How Green Card Holders Abroad Navigate U.S. Tax and Immigration Issues

How Green Card Holders Abroad Navigate U.S. Tax and Immigration Issues

Navigating U.S. Tax and Immigration Issues

When Green Card Holders live overseas, they are still subject to the same tax and reporting rules as Green Card Holders who live in the United States. There is a general misconception that the United States only taxes Green Card Holders when they live in the United States, but that is incorrect. Before Taxpayers move overseas, they should carefully assess their potential tax implications and if they will have any additional reporting requirements such as if they open foreign accounts, form a foreign entity, or create a foreign trust. Even though moving overseas can present some complex tax situations for Green Card Holders, these issues are usually manageable. They can result in a near tax equalization so that Taxpayers are not paying much more in tax than they would have paid if they were living in the U.S. Let’s look at some of the more difficult tax situations that Green Card Holders have to face when living overseas.

Worldwide Income

The United States uses a worldwide income taxation model for individuals. Therefore, Green Card Holders who live overseas are still taxed on their worldwide income whether or not they live in the United States or abroad. Likewise, foreign income is taxed by the United States the same way that U.S. income is taxed — although Taxpayers may qualify for the foreign earning income exclusion or foreign tax credits to reduce or eliminate potential double taxation issues.

Opening Foreign Accounts

With the introduction of FATCA (Foreign Account Tax Compliance Act), it has become much more difficult for Taxpayers who are Green Card Holders to open foreign accounts. Therefore, U.S. Taxpayers should not presume that they will be able to open a foreign account and should communicate with the different foreign financial institutions to determine whether there will be additional hurdles for Green Card Holders.

FBAR Reporting and FATCA Disclosures by Banks

The United States has entered into more than 110 FATCA agreements with foreign countries across the globe, which has resulted in hundreds of thousands of foreign financial institutions actively reporting U.S. account holders to the U.S. government. Therefore, Taxpayers should be aware that once they open foreign accounts, they may have various reporting requirements each year depending on the value of the accounts and the category of assets in the accounts (see below).

Owning a Foreign Corporation (GILTI and Subpart F)

When a U.S. Taxpayer forms a foreign corporation or partnership they may be subject to additional taxes as well as complicated annual reporting requirements on reporting forms such as Form 5471 and 8858. In addition, they may be required to report income that has not been distributed yet and they may get taxed at a higher tax rate than if the income is generated in the U.S. due to the GILTI and Subpart F Tax Laws.

Annual International Information Reporting

U.S. Taxpayers who have foreign accounts, assets, and investments are required to report this information each year to the US government on various international information reporting forms. Some of the forms are relatively straightforward while other forms are more complicated, and it is also important to note that the forms may have different due dates and different mechanisms for seeking an extension.

Re-Entry Permit for Lengthy Overseas Stays

For some people, they may wish to relocate temporarily but not give up that status. A reentry permit is used by legal permanent residents who are going to be outside of the United States for more time than allowable under the legal permanent residence/green card rules. In other words, when a Legal Permanent Resident is unable to reside in the United States for at least the time required to maintain their status, then technically their green card is no longer valid.  Taxpayers apply to USCIS for a reentry permit for up to two years. This allows a lawful permanent resident to remain outside of the United States for up to two years, and their green card will not be considered abandoned. 

Passport Revocation or Denial

Even though the Taxpayer lives overseas, the U.S. government still has the right to issue levies and liens on their U.S. property and even potentially foreign property, especially if there is a mutual agreement with a country such as the United States and Canada. Taxpayers living overseas with a U.S. passport must be especially careful because the IRS can revoke or deny a passport or passport renewal if there is a substantial tax liability due.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.