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Puerto Rican resident was not subject to U.S. estate and gift taxes.



A is a U.S. citizen and a resident of Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. . He proposes to transfer property with a value in excess of $10,000 to his children.

Analysis

Under Sec. 2501(a)(1), a tax computed as provided in Sec. 2502 is imposed for each calendar year on a transfer of property by gift during such calendar year by any individual, resident or nonresident non·res·i·dent  
adj.
1. Not living in a particular place: nonresident students who commute to classes.

2.
. Under Sec. 2501(a)(2), Sec. 2501(a)(1) does not apply to a transfer of intangible property intangible property n. items such as stock in a company which represent value but are not actual, tangible objects.  by a nonresident who is not a U.S. citizen.

Under Sec. 2501(b), a donor who is a U.S. citizen and a resident of a possession, is, for purposes of the gift tax, considered a U.S. "citizen" within the meaning of that term, unless the U.S. citizenship was acquired solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Sec. 2501(c), a donor who is a U.S. citizen and a resident of a possession is, for purposes of the gift tax, a "nonresident not a citizen of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ," but only if the donor acquired his U.S. citizenship solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Sec. 2511(a), the tax imposed by Sec. 2501 applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; however, for nonresidents who are not U.S. citizens, the tax applies to a transfer only if the property is situated within the U.S. Under Regs. Sec. 25.2501-1(d), a "nonresident not a citizen of the United States" includes a U.S. citizen domiciled dom·i·cile  
n.
1. A residence; a home.

2. One's legal residence.

v. dom·i·ciled, dom·i·cil·ing, dom·i·ciles

v.tr.
1.
 in a U.S. possession who acquired his U.S. citizenship solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Sec. 2209, a decedent An individual who has died. The term literally means "one who is dying," but it is commonly used in the law to denote one who has died, particularly someone who has recently passed away.  who was a U.S. citizen and a resident of a possession at the time of his death is, for purposes of the estate tax, considered a "nonresident not a citizen of the United States," but only if such person acquired his U.S. citizenship solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession. Under Regs. Sec. 20.2209-1, a "nonresident not a citizen of the United States" includes a U.S. citizen domiciled in a U.S. possession who acquired his U.S. citizenship solely by reason of (1) his being a citizen of such U.S. possession or (2) his birth or residence within such U.S. possession.

Under Section 7 of the Foraker Act The Foraker Act, officially the Organic Act of 1900, is a United States federal law that established civilian (limited popular) government on the island of Puerto Rico, which had been newly acquired by the United States as a result of the Spanish-American War.  (current version at 48 U.S.C. 733 (1988)), all Spanish subjects who resided in Puerto Rico on April 11, 1899, and continued to reside there through April 12, 1900, and their children born subsequent thereto, who did not file a declaration of Spanish allegiance prior to April 11, 1900, were deemed to be citizens of Puerto Rico. Section 5 of the Jones Act (also known as the Second Organic Act of Puerto Rico) (1917) conferred con·fer  
v. con·ferred, con·fer·ring, con·fers

v.tr.
1. To bestow (an honor, for example): conferred a medal on the hero; conferred an honorary degree on her.
 U.S. citizenship to all persons who became citizens of Puerto Rico under the Foraker Act.

Conclusion

A became a citizen of Puerto Rico under the Foraker Act, and a U.S. citizen under the Jones Act. Therefore, A derives U.S. citizenship solely from being a citizen of a U.S. possession and is presently considered a "nonresident not a citizen of the United States" for Secs. 2209 and 2501(c) purposes.

IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws.  LETTER RULING 200105048 (11/2/00)
COPYRIGHT 2001 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.
cpacjn
Carlos J Nieves CPA (Member): Carlos J Nieves, CPA 11/23/2009 12:56 PM
As a Puertorican Tax Advisor I find the article instructive and giving a good and simple view of what might otherwise appear as a
difficult technical issue. While there is more to be discussed, as a general guideline, the answer is technically correct!

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Article Details
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Author:Fiore, Nicholas J.
Publication:The Tax Adviser
Geographic Code:1U0PR
Date:May 1, 2001
Words:643
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