Prince Harry of Wales May Have a Binary US Tax Problem – February 22, 2024 By: Ralph Pastore, CPA and Joseph Sciara, CPA

Prince Harry of Wales May Have a Binary US Tax Problem - February 22, 2024 By: Ralph Pastore, CPA and Joseph Sciara, CPA
International Income and Estate Tax Planning Non USA Citizens

International marriages between US citizens and foreign nationals present interesting tax issues. In the case of Price Harry, he has the tax dilemma of whether he is a USA and California resident or either or neither.

Harry would be a USA resident if he meets the three-year arithmetic 183 days percent in the US. The quick answer is that he must spend less than 121 days per year in the USA during the three-year test. He must be out of the USA for more the one-third of a year. There is an escape hatch if he shows a closer connection to a foreign country. In plain “English,” he needs a home elsewhere.

We are sure sure he had a plan in place when he relocated to, but King Charles III may have put an obstacle in his path. Harry lived in California while maintaining a home at Frogmore until the announcement that the King had requested him to vacate. In a sense Harry needs to find a “spare” residence before he leaves Frogmore. This may solve his US tax issue while allowing him to avoid disclosing his no USA assets.

Let us assume he is compliant with the USA, but he must face the high taxes in California. Harry cannot rely on federal law to exempt him from state taxation. In California, if you spend 9 months there, you are a resident. If you spend an aggregate of six months or less in California during the year, and domiciled in another state, and have a permanent abode in the domicile state, and do nothing other than what a tourist, visitor, or guest would do, you are a non-residency.

This concept of domicile is a game changer as you must show that your sense of being is in other than California. This is a problem as his historic UK residence is no longer available. The fact that he lives in a $14M home in California with family does not exactly present a picture of someone on holiday as the English say. Assuming he figures out how to create a domicile like moving in with his brother or the King, he must deal with the presumption that his wife is a resident of a community property state.

In a community property state, income earned by one spouse is considered earned half by each. The upshot of this is that if Harry remains a non-resident/ non-domicile of California he gets a significant tax benefit.

No doubt Harry is house hunting in the UK as well as planning to be an absentee father to meet the 121-day limitation so he can continue to reduce his taxes.

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