Why can U.S. stock be treated differently at gift and death for a nonresident?
Key takeaway
U.S. corporate stock can receive different U.S. tax treatment when a nonresident noncitizen gives it during life and when the owner holds it at death. Practitioners describe a lifetime gift as generally outside U.S. gift tax because stock is intangible property. U.S. corporate shares held at death can be U.S.-situs property subject to estate tax, though a treaty may change the result.
Why a lifetime gift can be treated differently
Practitioners distinguishe stock from U.S.-situated cash, which may be subject to gift tax. The distinction concerns the property given and the timing of the transfer.
Why ownership at death can matter
U.S. corporate shares held at death can count as U.S.-situs property for estate tax purposes. Practitioners describe estate tax as applying to a foreign individual's U.S.-situs assets, including shares of a U.S. corporation. U.S. real estate is another example of property included in a nonresident noncitizen's U.S. estate.
A non-U.S. citizen who is not domiciled in the United States is taxed only on U.S.-situs assets. That account also says this person has no exemption for lifetime gifts. Its gift-tax description concerns the general boundary between property given during life and property held at death.
The stock's situs and treaty treatment
Practitioners identify shares of U.S. corporations as U.S.-situs property. The certificate's physical location, the custody account's location, and the situs of the corporation's underlying assets do not determine the shares' situs under that commentary. A treaty can change the estate-tax result for stock held at death.
The different treatment described here concerns U.S. corporate stock given during life and held at death. real estate and U.S.-situated cash as other U.S. property, with cash potentially subject to gift tax and real estate included among assets at death.