We have a customer who has dual citizenship in the U.S. and Jordan and is a resident of Jordan. She would like to set up a trust and serve as both the grantor and income beneficiary of the trust. Our bank will serve as trustee. Are there any special tax withholding or tax return filing issues we need to address, since the customer resides in Jordan?

No, we are not aware of any tax withholding or tax return filing concerns related to a U.S. citizen living abroad.

While we are not accountants and are not experts in questions of international taxation, the IRS has made clear that for U.S. citizens, “the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad.” U.S. citizens living abroad generally are required to file U.S. income tax returns on their worldwide income, regardless of where they reside. U.S. citizens living abroad earning interest income at U.S. banks are required to provide their banks with a completed IRS Form W-9, certifying their Taxpayer Identification Number (TIN) so that their banks can ensure the interest is paid to the correct party. A U.S. citizen may be subject to backup withholding if they don’t provide a correct TIN, underreport interest or dividends on their income tax return, or fail to certify that they’re subject to backup withholding due to underreporting. However, foreign residence is not a basis for backup withholding.

Additionally, we note that different rules apply to nonresident aliens, who are required to provide their banks with a completed IRS Form W-8BEN. Generally, interest income paid by U.S. banks to nonresident aliens is nontaxable and nonreportable, although there are several exceptions to this rule.

For resources related to our guidance, please see:

IRS Webpage, Taxpayers Living Abroad (“If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. If you are a U.S. citizen or resident alien residing overseas . . . on the regular due date of your return, you are allowed an automatic 2-month extension to file your return without requesting an extension. For a calendar year return, the automatic 2-month extension is to June 15. Note that you must pay any tax due by April 15 or interest will be charged starting from April 15.”)

IRS Webpage, FAQs About International Individual Tax Matters (“I am a US citizen residing abroad. I file my U.S. federal income tax return every year using my permanent foreign address. I just received a letter from my U.S. bank along with a Form W-8 BEN. Does this form apply to me? In general, Form W-8 BEN only applies to certain payments to foreign persons. Since you are a U.S. citizen, regardless of where you live, you should provide your U.S. bank or payer with a completed Form W-9, Request for Taxpayer Identification Number and Certification, to: Certify that the tax identification number you are giving is correct (or you are waiting for a number to be issued), Certify that you are not subject to backup withholding, or Claim exemption from backup withholding applicable to payees that do not provide a valid TIN tax identification number or are U.S. exempt payees. Please refer to Form W-9 Instructions for more details.”)

IRS Form W-9 (“Purpose of Form. An individual or entity (Form W-9 requester) who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) which may be your social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN), to report on an information return the amount paid to you, or other amount reportable on an information return. Examples of information returns include, but are not limited to, the following. [1] Form 1099-INT (interest earned or paid) . . .”)

IRS Form W-9 (“Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN.”)

IRS Webpage, Backup Withholding (“You may be subject to backup withholding and the payer must withhold at a flat 24% rate when: [1] You don’t give the payer your TIN in the required manner. [2] The IRS notifies the payer that the TIN you gave is incorrect. [3] The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 120-day period. [4] You fail to certify that you’re not subject to backup withholding for underreporting of interest and dividends.”)

IRS Webpage, Federal Income Tax Withholding and Reporting on Other Kinds of U.S. Source Income Paid to Nonresident Aliens (“If the interest income is paid by a U.S. bank . . . to a nonresident alien, it is nontaxable and nonreportable (no 1099 or 1042-S reporting) unless the interest income is effectively connected with a U.S. trade or business. However, U.S. bank interest paid to a resident of Canada is reportable on Form 1042-S but is not subject to withholding (Treasury Regulation 1.6049-8(a)). If the interest income is ‘portfolio interest’ and earned by a nonresident alien, then the interest income is reportable on Form 1042-S but nontaxable (Refer to Chapter 3 ‘Exclusions From Gross Income’ – ‘Interest Income’ – ‘Portfolio Interest’ in Chapter 3 of Publication 519, U.S. Tax Guide for Aliens). . . .”)