A transfer of real property or tangible personal property by a nonresident alien is subject to gift tax only if it is situated in the U.S. Internal Revenue Code Section §2511(a); Regs. §25.2511-3(a). Section 2511 (a) reads as follows:
…, the tax imposed by section 2501 shall apply … whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; but in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property is situated within the United States. (emphasis added)
IRC Regulation 25.2511-3 reads as follows:
(a) In general. Section… 2511 contain[s] rules relating to the taxation of transfers of property by gift by a donor who is a nonresident not a citizen of the United States. … these rules are:
(1) The gift tax applies only to the transfer of real property and tangible personal property situated in the U.S. at the time of the transfer if …—
(i) The gift was made on or after January 1, 1967, by a nonresident not a citizen of the United States…(emphasis added)
Thus, under IRC Sec. 2511(a), gift tax does not apply to transfers of intangible property by a nonresident alien. Examples of intangible property include stock, bonds, debt obligations, and bank deposits. For instance, the transfer of Treasury Bills not subject to gift tax, see PLR 8210055 which held as follows:
In general, section 2501 does not tax the transfer of intangible property by a person who is neither a citizen nor a resident of the United States. Section 25.2511 – 3(b) of the Gift Tax Regulations defines the term “intangible property” as “a property right issued by or enforceable against a resident of the United States or a domestic corporation (public or private), irrespective of where the written evidence of the property is physically located at the time of the transfer.”
Debt obligations such as bank deposits or obligations of which the United States is the primary obligor are considered to be intangible property. See section 25.2511 – 3(b)(4) of the regulations. Accordingly, a transfer of ownership by B to A of these Treasury Bills will not be subject to a gift tax pursuant to section 2511 of the Code. The transfer by B to A of $20,000 by a check to be drawn on a foreign bank and payable by a United States bank will not be subject to a gift tax as such property is situated outside the United States.
Generally, tangible personal property is property the value of which is dependent upon the property’s physical form ( such as a block of gold or a diamond ring). Texas Instruments Inc. v. U.S., 551 F.2d 599 (5th Cir. 1977). See Regs. §25.2511-3(b). In determining whether property is tangible or intangible property, courts have defined “intangible property” as property the value of which is attributable to the property’s intangible elements rather than to the property’s tangible form. See Ronnen v. Comr., 90 T.C. 74 (1988).
Consequently, monetary gifts in the form of a check or wire transfer by a non-resident alien to a U.S. taxpayer are not subject to gift tax. The recipient of a foreign gift does not pay tax on the gift, but may have a reporting requirement (Form 3520) if the total value of all gifts or inheritances received exceed certain threshold amounts (generally $100,000 or more received from one or more individuals during a calendar year).
The concept of “domicile” controls whether an individual is a U.S. person or non-resident alien for gift and estate tax purposes. A non-resident alien (not domiciled in the U.S.) is subject to gifts taxes only on U.S. real property and tangible property located in the U.S.. However, the U.S. estate of a non-resident alien (the individual dies) is comprised of U.S. real property and both tangible and intangible properly located in the U.S. (this includes securities issued by a U.S. company).
A green card holder is usually considered to be domiciled in the U.S. as a permanent resident, but a student or an individual in the U.S. on a work visa is generally not considered to be domiciled here for gift and estate tax purposes, even though the individual may be a resident for U.S. income purposes.
The gift and estate tax exemption equates to only $60,000, so a non-resident alien who dies owning $1.0 million of stock in a U.S. company (or a U.S. residence), has a taxable estate of $940,000 ($1.0 million – $60,000 exemption = $940,000). Thus, many non-resident aliens purchase U.S.-based assets through a foreign corporation to avoid estate taxes.
Domicile is a complicated concept, but in general terms, means the place where one intends to live on a permanent basis. Thus, in general, a non-resident alien in the U.S. for a limited time (F-1, L-1, H1 B visas) would not be domiciled here, but an individual applying for green card would, because a green card means the person want to immigrate to the U.S. , i.e. he/she want to live here permanently. A non-U.S. citizen who is domiciled in the U.S. is subject to gift and estate taxes on gift-type transfers of their world-wide assets, but they have a unified estate and gift tax exemption of $5,350,000 currently – the exemption is indexed for inflation.
In summary, a non-resident alien is not subject to gift taxes, except on tangible property located in the U.S. and U.S. real estate, but is subject to estate taxes on intangible property located in the U.S., including U.S. securities (subject to an exemption worth $60,000). A non-U.S. citizen domiciled in the U.S. is subject to both gift and estate taxes on their world-wide assets, but has a unified gift and estate exemption currently worth $5,350,000 in 2015 (the amount is indexed for inflation).