Pre-Immigration Tax Planning for Expatriation
Pre-Expatriation Tax Planning: In preparing to become a U.S. Person, one of the most common concerns is whether the person should pursue Legal Permanent Residence (aka Green Card) or remain as a temporary Visa Holder. There are pros and cons to each approach, especially if the person is concerned about expatriation and exit tax in the future. We will summarize the pros and cons of each approach to U.S. tax resident.
Permanent Residence Pros and Cons
When it comes to becoming a Legal Permanent Resident, one of the immediate benefits is that a person will not have to worry about their “status” in the U.S. for 10-year spurts.
Previously, the INS (Now the USCIS) Issued forever green cards (1970s and 1980s). They did not expire, and the only main concern was updating the picture to coincide with the holders age – or risk getting stopped at the airport.
Another benefit to permanent residence is that it puts the individual on a path to citizenship, if that is the end-game.
Despite some benefits, there are also some major detriments.
First, the person is taxed as a U.S. Citizen, which means they must report their worldwide income, along with reporting their global assets in accordance with FBAR and FATCA.
To maintain the green card, the person must stay in the U.S. for an extended period of time each year, or risk losing their status.
Expatriation & Exit Tax Risk
Once the Permanent Resident has maintained the status for at least eight of the last 15 years, they may become subject to the exit tax if they qualify as a covered expatriate and have sufficient mark-to-market “unrealized gains” and/or certain deemed distributions.
Visa Holder Foreign Nationals Pros and Cons
When a person is foreign national, there are many benefits.
The first benefit is that the person is only treated as a U.S. person for tax purposes if they meet the substantial presence test. Therefore, by simply avoiding the substantial presence test, they will avoid U.S. worldwide income tax and reporting — without any formal renunciation.
In addition, if they have assets or account outside the U.S. they would not have to confirm they were a U.S. Person in any year they meet the Substantial Presence, if at all.
Moreover, they will have a much easier time opening and maintaining foreign accounts and investments than their U.S. person counterparts (thank you, FATCA).
The negatives for being a visa holder instead of a permanent resident is that they have to be able to continue to obtain the status. These days, just getting the visa can be more difficult than in year’s past.
And, if the person intends on remaining in the U.S., they have to be careful not to overstay their visa and risk losing the ability to return to the U.S.
Interested in Expatriation from the U.S.?
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Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
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- Dually Licensed as an EA (Enrolled Agent) or CPA
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