Introduction: The Purpose and Limited Scope Of This Post
This post focuses on Green Card holders who are filing the 1040 tax return. The 1040 is the return that is filed by all individuals unless you are a “nonresident aliens”. Non-resident aliens file the 1040-NR. This post does NOT discuss (1) when it could be advantageous for a Green Card holder to file a 1040-NR (using a tax treaty tie breaker provision) and (2) what the (DANGEROUS) consequences of filing a 1040-NR (from both a tax and immigration perspective) could be. For a Green Card holder, there can be both disadvantages and also substantial advantages to using a tax treaty tiebreaker to file a 1040-NR. This post assumes that the Green Card holder is filing a 1040 and is specifically focused on the following question: Is it wise for a Green Card holder who is temporarily outside the United States to use the Foreign Earned Income Exclusion found in Section 911 of the Internal Revenue Code (as opposed to the Section 901 Foreign Tax credits) when filing the 1040?
(Most tax practitioners agree, that in general, it is better to use the Sec. 901 foreign tax credits and and not sue the S. 911 Foreign Earned Income Exclusion. Here is a post that explains why this is so. So, why would anybody ever use the FEIE? The answer is that some people live in countries where there is income tax and therefore no foreign tax credit to use against income that is taxable from a U.S. perspective.) Continue reading →
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. Continue reading →
There are many “permanent residents” of the United States AKA Green Card holders who have never become U.S. citizens. Citizenship is part of one’s identity. There are many reasons why a “permanent resident” of the United States would NOT become U.S. citizens. There are also many reasons why a “permanent resident” would become a U.S. citizen.
This post explores some of the factors that might influence one’s decision to become a U.S. citizen. What follows is an answer that I posed on Quora. Read John Richardson's answer to Are there any real advantages of becoming a US citizen while you already have a green card? 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:
The primary impact of the “savings clause” is that assists the United States in imposing “worldwide taxation”, according to U.S. rules on people who are “tax residents” of other countries and who do not live in the United States!
The following tweet links to the podcast of the conversation. Anybody considering moving to the United States as a “permanent resident” should listen to this podcast.
— 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 →
#OVDP: Reactions from the “tax compliance community” (and others who tweeted) to the termination of OVDP
(Note: For the purposes of this post I will use the terms “OVDP” and “OVDI” interchangeably. Each term describes a specific example of one of the “OVDP era” programs, as it existed at a specific point in time. A particularly good analysis of the evolution of the “OVDP era” programs is found here – of interest only to those who want to “OVDP Historians“!) #OVDP Tweets
The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes.
“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.
I have heard it said:
The good thing about bad things is that they come to an end.
The bad thing about good things is that they come to an end. Continue reading →
This is an interesting and important question. This question is always important for determining how the Sec. 877A “Exit Tax” applies to “permanent residents” AKA “Green Card Holders” who with to abandon their permanent residence. There are many other many other reasons why this matters. U.S. tax residency (which is an example of “deemed tax residency“) can be a complicated thing. With the exception of U.S. citizens, U.S. tax residency is usually a function of some form of “physical presence”. U.S. tax residency can trigger:
– income tax payable
– reporting requirements with respect to non-U.S. assets and more (dual tax residents may be able to use a “tax treaty tie-breaker” to opt out of U.S. tax residency)
Remember that “residence” for purposes of taxation can be different from residence for the purposes of immigration. As the Topsnik case makes clear, it is entirely possible to NOT have the right to have lost the right to live in the United States, but still be subject to taxation as a U.S. resident.
Rather than reinvent the wheel, I am please to reproduce this post from Daniel Gray – a Toronto based CPA. Thanks to Daniel for allowing me to reproduce this post from his blog.
Everything you need to know but were afraid to ask: "Explanation And 10 Examples Of The Rules For Determining An Alien’s Period Of Residency In The United States" https://t.co/upuiP3DLnn via @taxconnections