The "proper care and feeding of the Green Card": Tax Planning for the #GreenCard before coming to America

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Introduction – Where this post came from …

In July of 2018 I moderated a discussion on “tax residency”. The discussion was at an immigration conference in Los Angeles that was primarily focused on the EB-5 program. The EB-5 program will lead to a Green Card (meaning that one becomes a permanent resident of the United States).

Here is a video of the discussion. Some parts are audible and others not. But, I decided to create a post which focuses on the issues discussed.

Introduction to the world of Global Mobility

Global mobility is the norm in the 21st century. The United States, Canada and Australia are prime destinations for those seeking “permanent residency” and ultimately a second “citizenship”. Canada has been a pioneer in investor immigration. The United States has long been an area of prime interest. It is important to distinguish between “residency” for immigration purposes (are you legally allowed to live in a country) from “residency” for tax purposes (to what extent are you subject to taxation in the country).

Once you have become a “permanent resident” under the immigration laws, you will have become a “tax resident” under the tax laws. Tax residency in a CRS and FATCA world has become increasingly important. I have previously discussed OECD definitions of tax residency.

There are many “citizenship and/or residency by investment” programs. One example is Portugals’s Golden Visa Program.

The purpose of this post is to create awareness of some aspects of what it means to become a “tax resident” of the United States. When a non-citizen becomes a U.S. “permanent resident” (for immigration purposes), one becomes a “tax resident” of the United States. Once a “tax resident” of the United States (1) very specific procedures must be followed to sever “U.S. tax residency” and (2) “long term residents” will be subject to the S. 877A Exit Tax rules.

If you are a “tax resident” of a country, it is important to understand the tax rules. This is particularly true when considering becoming a “permanent resident” and “tax resident” of the United States.

Tax Residency in the United States – The scope of your obligations
U.S. tax residents (citizens and residents) are subject to “worldwide taxation” on all of their income regardless of whether they are also “tax residents” of other countries. U.S. tax residents are also subject to Estate and Gift tax. An excellent article describing the obligations of “U.S. tax residents” is here. U.S. tax residents with “foreign assets” will be impacted by the Internal Revenue Code in the same way that Americans abroad are impacted by the U.S. tax system.

Tax Residency in the United States and the treatment of your non-U.S. assets

Once you become a “permanent resident” of the United States, you will be a “tax resident” of the United States. You will be subject to the full force of Internal Revenue Code (the Bible of American life). The Internal Revenue Code imposes VERY punitive U.S. tax treatment on non-U.S. assets! Additionally, the United States imposes penalty laden “reporting requirements” on non-U.S. financial accounts. Many people immigrating to the United States will own non-U.S. assets and retain non-U.S. financial accounts. In fact, U.S. “permanent residents” AKA Green Card holders have many of the same reporting requirements that Americans abroad are subject to. In other words, they may find that they have to file many U.S. international information returns. To be forewarned is to be forearmed!
Therefore, before moving to the United States you must consider (assuming that you will still own non-U.S. assets):

1. How the income from those non-U.S. assets will be taxed by the United States

2. What are the “reporting requirements” with respect to those non-U.S. assets?

The purpose of this post is to generate “awareness” of what are SOME of the right questions to ask. This post is NOT written to provide specific answers and is certainly not specific advice for your situation.

A “tweet odyssey”: Introducing some areas of possible concern …

You will notice that these discuss the normal assets that would be owned by many individuals or families.

You don’t really own mutual funds do you? Please say it isn’t true!

Well, if you do own mutual funds, maybe you should sell before moving to America. Oh and watch out for any soon to be “foreign trusts”!

More on the “foreign trust” rules

Yes, if you have capital property, you do NOT want to pay capital taxes on the gains accrued before you moved to the USA

What was the Government of Australia thinking when it created the Superannuation?

Surely, you don’t have a non-U.S. pension do you? Maybe you are helped by a tax treaty or maybe not!

If you own shares in a non-U.S. (FOREIGN) small business corporation, WATCH OUT!

Well, if you have a non-U.S. small business corporation, perhaps consider a “check the box election” (whatever that is)

And when you move to America, don’t forget to file your forms!

Conclusion

If you are planning to move to the United States and wish to retain any of your non-U.S. assets (including bank accounts) it is essential that you seek competent professional advice IN ADVANCE!! It’s not what you don’t know about U.S. taxation. It’s what you couldn’t even imagine about U.S. taxation.

John Richardson

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