Does Tax & Reporting Noncompliance Impact Immigration Status

Is Immigration Status Impacted by Foreign Account Non-Compliance?

The Effect of Foreign Account Non-Compliance on Immigration Status

Frequently, it is not until a U.S. taxpayer is ready to adjust their tax status (for example, from Visa Holder to Lawful Permanent Resident) that they learn for the first time about the various international information reporting requirements the IRS has for taxpayers with foreign accounts, assets, investments, and income. Unlike almost every other country across the globe, the United States taxes individuals based on their U.S. Person tax status and not based on their residency — which means many Green Card Holders and Foreign Nationals are required to report their foreign accounts, assets, and income annually to the IRS. In fact, there are millions of Green Card Holders and other non-permanent residents who are considered U.S. persons for tax purposes but have not properly filed the international information reporting forms such as the FBAR and Form 8938. A common question that arises, is whether a taxpayer’s immigration status is impacted by their failure to timely or accurately report their foreign accounts and assets to the IRS in prior years.

Almost always, the answer will be no, but let’s walk through an example to put it in perspective.

From Visa to Permanent Resident (Example)

For many years, Leslie was living in the United States as a H-1B visa holder. Since Leslie was working in the United States and met the substantial presence test, Leslie was aware that he was required to report his U.S. income on his tax return. For the most part, Leslie’s U.S. taxes were relatively straightforward with the majority of his income deriving from W-2 employment and some bank interest. This year, Leslie decided he would apply for his green card. In doing so, Leslie learned for the first time that he was required to report all of the foreign accounts he has overseas as well as report any income that was generated from these foreign accounts for all the years he was considered a U.S. Person for tax purposes.

Leslie is Non-Willful

If we accept for purposes of this example that Leslie is non-willful, then any mistakes that Leslie had as a result of his non-compliance should be easy to fix (generally, civil willful issues are also fixable). Typically, Leslie would apply to the Streamlined Procedures or make a reasonable cause submission to the IRS.

Leslie would not qualify for delinquency procedures because he has unreported foreign income as well. And even though Leslie paid a significant amount of foreign taxes, to qualify for delinquency procedures, taxpayers typically cannot have any substantive tax changes to their tax return. In other words, it is not based on the fact that Leslie will not have any net effective U.S. tax liability, but rather there is unreported income which will modify the tax return.

Timing the Submission

Typically, taxpayers will want to submit to the Streamlined Procedures sooner as opposed to later but there are some caveats to consider.

For example:

• • • Did the taxpayer already begin the green card process?

  • • Are they scheduled for an interview?

  • • Have they been filing taxes timely in the prior years, and

  • • Are they otherwise tax-compliant aside from their foreign account, asset and income information?

Taxpayers who are considering changing status may want to consult with a Board-Certified Tax Law Specialist if they know they are out of compliance for prior year non-disclosure before making any affirmative representations or filing any documents with the IRS.

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. 

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.