Should other nations be permitted to impose taxation on U.S. citizens or corporations?
At first blush, the question sounds absurd. Is there something about being a U.S. citizen that should exempt individuals from taxation in or by a another country? Some time ago, this question was explored in a discussion on a Facebook group. Interestingly, most participants thought the discussion was absurd and did not take it seriously. But truth can be stranger than fiction. When it comes to taxation there can be some benefits to being a U.S. citizen. In fact, in certain cases, U.S. citizenship can act as a “cloaking device” – a device that shields you from taxation in another country.
The two certainties are “death and taxes” …
It’s in the area of “death” where U.S. citizenship can be helpful. Sometimes it can be to your benefit to die as a U.S. citizen. Sometimes U.S. citizenship can be helpful when somebody dies leaving you part of their estate.
What follows are some categories where U.S. citizenship can protect you from taxation. These possibilities should be considered prior to renouncing U.S. citizenship. Continue reading →
A move to another country is a very significant life decision. A “Green Card” is actually a “permanent resident” immigrant visa. A U.S. “permanent resident” visa comes with significant opportunities and significant responsibilities. Permanent resident visa for immigration purposes: The visa is valid for immigration purposes only as long as the person retains the subjective intent to live permanently in the United States. Permanent resident visa for tax purposes: Under United States law, one’s status for immigration purposes is different from one’s status for tax purposes. Generally the rules for “tax residence” are found in Internal Revenue Code Sec. 7701(b).
What follows is my answer on Quora that considers the “benefits and burdens” of the Green Card. I suggest that you read all answers to this question. Read John Richardson's answer to What are the benefits of getting a "green card"? How has your life changed after being a green card holder? on Quora
But, wait! There’s more. If you have the Green Card for 8 years or more, you can’t leave the United States without being subject to the S. 877A Exit Taxes. Read John Richardson's answer to Must one pay U.S. exit tax on foreign assets? on Quora
The Internal Revenue Code of the United States imposes worldwide income taxation on ALL individuals who are U.S. citizens or who are otherwise defined as “residents” under the Internal Revenue Code. “Residents” includes those who have a visa for “permanent residence” (commonly referred to as a Green Card). A visa for “permanent residence” is a visa for immigration purposes. Once an individual receives a visa for “permanent residence” he will be considered to be a “resident” under the Internal Revenue Code. His status as a “resident” for tax purposes continues until he fulfills specific conditions to sever his “tax residency” with the United States. The conditions required to sever “tax residency” with the United States are found in S. 7701 of the Internal Revenue Code. (Basically a Green Card holder can’t simply move from the United States and sever tax residency.)
In the same way that U.S. citizens are subject to taxation on their worldwide income even if they don’t reside in the United States, “permanent residents” will continue to be subject to taxation on their worldwide income until they take specific steps to sever tax residency in the United States. In certain circumstances Green Card holders living outside the United States can avoid filing some of the “forms” that are required of U.S. citizens living abroad.
The steps to sever tax residency are found in S. 7701(b) of the Internal Revenue Code. Those wishing to explore this further are invited to read my earlier posts about Gerd Topsnik: Topsnik 1 and Topsnik 2. Those “permanent residents” who qualify as “long term residents” will be subject to the S. 877A Exit Tax rules if they try to sever tax residency with the United States. It’s probably easier to secure a “permanent residence visa” for immigration purposes, than it is to sever tax residency for income tax purposes.
On September 5, 2018 I had the opportunity to participate in a conversation with Mr. Gary Clueit who has been a permanent resident of the United States for 34 years. Interestingly Mr. Clueit is one more Green Card holder who never applied for U.S. citizenship. There are both advantages and disadvantages to a “Green Card” holder becoming a U.S. citizen. One often overlooked disadvantage to a Green Card holder becoming a U.S. citizen is discussed here. In general, “permanent residents” (Green Card holders) of the United States have certain “tax treaty benefits” that are denied to U.S. citizens. Because of the “savings clause” U.S. citizens are denied the benefits of tax treaties. Interestingly (at least until now) other countries have failed to understand that the inclusion of the “savings clause” in U.S. tax treaties means that the treaty partner is agreeing that the United States can impose worldwide taxation on the citizen/residents of the treaty partner country. The reason is simple:
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 20, 2018
“Understanding U.S. Tax Residency …
The United States uses a form of “deemed tax residency“.
