Tag Archives: Green Card

Article 4 paragraph 2 of the U.S. U.K. Tax Treaty: A clause preventing the use of the tax treaty tie breaker for some Green Card holders

Introduction – In The 21st Century The Most Important Thing About A Person Is His Tax Residency

Green Card holders are deemed to be U.S. tax residents under the Internal Revenue Code. In most circumstances, Green Card Holders are also treated as U.S. tax residents under U.S. tax treaties.

U.S. Green Card holders have traditionally been able to use tax treaties to sever “tax residence” with the United States. This decision carries both burdens and benefits and should never be undertaken without competent professional advice. (For Green Card holders who are “long term residents“, the use of a “tax treaty tie breaker” will result in expatriation. Expatriation may trigger the imposition of the Sec. 877A Expatriation Tax.)

The tax treaty tie breaker is available if and only if the individual is, according to the tax treaty, a tax resident of BOTH the United States and the treaty partner country.

Typically the tax treaty tie breaker is a mechanism where one uses the provisions of the tax treaty to assign tax residency to one and only one country according to the tax treaty.

To repeat: a condition precedent to the use of the tax treaty tie breaker is that the individual be a tax resident of both countries according to the tax treaty.

Most tax treaties provide that if an individual is a tax resident of Country A according to domestic law, then the individual is a resident of Country A under the treaty. In other words, tax residency under the terms of the treaty follows from tax residency under domestic law.

Prior to the U.S. U.K. Tax Treaty of July 24, 2001, tax residency for Green Card holders according to the tax treaty, followed from tax residency under domestic law.

The U.S. U.K. Tax Treaty of July 24, 2001 changed this basic rule. The July 24, 2001 tax treaty contains a provision that provides that tax residency under the U.S. U.K. tax treaty, does not necessarily follow from tax residency under U.S. domestic law. Specifically Article 4 Paragraph 2 states that Green Card holders will NOT be treated as U.S. tax residents under the U.S. U.K. Tax treaty except as follows:

2. An individual who is a United States citizen or an alien admitted to the United States
for permanent residence (a “green card” holder) is a resident of the United States only if the
individual has a substantial presence, permanent home or habitual abode in the United States
and if that individual is not a resident of a State other than the United Kingdom for the purposes of a double taxation convention between that State and the United Kingdom.

Paragraph 2 of Article 4 provides a presumption against U.S. tax residency, under the tax treaty, for Green Card holders. This results in a situation where the Green Card holder is a U.S. tax resident under the U.S. Internal Revenue Code, but NOT a U.S. tax resident under the treaty.

The purpose of this post is to explore the implications of this unusual provision and how it impacts Green Card holders who are tax residents of the U.K. The post will be divided into the following six parts:

Part A – U.S. U.K. Tax Treaty – Prior to July 24, 2001 (1975)

Part B – The U.S. U.K. Tax Treaty – signed July 24, 2001

Part C – The meaning of the two necessary conditions to qualify as a U.S. tax resident under the treaty: Joint Committee of Taxation Comments on Paragraph 2 of Article 4

Part D – The meaning of the two necessary conditions to qualify as a U.S. tax resident under the treaty: U.S. Treasury Technical Interpretation

Part E – IRS Commentary – July 3, 2018

Part F – What are the implications for Green Card Holders who are tax residents of the UK?

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Thinking about getting a #Greencard? The first question is: Do you want @PermResidentUSA status?

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

This article doesn't even mention the punitive taxation of foreign assets: "How Canada is recruiting more top talent through immigration than the USA"

Interesting article on why immigrants may find Canada to be a more attractive destination

"For decades, the United States was a destination country for talent migration. In the last two years, however, Canada…

Posted by Envoy Global on Monday, August 27, 2018

But, Canada may have tax advantages too

The "proper care and feeding of the Green Card": Tax Filing Edition – Use of the 911 Foreign Earned Income Exclusion

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.)
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The proper care and feeding of the Green Card: How physical presence in the US affects the right to live permanently in the US and eligibility for US citizenship

United States permanent residence and the right to travel outside the United States with the Green Card

Beginning with my answer to a similar question on Quora …

Read John Richardson‘s answer to Can a person living in the US with a Greencard travel to other countries? on Quora

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

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.
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#Greencard abandonment: The safe disposal of the US "permanent resident" visa without triggering the S. 877A Expatriation Tax


https://www.taxation.co.uk/Articles/2018/04/24/337897/us-expatriate-tax-conference-pt-2
What follows is a summary of a presentation I made in March of 2018 in London, UK:
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The proper care and feeding of the Green Card – An interview with "long term resident" Gary @Clueit

Introduction
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.


More from Mr. Clueit after the jump …
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Considering the EB-5 Visa? The IRC S. 877A Expatriation Tax Demonstrates that "Not All US @TaxResidency Is The Same!"


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)
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On what date does an individual (other than a U.S. citizen) begin or end @USTaxResidency

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.


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