Articles & Alerts

International Year-End Issues and Considerations

December 21, 2022

The Holiday Season is in full swing, and the end of the tax year is almost here.  In our work with high-net-worth individuals and families, we have found this to be an essential time for our clients to revisit their planning and processes to make sure that they are approaching their tax and estate matters in an optimal way. This article includes specific international elements that you should consider.

Residency Issues

Many people have become a lot more transient over the last 30 months, and with the continuation of flexible work arrangements, residency has become a very real and complex issue at the state level for individuals, families and trusts.  However, consideration should also be given to you or your family members when they are spending time overseas as well, whether for work, pleasure or studying.

U.S. Citizens and Permanent Residents

Even though U.S. citizens and permanent residents are taxed on a worldwide basis, there is a need to consider the tax residency rules of the country(ies) that someone may be spending significant time in and assess whether there are any overseas country issues to address.  Should the individual be a beneficiary or trustee of a U.S. domestic trust, there could also be issues to address at the trust level to ensure it does not fall foul of any residency or reporting issues itself.

Non-U.S. Citizens and Temporary Visa holders

Non-U.S. persons visiting the U.S. should keep track of their days in and out of the U.S. to determine whether they are likely to surpass any U.S. residency rules that could cause them to become a U.S. person for U.S. tax purposes.  As we approach the end of the year, reviewing your days in and out of the U.S. using the I94 website and discussing matters with your Anchin team can allow us to help you plan your travel in order to alleviate any potential tax reporting triggers or exposure.

Charitable Giving

The ability for families to contribute to and support organizations financially is of great importance to many of our clients.  As we approach the end of the tax year, it is advisable to look at your own financial and tax position as well as the needs of those organizations you wish to support.  Donor Advised Funds (DAFs) have many great benefits that allow a family to contribute to a charitable cause by year-end without needing to decide immediately where those funds should go.

What many U.S. taxpayers are unaware of is that there is also the ability to utilize certain DAFs so that your contributions support overseas charities directly.  Given the fact that many U.S. persons have strong connections with overseas jurisdictions, there may be a desire to support organizations from the place that a family’s ancestors lived.  This is something that Anchin can help you achieve strategically should this be of interest.

Foreign Trust and Gift Annual Reporting

When transfer tax is triggered, there are various forms that must be filed with the IRS. Failing to do so can result in significant penalties (up to 25% of the unreported transaction) if not complied with.  The following situations should be reviewed and discussed with your team at Anchin in order to ensure full compliance ahead of the 2022 filing season:

  • Gifts or bequests received from a non-U.S. person or estate
  • Settlor or beneficiary of a foreign trust or estate
  • Distributions received from a foreign trust or estate
  • Owner of a non-U.S. pension scheme

The above list is not an exhaustive list of items that should be reviewed.  If in your capacity as a trustee or fiduciary, or you or your family have any concerns as to whether there are any reportings required, please reach out to discuss matters further.

International tax rules are complex and ever-changing. To ensure that you are acting in accordance with applicable laws and do not fall victim to unnecessary penalties, contact your Anchin Relationship Partner or Kevin Brown, a Principal in Anchin’s International Tax and Private Client Groups, at [email protected].