The estate tax, one part of the Federal transfer tax system, is incurred on transfers of property at death. This tax applies to the estates of U.S. citizens, resident aliens, and nonresident aliens who die owning property in the United States. In Filing Years 2003, 2004, and 2005, the majority of all estate tax returns filed were for the estates of decedents who died between 2002 and 2004. For these years, the estate tax for nonresident aliens was incurred by estates with $60,000 or more in U.S. gross assets. In contrast, the filing threshold for U.S. citizen and resident alien estates was $1.0 million for 2002 and 2003 and $1.5 million for 2004, a result of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) passed by Congress in 2001.
For Tax Year 2003, the 58,945 domestic corporations each controlled by a foreign “person” generated $2.6 trillion of total receipts and reported $6.2 trillion of total assets on income tax returns filed with the Internal Revenue Service (IRS). While total receipts for 2003 were slightly larger than those reported for 2002, total assets decreased somewhat during this time period. These corporations were relatively few in numbers, just 1.1 percent of the U.S. total. However, they accounted for 12.4 percent of the receipts and 11.5 percent of the assets reported on all U.S. corporation income tax returns.
For Tax Year 2004, there were approximately 20.6 million individual income tax returns that reported nonfarm sole proprietorship activity. Nearly every sole proprietor industrial sector reported an increase in profits. Total profits for all nonfarm sole proprietorships were $247.6 billion, a 7.5-percent increase from Tax Year 2003. When adjusted for inflation, profits increased by 4.4 percent, the highest percentage increase in profits since 1998.
On October 31, 2005, President Bush’s tax reform panel submitted two proposals to the Treasury Department. The main goals of both plans include simplifying the tax code and modifying it to promote growth. Included among the many suggestions are recommendations for reform of the international tax rules. Given these proposals and the increased globalization of the economy, it is helpful to have a general idea of how the U.S. taxes international income today and what statistics on it are available.
For Tax Year 2003, the number of U.S. corporations claiming the possessions tax credit (136) and the amount of the credit claimed ($1.1 billion) continued declines that began in the 1990s. These declines coincide with increased legislative restrictions on the use of the possessions tax credit. Most of the U.S. corporations claiming a possessions tax credit for 2003 did so with respect to their operations in Puerto Rico. These 128 corporations claimed more than 98 percent of the total possessions tax credit.
With the enactment of several legislative provisions, the U.S. Congress has sought to protect family-owned farms and closely held businesses by lessening the burden of the Federal estate tax, a progressive tax on the transfer of wealth at death. These provisions have included: special use valuation--the valuation of property at its actual, rather than its potential, use in a family enterprise; the qualified family-owned business deduction; and the deferral of Federal estate tax liabilities.