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Your Top Tax Questions, Answered | Rubio International Law

Your Top Tax Questions, Answered | Rubio International Law

From Maria del Pilar Rubio of Rubio International Law

When it comes to talking about taxes, we all automatically cringe. But with the right planning, it doesn’t have to be your worst nightmare. We spoke with Miami-based attorney Maria del Pilar Rubio of Rubio International Law to get some of your top tax questions answered.

Maria del Pilar Rubio is a prominent Miami-based and Florida-barred attorney. With offices in Coral Gables, her boutique law firm, Rubio International Law PLLC, focuses on handling the needs of high-net-worth individuals, cross-border families and closely held entities. Rubio’s main practice areas include international taxation, private client services, and international and domestic estate planning. Rubio is also a member of the Tax Section of the American Bar Association, the Tax Section of the Florida Bar Association, and she has served as the Treasurer of the Colombian American Bar Association since 2019.


What is the difference between tax planning and tax preparation?

Tax Planning

Tax planning is a comprehensive analysis of a financial situation or a plan to ensure that all elements work together to allow a taxpayer to optimize their tax situation. With tax planning, taxpayers set goals for the long term and work with a professional that is experienced in tax laws. The purpose of tax planning is to use legitimate ways to optimize the taxpayer’s potential tax obligations based on their plans and goals for the future. This type of holistic approach to managing finances ensures people get proactive tax planning advice—from setting goals and finding the hidden savings to deductions, tax credits and retirement planning, among others. Tax planning should be an essential part of an individual investor’s financial plan because proper tax planning can save thousands of dollars.

Tax Preparation

Tax preparation is a service that helps taxpayers file their tax returns. The main goal is to make sure the taxpayer’s tax and reporting obligations comply with federal, state and local tax laws. Tax preparation provides basic guidance based on the information provided to the tax preparer, which usually focuses on the tax year of filing. Some professional tax preparers may provide general tax guidance and savings advice based on the tax returns for recent years, or they may simply just answer tax-related questions upon request.


I’ve heard of FIRPTA. What is it and, as a foreign person, should I be concerned?
The Foreign Investment in Real Property Tax Act (FIRPTA) authorizes the United States government to tax a foreign person on the sale or disposition of U.S. real property interests. Buyers purchasing U.S. real properties from foreign persons and settlement officers are required to withhold 15% of the amount realized on the disposition. There are, however, circumstances in which the FIRTPA withholding requirement may be reduced or even eliminated.

If you are a foreign person considering selling or buying a real estate property in the U.S. and you are not sure how to navigate the intricate world of FIRPTA, it is advisable that you consult with a tax lawyer to learn about your options regarding how to structure the transaction properly.


What if I have not filed my tax returns or met my U.S. tax and reporting obligations? Can I become compliant?
Although not the ideal situation, fortunately, the Internal Revenue Service (IRS) offers different programs to assist taxpayers in becoming compliant with their U.S. tax and reporting obligations.

For example, on the one hand, the IRS makes streamlined filing compliance procedures available to certain taxpayers who can certify that their failure to report foreign financial assets and pay all taxes due in respect of those assets was not the result of willful conduct on their behalf. These streamlined procedures are designed to provide taxpayers in such situations with an avenue for filing amended or delinquent returns and terms for resolving the tax and penalties related to them. These streamlined filing compliance procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States.

On the other hand, taxpayers who committed tax or tax-related crimes and have criminal exposure due to their willful violation of the law should consider participating in the IRS Criminal Investigation Voluntary Disclosure Practice. Taxpayers who participate in the Voluntary Disclosure Practice generally intend to seek protection from potential criminal prosecution. Although a voluntary disclosure will not automatically guarantee immunity from prosecution, it may result in prosecution not being recommended.

If you find yourself in a situation where your U.S. tax and/or reporting obligations have not been met, it is strongly advisable that you consult with your U.S. tax counsel to determine which program may be available to assist you to become compliant.


What is the difference between residence for U.S. income tax purposes and domicile for transfer tax purposes (i.e., gift and estate tax)?

Residence for U.S. Income Tax Purposes

In general, there are two objective tests for determining whether an individual (i.e., an individual who is not a U.S. citizen) is a resident of the U.S. for federal income tax purposes in a particular calendar year. These tests are commonly referred to as the “Green Card Test” and the “Substantial Presence Test.”

Persons who meet either of the above-referenced tests, as well as citizens of the United States, are classified as residents for U.S. income tax purposes generally subject to U.S. income tax on their worldwide income, regardless of the source of such income. In other words, if a person is considered an income tax resident under either test, any income derived by that person in the United States, or any other country, is subject to income tax in the United States.

In contrast, foreign persons are subject to U.S. income tax only on certain types of U.S.-sourced income. Specifically, income that is effectively connected with the conduct of a U.S. trade or business of the foreign person and on certain fixed or determinable, annual or periodic income from the U.S. (e.g., dividend, interest, rental income from property located in the U.S.)

Domicile for Gift and Estate Tax Purposes

In general, the determination of whether a person is a domiciliary of the U.S. for federal estate and gift tax purposes is a subjective test and depends on the facts and circumstances of each case. A person acquires domiciliary status in the U.S. by living in the United States, even for a short period of time, with no present intention of ever leaving the United States.


What is considered a gift for U.S. gift tax purposes?
Transfers of certain property, as described below, to an individual—either directly or indirectly—where full consideration (measured in money or money’s worth) is not received in return is considered a transfer subject to U.S. gift tax.

In general, in the case of donors who are non-domiciliaries of the United States, the U.S. gift tax is imposed on gifts of real and tangible property located in the United States. In contrast, donors who are domiciliaries of the U.S. are subject to U.S. gift tax on worldwide gifts, although some exclusions may apply.

If you are considering making a gift, you should consult with a tax attorney to learn about the implications of making the said gift and the different options available to minimize the tax and reporting obligations.


If I’m not a domiciliary or a citizen of the United States, is my estate subject to U.S. estate tax upon my passing?
A person who is not a domiciliary is not subject to U.S. estate tax unless the property and/or assets are considered U.S. situs assets for estate tax purposes. By way of example, U.S. situs assets may include real estate located in the United States and tangible property located in the United States.


Please note the foregoing is not an exhaustive description of the applicable U.S. tax rules. Furthermore, the questions and answers herein are for informational purposes only and should not be construed as legal advice. Nothing herein should be understood to form an attorney-client relationship between the reader and Rubio International Law PLLC. If you need legal advice, you should contact an attorney for consultation concerning your specific circumstances.


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