Legal Resident vs Tax Resident – IRS Tax Resident vs. Legal Resident
U.S. Tax Residency Rules are tough. Similar to earning illegal money (which you still have to report it to the IRS aka ill-gotten gains), you may be in the U.S. illegally and still have to pay tax on the income.
And, depending on whether or not you meet the “Substantial Presence Test,” you may have to pay tax on your worldwide income.
Legal Resident vs. Tax Resident
In order to understand how U.S. tax residence rules work, it is important to understand the process of how a person may be considered a resident for tax purposes.
A resident for “Tax” purposes is not the same as a resident for “Legal” purposes.
In other words, even if you are in the U.S. illegally, you may still be considered a Tax Resident.
Who is a Tax Resident?
A tax resident generally means that an individual meets one of the three (3) different categories:
- U.S. Citizen
- Legal Permanent Resident (aka Green Card Holder)
- Substantial Presence Test (SPT)
*Even if a person is in the U.S. illegally, they may still meet the Substnatial Presence Test.
Worldwide Income Tax Due
Tax Residents get taxed on their worldwide income. This includes income generated in the U.S. or income generated abroad.
Illegall U.S. Residents & the IRS
The IRS wants their tax money. Even if you are residing in the U.S. illegally, the IRS can still come after the money you earned. As a Tax Resident, you may also be held responsible for offshore reporting requirements.
This may include FBAR, Form 8938, Form 5471 and more.
How to Avoid Offshore Fines and Penalties?
It is human nature to want to avoid making a proactive submission to a government agency such as the IRS before the IRS ever discovers the non-compliance. But, typically that is best path forward.
Moreover, if you realize you are out of compliance and begin researching online, you may begin to feel as though it is hopeless. Some of these attorneys and CPAs make it appear that everyone with unreported assets or income is going to be severely penalized and shipped off to prison.
That is simply not the case.
You have options, and depending on the facts and circumstances of your situation, your options may include the streamlined program, reasonable cause, or the delinquency procedures – which may result in significantly reduced fines and penalties (and may even receive a penalty waiver).
Golding & Golding – Board Certified in Tax Law
Golding & Golding represents clients worldwide in over 70-countries exclusively in Streamlined, Offshore and IRS Voluntary Disclosure matters. We have successfully completed more than 1000 streamlined and voluntary disclosure submissions.
Our Team Lead is a Board Certified Tax Law Specialist (Less than 1% of Attorneys nationwide) and Enrolled Agent, with a Master’s of Tax Law (LL.M.)
Mr. Golding leads his team in each and every case we accept for submission.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.