The Internal Revenue of the United States deems that all “individuals” (wherever they live in the world – including citizens and residents of other countries) except “nonresident aliens” are subject to taxation in the United States on their world wide income. One qualifies as a “nonresident alien” unless one is a:
1. A U.S. citizen
2. A U.S. resident as defined by Internal Revenue Code Sec. 7701(b) Continue reading →
Introduction – It’s about the right to live permanently in the United States
There are tens of thousands of people who have “Green Cards” who live outside the United States. Some of them want to maintain their Green Cards which they understand to mean maintaining their right to live permanently in the United States. Otherwise do NOT want to maintain their Green Cards meaning they do NOT want to maintain their right to live permanently in the United States. The “Green Card” itself, is different from the “right to live permanently in the United States”. Continue reading →
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 25, 2017
Well he won the lottery. Specifically he won the “Green Card” lottery. He and his wife came all the way from an Asian country to “Live The Dream” – specifically the dream of living in the United States of America.
He spoke English. His wife did not speak English. He believed in strict compliance in the law. His wife relied on him to ensure her compliance with the law.
As a Green Card holder he was vaguely aware that he could be deported if he were convicted of certain kinds of offenses. But, mainly he believed in compliance with the law for its own sake.
As a Green Card holder and as a U.S. resident he was subject to laws that were never explained to him. He didn’t realize that he was taxable on his WORLD income (including a small pension that he received from his country of citizenship).
In 2009 the “Offshore Jihad” began. He didn’t think of himself as having “offshore accounts”. After all, he was a just citizen of another country. Surely it could NOT be criminal to have a bank account in his country of origin. Did he have to report his small foreign pension to the IRS? That pension was in no way related to the United States of America? And then he learned about the alphabet soup of “reporting requirements” – Mr. FBAR, Uncle FATCA, etc. He began to learn what the “reporting requirements” were. But, the penalties (as least described) were certain. He could not believe the extent of the penalties.
It was at this moment that his “Oh My God” moment began. He was confused and mentally disorganized. At that moment, all of his life assumptions were reversed. Assumption 1: He had always believed that he was a good, moral “law abiding” person. How could it be that he was NOT in compliance with the law. He had no reason to believe that the reporting requirements would even exist. Welcome to the United States of America where any involvement with anything “foreign” makes you a presumptive criminal. Assumption 2: He had always believed that the United States was a “just nation”. How could the United States threaten to impose such penalties on a person in his situation?
Welcome to the United States of America where justice is NOT the norm. What’s a poor “Green Card” holder to do?
He was ill prepared to deal with the situation in which he found himself.
He strived to learn what he could. The IRS would not answer his questions – suggesting that he go to a “tax professional” The “tax professionals” gave him different, conflicting and contradictory answers.
His greatest frustration was that he could NOT completely understand what was expected of him – although he did understand the threat of penalties, penalties and more penalties.
He eventually decided that he had to move back to his home country. He did this NOT to escape U.S. taxation, but because:
He could not completely understand what was required of him to be U.S. tax complaint; and
He was worried that he would die and leave his wife in a situation where she would not know how to be U.S. tax compliant.
In order to prepare for leaving he:
entered the streamlined program (domestic version) and “back filed” for 3 years
stayed in America for two more years so that he could certify the “five years of tax compliance” when he handed in the I-407
even filed the “Sailing Permit” (The 1040C) that is required of ALL aliens (resident or nonresident) when they leave the United States
He in now trying to file his final return and 8854. Fortunately he will not be subject to the S. 877A Exit Tax. He is currently focusing on staying alive long enough to complete his U.S. tax filings. He feels that it is important that he NOT die and leave the U.S. tax compliance problem to his wife. His emotional state:
Like many he is living in a state of fear. I pointed out to him that he was a small insignificant person and that nobody in the U.S. Government cared about him. He thanked me for telling him that “nobody in the U.S. Government cared about him”. He said that it was the first time in his life that he felt good that nobody cared about him. Epilogue:
One more day. One more life ruined. One more person chased out of America because of the Internal Revenue Code.
His greatest wish is that he lives long enough to file Form 8854 to log him and his wife out of America.
Nobody, but nobody should move to America without reading the fine print!
#YouCantMakeThisUp! John Richardson
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 22, 2017
Introduction – Introducing Gerd Topsnik – The World According to Facebook
Discussion on Topsnik, tax treaties and the S. 877A Exit Tax. Can tax treaties be used to avoid paying tax anywhere? https://t.co/OowVORbJHq
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 22, 2017
“This case will be seen as the first of an (eventual) series of cases that determine how the definition of “long term resident” applies to Green Card holders. The case makes clear that if one does NOT meet the treaty definition of “resident” in the second country, that one cannot use that treaty to defeat the “long term resident” test. A subsequent case is sure to expand on this issue. Otherwise, the case confirms that the S. 877A Exit Tax rules are “alive and well” and that the “5 year certification” test must be met to avoid “non-covered status”
Topsnik may or may not be a “bad guy”. But even “bad guys” are entitled to have the law properly applied to their facts. It would be very interesting to know how the court would have responded if Topsnik had been paying tax (a nice taxpayer) in Germany as a German resident.”