Offshore Accounts & Becoming a Naturalized U.S. Citizen
Naturalization Interview & Foreign Accounts: When a US Legal Permanent Resident (green card holder) wants to become naturalized as a US Citizen, there are many steps along the way that they must complete before reaching that goal. One of the biggest hurdles a green card holder must overcome is to ensure that their prior year tax returns and international reporting were filed properly. With the introduction of FATCA and renewed government interest in enforcing FBAR compliance, the USCIS is becoming more keen to these international tax and reporting requirements.
It is not uncommon for a permanent resident to believe their naturalization interview would be a breeze — only to be surprised by the number of questions the interviewer had regarding offshore compliance. If a taxpayer is unable to show that they were IRS compliant for the prior 3-5 years, it could lead to a denial of citizenship. Let’s walk through an example:
Scott’s Naturalization as a U.S. Citizen Journey
Scott first came to the United States on an F1 visa. He completed his studies and OPT (Optional Practical Training), and then went on to receive an H-1B visa.
After a few years of employment, his employer sponsored him for legal permanent resident status and he finally received his green card. It is now five years later and Scott wants to apply for naturalization.
Scott has some foreign bank accounts and investments which he never reported in the United States on his tax return, because he misunderstood the reporting requirements and believed unless the money was transferred to the United States, it was not reportable (this is a common misconception).
Scott completes the form I-400 and submits the additional paperwork, and waits —
Scott’s Naturalization Interview & Foreign Accounts
Scott makes it through the administrative nightmare of government paperwork and is now scheduled for his interview.
Scott has prepared all of the necessary information he believes USCIS will require to approve him for citizenship. He appears at the interview and the questions are going fine until the following back and forth:
- Question: Do you have money outside of the United States?
- Answer: Yes
- Question: Do you have bank accounts outside of the United States?
- Answer: Yes
- Question: Do you have income generated from outside the United States?
- Answer: Yes
- Question: Have they been accurately reported on your taxes?
- Answer: I think so…
What Happens Next?
At the current time, Scott has not made any misrepresentations. He does have foreign accounts and assets which generate income, and Scott believes that it was reported correctly.
If Scott believed it didn’t have to be reported, then Scott has not made any misrepresentation to the U.S. government.
USCIS vs. IRS
The USCIS is not the same as the IRS. The USCIS is not overly concerned with applicant tax filings, other than to ensure they were filed properly.
This would not be considered a “reverse eggshell audit” situation in which the government is aware of the foreign accounts and is testing Scott’s veracity. Rather, in order to be naturalized, a person has to be tax compliant and therefore the USCIS Agent is asking Scott to confirm he is tax compliant.
From the response provided by Scott, the USCIS cannot just move forward and confirm everything is OK because clearly Scott is not confident that he filed everything accurately. Instead, the USCIS Agent wants Scott to provide the necessary tax documentation to prove that he did file them properly.
What can Scott do?
USCIS does not race to get taxpayers naturalized. Scott should have some time and opportunity to get into compliance for the prior years before it has any negative impact on his naturalization process.
Oftentimes, depending on the nature of the noncompliance, Scott may be able to submit to one of the offshore tax amnesty programs and resolve any tax issues he has. That way, Scott’s lawyer can make any necessary representations regarding the status of the filings to USCIS (either directly or through Scott) and also resolve any small issue before it becomes a much larger concern.
Golding & Golding: International Tax & Compliance
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure, naturalization interviews & foreign accounts compliance.
Contact our firm today for assistance.