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Florida Tax Review

Abstract

Recent levels of violence in Mexico have caused certain of its citizens who do not hold permanent U.S. residency status (and who may not intend to reside in the United States permanently) to spend more time in the United States. By doing so, these individuals create the risk that they will become U.S. residents for U.S. tax purposes, thereby subjecting their income to worldwide taxation by the United States (as well as creating potential U.S. estate and gift tax issues). This paper explores whether there is relief available to such individuals under U.S. domestic law (the “substantial presence” test and its various exceptions). It also explores whether Mexican nationals can obtain relief from U.S. residency under the terms of the United States-Mexico income tax treaty. The paper concludes that it is less than clear whether relief is available; in particular, it is not clear whether the tax authorities or the courts may consider violence in the person’s home country in determining whether the individual is a U.S. tax resident. The paper then goes on to propose various statutory changes to the law to allow the tax authorities to provide relief and certainty on the question of U.S. tax residency to individuals who are present in the United States merely to avoid violence at home. The paper argues for such relief on the basis that imposing worldwide U.S. taxation and tax reporting obligations on Mexican nationals present in the United States merely to avoid danger at home is inequitable given the contributions of U.S. policy to the violence in Mexico.

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