Resident Alien becoming non-resident - can I continue holding Series I Bonds?

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Topic Author
basil
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Joined: Sun Jul 30, 2017 4:54 pm

Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by basil »

I am currently a US Resident Alien for tax purposes (work visa) and hold series I savings bonds purchased over a year ago through TreasuryDirect in the electronic form. I am leaving the US later in 2023 to Israel and will become a non-resident alien for tax purposes. I am keeping at least one US bank account open.
  1. From the US perspective, am I allowed to continue holding those bonds as a non-resident alien?
  2. If so, do I need to let them know of my status?
  3. How would taxation work as an NRA when I decide to sell (before or after the 5 years mark)?
(the last two questions can be ignored if I can't hold the bonds)

Thanks!
JD09
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by JD09 »

If you meet the substantial presence test for 2023, you will be taxed as a resident for this year. In that case it may make sense to sell in Dec 2023(assuming you want to minimize the 3 month penalty).
Topic Author
basil
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by basil »

JD09 wrote: Fri May 19, 2023 2:28 pm If you meet the substantial presence test for 2023, you will be taxed as a resident for this year. In that case it may make sense to sell in Dec 2023(assuming you want to minimize the 3 month penalty).
Thanks for the quick response. I meet the substantial presence test but will likely try to choose split year treatment (as described here). In that case, if I'm not allowed to hold I bonds as an NRA I assume I will need to sell before December 2023.

However, if I am indeed allowed to continue holding them and they are not taxable for NRAs I might want to keep them at least until 2024 since I could be exempt on the Israeli side as well... (obviously that's outside the context of my question).
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HueyLD
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by HueyLD »

Per 31 CFR § 353.6(c):

https://www.ecfr.gov/current/title-31/s ... A/part-353

“Nonresident aliens. A nonresident alien may be designated co-owner or beneficiary or, on authorized reissue, owner, unless the nonresident alien is a resident of an area with respect to which the Department of the Treasury restricts or regulates the delivery of checks drawn against funds of the United States or its agencies or instrumentalities.”

Per https://www.irs.gov/individuals/interna ... ncome%20is

“Nonresident aliens who receive interest income from deposits with a U.S. bank, savings & loan institution, credit union, or insurance company, or who receive portfolio interest (described in Publication 519, U.S. Tax Guide for Aliens) are exempt from taxation on such interest income as long as such interest income is not effectively connected with a U.S. trade or business.”
Topic Author
basil
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by basil »

HueyLD wrote: Fri May 19, 2023 8:59 pm Per 31 CFR § 353.6(c):

https://www.ecfr.gov/current/title-31/s ... A/part-353

“Nonresident aliens. A nonresident alien may be designated co-owner or beneficiary or, on authorized reissue, owner, unless the nonresident alien is a resident of an area with respect to which the Department of the Treasury restricts or regulates the delivery of checks drawn against funds of the United States or its agencies or instrumentalities.”
Thanks for the answer and references! Can you please elaborate on this quote about owning bonds as a non-resident alien? I may be misunderstanding but I am not sure how to apply this to my situation (the owner becomes a non-resident alien).
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HueyLD
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by HueyLD »

basil wrote: Mon May 22, 2023 12:54 pm
HueyLD wrote: Fri May 19, 2023 8:59 pm Per 31 CFR § 353.6(c):

https://www.ecfr.gov/current/title-31/s ... A/part-353

“Nonresident aliens. A nonresident alien may be designated co-owner or beneficiary or, on authorized reissue, owner, unless the nonresident alien is a resident of an area with respect to which the Department of the Treasury restricts or regulates the delivery of checks drawn against funds of the United States or its agencies or instrumentalities.”
Thanks for the answer and references! Can you please elaborate on this quote about owning bonds as a non-resident alien? I may be misunderstanding but I am not sure how to apply this to my situation (the owner becomes a non-resident alien).
As the owner becoming a NRA, the reissuance exception does not apply.
See https://www.law.cornell.edu/cfr/text/31/353.2
Topic Author
basil
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by basil »

HueyLD wrote: Mon May 22, 2023 1:20 pm As the owner becoming a NRA, the reissuance exception does not apply.
See https://www.law.cornell.edu/cfr/text/31/353.2
Thanks again, I think that leaves "A nonresident alien may be designated co-owner or beneficiary" (but not owner).

I am the sole owner. To confirm, my understanding is that the answer to "Can I continue holding electronic Series I Bonds after I become a non-resident alien" is "no", and that I must redeem the bonds before leaving the US.

I am bit confused by this, because in the case of paper bonds they seem to allow it and even provide the relevant form (W-8 BEN): Cashing paper bonds outside the United States
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HueyLD
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by HueyLD »

Maybe a phone call to the TD is a good idea.
Topic Author
basil
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Re: Resident Alien becoming non-resident - can I continue holding Series I Bonds?

Post by basil »

HueyLD wrote: Mon May 22, 2023 7:52 pm Maybe a phone call to the TD is a good idea.
Yes, I have been trying to reach them for a few days. I was able to reach them by phone today. The representative I spoke to did not know the answer and I received the following response by email:
When you open an account you must certify under penalty of perjury that you are a U.S. person as defined by the Internal Revenue Service (IRS): Classification of Taxpayers for U.S. Tax Purposes | Internal Revenue Service (irs.gov)

Once you are no longer a resident of the United States, you will no longer be eligible to maintain a TreasuryDirect® account or securities.
They did ignore my question regarding paper bonds (which can be cashed outside the US) and only answered regarding electronic bonds. It seems to me as if the actual issue is not ownership by a non-resident alien but the TreasuryDirect account itself.

I am now wondering if this is the complete answer or if there's this one person at TD who can actually process mailed-in form W-8 for people in my future situation...
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