While it seems like an awkward term, a US person is a designation used by the Internal Revenue Service (IRS) to identify who must file taxes in this country.
The US taxes eligible individuals and entities based on their global income. Through various reports, like income taxes, FBAR and FATCA filings, US persons are required to report their earnings, offshore tax holdings, and foreign bank account ownership to the IRS. Being taxed on total earnings in this way is referred to as citizen-based taxation (CBT).
That seems somewhat straightforward, even if potentially unfair. If you are an American, you have to pay taxes on your income wherever it is earned. Citizens of other countries may only be required to file and pay taxes in countries where the income is actually earned.
Yet, CBT is not reserved only for US citizens; it is required of “US persons.” Because of this, it is important to understand who is, and is not, an actual US person.
According to the IRS, a US person can be any of the following:
- A US citizen
- An individual who is a legal permanent resident of the US is considered a US person. This standard is referred to as the “green card test.” If you hold a green card, you are a US person.
- An individual can also be considered a US person if they pass the “substantial presence” threshold determined by the IRS. Roughly stated, this means you are a US person if you are present in the US for 31 days during the current year. You may also be considered to have a substantial presence if you are present in the US for 183 days during a three-year period that includes the present year plus the two years immediately prior to this year.
- A US person can be an individual who does not meet the definition of a “foreign person.” A foreign person can be a nonresident alien, a foreign trust or estate, or foreign corporation or partnership.
In addition, a US person can be an entity such as the following:
- A domestic corporation or partnership
- An estate that is not foreign, and does not meet the criteria for a foreign trust
Understanding whether you are a US person can be crucial to steering clear of tax troubles. If you were born in a country other than the US to a US citizen, you may be subject to American taxation. An individual born in the US who may have lived their entire life abroad could be considered an “accidental American” for purposes of taxes or allegations of tax fraud.
Occasional foreign-living individuals or expats find they are liable for significant back-taxes due to their unique standing as a US person.
If you become aware of criminal tax charges, or are notified of a tax audit, contact an experienced tax attorney. Finding an early solution to a tax controversy can minimize or help mitigate future damage to your business or financial well-being.
Skilled legal service when you are challenged by an IRS criminal tax investigation
Serving clients nationwide from offices in Cleveland and Chicago, the law firm of Robert J. Fedor Esq., LLC provides knowledgeable representation with tax litigation, offshore tax issues, and criminal tax matters. Call us at 800.579.0997 or contact us today.