporation"? - [ ] Any corporation doing business in the U.S. - [x] A corporation incorporated in the U.S. or under U.S. state law. - [ ] A foreign corporation with a U.S. tax ID. - [ ] Any multinational corporation. > **Explanation:** A corporation is considered a "Domestic Corporation" if it is incorporated in the U.S. or under the law of any U.S. state. ### For a trust to be classified as a United States Person, what must be true? - [ ] All trustees must be U.S. citizens. - [ ] The trust must earn income within the U.S. - [x] A court in the U.S. must have primary supervision, and U.S. persons must control substantial decisions. - [ ] The beneficiaries must be U.S. citizens. > **Explanation:** For a trust to be considered a United States Person, it must have U.S. court primary supervision over administration and U.S. persons must control all substantial decisions. ### What makes an estate a 'foreign estate'? - [x] It belongs to a decedent who was a non-resident alien. - [ ] It holds foreign assets. - [ ] Its executor is a foreign national. - [ ] It earns more than 50% of its income overseas. > **Explanation:** A 'foreign estate' belongs to a decedent who was a non-resident alien, distinguishing it from estates belonging to U.S. citizens or residents. ### Who is included in the term 'U.S. Resident' for tax purposes? - [x] Individuals meeting the substantial presence test. - [ ] Only U.S. citizens. - [ ] Anyone living in the U.S. short-term. - [ ] None of the above. > **Explanation:** U.S. Residents for tax purposes include individuals who meet the substantial presence test, indicating significant time spent in the United States. ### Can an international company be classified as a United States Person? - [ ] Only if it has U.S. employees. - [x] Yes, if it is incorporated in the U.S. - [ ] No, international companies are always foreign persons. - [ ] Only if it does more than 50% business in U.S. > **Explanation:** An international company can be classified as a United States Person if it is incorporated in the U.S., under U.S. law. ### Which of the following entities does NOT fall under the category of a domestic entity? - [ ] U.S.-incorporated partnership - [ ] Corporation under U.S. state law - [x] Foreign partnership - [ ] U.S.-based trust > **Explanation:** A foreign partnership does not qualify as a domestic entity, as it is not organized under U.S. law or jurisdiction. ### What document must United States Persons file to report worldwide income? - [ ] State-specific tax return - [ ] Form W-2 - [ ] Bank statements - [x] Form 1040 > **Explanation:** United States Persons are required to file Form 1040 with the IRS to report their worldwide income.

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

Wednesday, August 7, 2024
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United States Government Securities
Domestic Corporation or Partnership January 1, 1
Foreign Tax Deduction January 1, 1
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