This article does not attempt to provide a comprehensive summary of this year’s Green Book but rather highlights some of the key aspects that could affect international private clients.
Prior to the 2017 Tax Cuts and Jobs Act, the corporate tax rate was 35%, and the top individual income tax rate was 39.6%.
But for taxpayers with adjusted gross income in excess of $1,000,000, long-term capital gains and qualified dividends would now be taxed at the same rates as ordinary income.
This result would need to be compared with using other non-corporate structures such as partnerships or trusts, which would be taxed using the individual rates, but would employ use of the $1,000,000 adjusted gross income threshold.
persons are also subject to an additional 3.8% tax on investment-related items, foreign individuals are not subject to this tax, and it appears that this will not change under the current proposal.
tax treatment of loans qualifying for the “portfolio interest exemption,” under which foreign lenders can receive interest payments free of U.S.
federal gift and estate tax exemption amounts would be lowered based on proposals that came out prior to the issuance of the Green Book, it appears for now that the Biden Administration is content with leaving the current structure in place, meaning a current exemption amount of $11,700,000 , and foreign individuals will still only enjoy a $60,000 exemption amount for U.S.
Additionally, while it appeared that the “step up” in basis benefit that applies to appreciated assets inherited at death was going to be eliminated, the Green Book does not eliminate this treatment but rather confirms that the recipient’s basis in property received by reason of the decedent’s death would be the property’s fair market value at the decedent’s death.
beneficiaries – it appears for now that they will still enjoy a basis step up for appreciated assets inherited from foreign individuals or their revocable trust structures.
Income Taxation of Gifts and Bequests: In what is one of the more controversial aspects of the proposed changes for private clients, the Green Book builds off a prior proposal3 that is expected to be highly debated before any actual law is passed.
situs assets , gifting such shares could now be an income taxable event, as any appreciation in such shares would be the type of capital gain that is taxable to a foreign person.
Changes to Trusts and Other Non-Corporate Vehicles: The Green Book proposes a number of unexpected changes to assets owned by non-corporate vehicles such as trusts and partnerships.
As was always the case, however, for distributions intended to be made to beneficiaries other than the foreign settlor, it will be important to undertake proper planning ahead of time in order to avoid inadvertently triggering U.S.
Query what effects this proposed rule could have on foreign nongrantor trusts and the application of the punitive “throwback tax” rules that apply to certain distributions made to U.S.
For foreign clients with these types of structures already in place, the Green Book does not propose any changes to the current tax regime that applies to income through a partnership structure that is “effectively connected” with a U.S.
Nevertheless, it’s never too soon to start planning and review existing structures in light of the possibility that changes could happen and go into effect starting in 2022.
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