Pre-Immigration Tax Planning Basics

Pre-immigration Tax Planning: The U.S. tax strategizing for foreign income, accounts & assets is both complicated and necessary. The U.S. Tax and IRS requirements have many facets to it. When a foreign national is considering moving to the United States and/or otherwise becoming a US person, there are many tax precautions and pitfalls to consider. 

Unlike almost every other country in the world, the United States taxes individuals who are considered U.S. persons on their worldwide income.

In addition, the Internal Revenue Services requires the reporting of foreign accounts, assets, investments, and income to the United States each year on a variety of forms.

These forms are collectively referred to as international information returns.

The failure to properly report on these forms may lead to significant fines and penalties.

Pre-immigration Tax Planning

Pre-immigration Tax Planning

5 Pre-Immigration Tax Planning Considerations

Once a foreign national decides they want to obtain U.S. status, it is very important to handle the planning before becoming a U.S. person. That is because once a person becomes a US person for tax purposes, their entire tax world will change.

Here are five (5) planning tips:

Plan Before Green Card or Citizenship

This is very important.

For example, if a person’s goal is to travel to the United States intermittently — but to maintain permanent residence or citizenship status abroad — then they should consider whether they it is more beneficial to become a legal permanent resident or just a visa holder.

The United States taxes individuals who are considered US persons on their worldwide income, and requires disclosure of global assets.

A U.S. Person “Individual” includes:

Once  you become a US citizen or Legal Permanent Resident you will be subject to US tax on your worldwide income and US reporting on your global assets — since your status is considered “permanent.”

But, if you’re not sure you want to take this giant leap into the US tax world, you may consider applying for a visa (or visa waiver if applicable) and testing the waters, while being sure not to meet the Substantial presence test.

Substantial Presence is not Just For Work-Visas

There’s a common misconception that only Visa holders and more specifically employment Visa holders are the foreign nationals that can be subject to the substantial presence test, but this is inaccurate.

Any foreign national can meet the substantial presence test (unless an exception, exclusion or limitations exists).

A person does not have to be on a work visa. Rather, if the person has a visa and even if it’s an EB-5 investment visa or B1/B2 travel visa – either one of these non-work visas may be subjected to substantial presence test and U.S. Person status.

Therefore, it is important to plan this before traveling to and from the United States.

Green Card Ramifications

If a person wants to become a legal permanent resident, they need to consider the tax ramifications beforehand.

That is because legal permanent residents/green card holders are taxed on their worldwide income, and they also must report their global assets — even if they reside outside of the U.S.

Therefore, even if a person resides outside of United States, maintains all of their assets outside of United States, and all of their income is sourced outside of United States — they will still be subject to US tax and reporting on their worldwide income and assets — just as if they were a US citizens.

Therefore, if the goal is to travel back and forth between United States and/or reside in the United States but the tax transparency is just too great – a foreign national should avoid a green card.

Exit Strategy

One major tax catastrophe for many clients is that they’ve had their green card for more than eight of the last 15 years.  As a result, they may be considered a covered expatriate and may have to file and paying exit tax when they relinquish their green card.

It is important to note that there is no requirement that a legal permanent resident reside in the United States for any of those 8 of 15 years.

In addition, just because the green card expires does not mean that it was relinquished. In other words, unless there is a judicial, administrative or voluntary relinquishment of the legal permanent resident status, the person does not lose US person status for tax purposes.

Therefore, this is very important to have a strategy in place early in the process.

And, if a green card holder is approaching the eight year mark (it does not have to be 8 full-years), they may want to consider making a form 8833 treaty position to be treated as a foreign resident before they are considered a long-term resident – which is a tax trap if the filing of the 8833 is miscalculated.

Worldwide Asset Reporting FATCA, FBAR, 3520

Once the person is considered a US person for tax purposes, there are several international information reporting requirements that can sneak up on the individual.

Two of the most common acronyms, include FATCA Form 8938 which is the foreign account tax compliance act, and FBAR which is the foreign bank and financial account reporting (aka FinCEN Form 114).

These forms require US persons to disclose their offshore accounts, assets, investments, and/or  income to the IRS.

The failure to report these forms timely and properly may result in significant fines and penalties.

In addition, there are many other international reporting forms that maybe required, what a person has a foreign trust, foreign business entity, and or receiving gifts from foreign persons.

Some of the more common forms include:

  • Form 3520
  • Form 3520-A
  • Form 5471
  • Form 8621
  • Form 8865

It is important to plan before hand to avoid any noncompliance.

Once a person is out of compliance, that is when it can turn into a nightmare.

These taxpayers start researching online, getting lost in one rabbit hole after the next — and not realizing much of the information available online is inaccurate.

Golding & Golding: About our International Tax Law Firm

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

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Golding & Golding Recent Streamlined 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
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in offshore disclosure. Contact our firm today for assistance with getting compliant.