What is a US Person For US Tax Purposes?
In this article, we’ll look at what is meant by a US Person for US tax purposes.
Many US tax rules are applied to all ‘US Persons’, so it’s an important concept to grasp, however the definition is wider than many people assume.
US persons can be divided into several categories, covering different types of individuals and entities.
US Person Individuals
Whereas most countries only tax residents, the US casts a wider net.
The definition of US Persons does include US residents, but also two other groups of individuals: US citizens, and Green Card holders.
The US is almost unique among countries in that it taxes all of its citizens, including those who live abroad.
This leaves many American citizens living abroad with the dilemma of having to file both US taxes and foreign taxes in their country of residence.
To avoid double taxation, American citizens living abroad can claim the Foreign Tax Credit, or the Foreign Earned income Exclusion, by filing IRS Form 1116 or Form 2555 respectively, when they file their US tax return.
“When someone refers to the term U.S. Person, they often presume it means U.S. Citizen.” – Golding Lawyers
Individuals who were born abroad but have a US parent, or who were born in the US to foreign parents but didn’t subsequently live there, are also considered to be US persons by virtue of having the right to US citizenship.
Non-Americans who have a US Green Card are also considered to be US persons, even if they don’t live in the US, and for as long as their Green Card is still legally valid.
US Person Entities
Several types of entities also qualify as US persons. These include certain corporations, partnerships, trusts, and estates.
Specifically, corporations and partnerships that are formed under US state law have to file US tax returns, even if their owners are abroad.
Trusts that are registered overseas may also be considered US persons, depending on whether they have American owners and/or beneficiaries.
Americans who have or benefit from foreign trusts should seek advice to determine whether the trust qualifies as being American controlled.
Foreign-registered estates may be considered US persons too, depending on the residence of the executors, and where the assets are located.
US filing requirements for US Persons
US persons have to file a US tax return every year, reporting their worldwide income. They may also have to report their foreign financial accounts and assets.
When US persons file, if they also pay foreign taxes, there are ways to mitigate the risk of double taxation, such as claiming US tax credits, as mentioned above. Remedies for double taxation are also covered in a number of international tax treaties, however none of them remove the requirement for all US persons to file.
Any individual or entity that isn’t a US person is considered a Foreign Person. Foreign Persons can be liable to US tax too in the form of a withholding, if they’re paid by a US entity.
Catching up and avoiding penalties
US persons who reside outside of the US who haven’t been filing US taxes because they didn’t know that they had to, including US citizen expats and foreign Green Card holders, can catch up while avoiding penalties under an IRS amnesty program called the Streamlined Procedures.