U.S. Tax & Giving up Your Green Card – What to Expect?
International Tax Planning to Give up Your Green Card: For many individuals who once resided in the United States on a U.S. Green Card (a.k.a. Legal Permanent Resident status) but have since relocated outside of the United States to their home country or other country to reside — having a green card is no longer a benefit. As such, these idndividuals no longer want their green card, or the responsibility of being a US person.
Why Relinquish a Green Card?
While having a green card makes it easier to travel inside and outside of the United States, there are specific tax and reporting rules for green card holders — no matter where they reside.
Moreover, even when a green card holder relinquishes their green card, they may still have tax reporting responsibilities to the United States under FATCA, FBAR Rules and more. In addition, there could potentially be an expatriate tax due (a.k.a. “Exit Tax).
But I was not a U.S. Citizen?
The IRS understands that not all green card holders are responsible for the exit tax. Rather, in order to meet the threshold requirement for having to consider whether a person is required to have to pay an exit tax and/or still be required the pay income tax, the first issue is how long you were a green card holder.
If you were a green card holder for eight (8) of the last 15 years, you are considered a long-term resident. As a long-term resident, you’ are also considered to be a “Covered Expatriate.” As such, you’ll have to meet many of the same requirements as someone who was a US citizen and wants to renounce their citizenship.
Proof of Tax Compliance
For most individuals, the hardest hurdle to jump over will be form 8544 — which is used to prove the individual seeking to “expatriate” has been in tax compliance for the last five years. The reason why this is such a big deal is because for many green card holders, they had worldwide investments while they were green card holder, but were not in compliance with FATCA or FBAR rules – even if it was because they did not know about. Now, they have to backtrack and get into compliance.
Thinking About Relinquishing Your Green Card?
If you are considering relinquishing your green card, you should speak with an experienced international tax lawyer to discuss what tax filings and reporting requirements you may have missed during the last five years, and develop a strategy to get into compliance so that when you are expatriate, there are no big issues.
One of the safest and most effective methods is through IRS Offshore Voluntary Disclosure.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
Getting into Compliance
There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.
We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlikes the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.
After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.
If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.
Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.