After You Renounce and Want to Return to U.S., Tax Planning

After You Renounce and Want to Return to the United States

For many certain U.S. taxpayers who end up renouncing their U.S. citizenship or terminate their long-term lawful permanent residence, at some time in the future, they decide they want to return to the United States.

Common reasons include:

• • • A great job opportunity presented itself in the U.S.;

    • The former U.S. citizens’ children are attending University in the United States,

    • A family member living in the U.S. has fallen ill, or

    • The taxpayer simply misses living in the U.S. and wants to return.

For taxpayers who had to formally expatriate from the United States because they were either U.S. Citizens or Long Term Lawful Permanent Residents, part of the planning and returning to the United States is to try to limit or minimize any potential of becoming a U.S. citizen or a Long-Term Resident again. There are many tax traps that taxpayers must be aware of, but there are some ways to plan to avoid having to go through the hassle again of formally renouncing or terminating status. Let’s look at a few common ways taxpayers may be able to limit future tax implications.

After You Renounce and Want to Return to U.S., Tax Planning

Remain a Visa Holder

The easiest way to avoid becoming an expatriate for tax purposes is simply not to become a Long Term Lawful Permanent Resident or a U.S. Citizen. Instead, Taxpayers should consider simply obtaining a visa or visa waiver for the time they want to remain in the United States. For taxpayers who do take this route, it is important to note that if they meet the Substantial Presence Test then they will become subject to U.S. tax on their worldwide income at least in the year they meet the test. Thus, Taxpayers who may become U.S. persons for tax purposes because they meet substantial presence will want to plan around the number of days they remain in the United States to try to avoid this harsh outcome. likewise, even if they do meet substantial presence, as long as they have not applied for a green card they may qualify for several of the different exceptions such as the closer connection exception.

Do Not Naturalize

Of course, the first thing that taxpayers who are returning to the United States want to do after they renounced should be aware of is that they should not become U.S. citizens of their word about exit tax implications. For any U.S. person that becomes a U.S. citizen, they are always subject to the exit tax analysis. In other words, if a taxpayer returns to the United States and becomes a U.S. citizen then they will have to go through the whole expatriation process again in the future if they decide to renounce.

Limit Permanent Resident Status

Especially for taxpayers who are married to a U.S. citizen, it is relatively easy to obtain a conditional green card. And, not all lawful permanent residents are subject to expatriation — only lawful permanent residents who are considered to be long-term lawful permanent residents may be subject to exit tax. Therefore, Taxpayers who become LPRs,  must not remain in that status for at least eight of the past 15 years.

Another important factor to consider is that if the taxpayer was previously a Long Term Resident then they want to count up to 15 years to determine whether they are in LTR. In other words, all the prior 15 years that the taxpayer was on lawful permanent resident status can be factored into whether they are considered an LTR now even if they end up relinquishing their permanent resident card before eight years on their current card.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms and do not qualify for an exception or exclusion to FBAR filing, 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. 

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.