Colombia Case Study

1493 Words 6 Pages
Relevant Facts
Armando Perez a citizen of Colombia who has owned three Real Estate Properties in the US titled to his name. Colombia does not have a tax treaty with the US. Properties A, B, and C were purchased on January 1, 2014 and their adjusted bases and fair market value are $97,800/150,000, $86,223/135,000 and $52,077/155,000 respectively. There is no depreciation recapture on any of the properties and they are currently rented and no significant improvements have been made to the properties since they were purchased. Mr. Perez made the election to treat his real property income as effectively connected with a US trade or business under I.R.C. § 1.871-10, in order to avoid a 30% withholding on the rental income received from the properties.
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Perez wants to make sure there will not be tax consequences on the transfer of the properties to the US corporation. If the transfer has no tax consequences, Mr. Perez wants to know the basis and holding period his stock will have once the properties are transferred to the corporation.

Since Mr. Perez is a nonresident alien and as long as the requirements of I.RC. § 1.897 -6T(a) are met, he will not incur taxes on the transfer of the properties to the US domestic corporation. The transfer of the properties will be done under I.RC. § 351 (a). Mr. Perez basis on the stock will be $236,100 and his stock and properties will have a long term holding period.

In order to determine the possible tax consequences for Mr. Perez, we need to first determine if he may be considered a resident alien for tax purposes. I.R.C. § 7701 (b) (1) (A) defines a resident alien as an individual who either in a calendar year is: (i) Lawfully admitted for permanent resident or; (ii) Meets the substantial presence test or; (iii) Makes an election to be considered one under certain
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Perez comply with the requirements of Temp. Reg § 1.897 -6T(a), § 1.897-6T (a) (2) states, “A “nonrecognition provision” is any provision of the Code which provides that gain or loss shall not be recognized if the requirements of that provision are met. Nonrecognition provisions relevant to this section include, but are not limited to, sections 332, 351, 354, 355, 361, 721, 731, 1031, 1033, and 1036.” Mr. Perez’s transfer would fall under I.R.C. § 1.351 (a) which states, “No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.” I.R.C. § 1-368 (c) defines control as owning at least 80% of the voting and outstanding stock of the corporation. In Mr. Perez’s case, properties A, B and C (USRPIs) will be transferred to the US Domestic Corporation (USRPHC) in exchange for 100% the US Corporation’s common stock, the only class of stock to be

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