— 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)
Interestingly, the Internal Revenue Code neither defines citizenship, nor specifically mandates “citizenship-based taxation“. (By imposing taxation on all individuals, the United States imposes taxation on all citizens.)
Internal Revenue Code S. 7701(b)
Section 7701(b) describes the conditions under which one who is NOT a U.S. citizen becomes a “resident” of the United States for tax purposes. It defines the degree of physical connection one must have with the United States to become a “tax resident”. At the risk of oversimplification, a “non-citizen” becomes a “resident” and subject to “worldwide taxation” if he:
– has the right to permanently reside in the United States (commonly referred to as having a “Green Card”); or
– meets the “substantial presence” test (meaning that he spends too much time in the United States).
Only U.S. citizens and permanent residents (AKA Green Card Holders) can be subject to the S. 877A Exit Tax rules if they expatriate
There are many “tax traps” triggered by moving to or from the United States. In a global world, one wants to be free to move from a country and sever “tax residence” with that country. Some countries (including the United States, Canada, Australia, Japan, etc.) will NOT allow one to sever “tax residence” without paying an “Exit” or “Departure Tax”. These taxes are not a fixed fee (like the toll you pay crossing a bridge). Rather they are a massive tax on the value of your assets. The United States has by far the most draconian “Exit Taxes” (operating to confiscate assets in other countries). In any case, the U.S. “Exit Taxes” can (without going into details) hold one hostage in the United States. (You don’t move from the “The Land Of The Free” for free!)
The key point is that ONLY U.S. citizens and “permanent residents” (who qualify as “long term residents“) can be subjected to the S. 877A Exit Tax. Significantly:
1. Those who are U.S. “tax residents” because they meet the “substantial presence test” will NOT, if they sever “tax residency” with America, be subject to the S. 877A Exit Tax.
2. Nonresident aliens cannot be subject to the S. 877A Exit Tax.
It could be very damaging to your finances if you become either a U.S. citizen or a “permanent resident” (getting the Green Card). When it comes to the “Green Card”, “It’s not what you don’t know, it’s what you know that isn’t true“.
So, if you want to spend time in the United States but do NOT want to be subject to the S. 877A “Exit Tax”, you should avoid any kind of immigration visa that leads to “permanent residence” (Green Card). The S. 877A “Exit Tax” discourages potential immigrants from applying for a Green Card.
The EB-5 leads to a Green Card …
Perhaps it’s best to avoid the EB-5. This is particularly true when can achieve many of the same objectives with an EB-2 or an EB-1. These are visas that give you the right to be in the United States and the obligation to pay taxes to the United States (assuming you meet the “substantial presence test”).
They also ensure that you avoid being subject to the S. 877A “Exit Tax” rules. By NOT getting a Green Card you will preserve your opportunity to move from the United States!
This is NOT well explained by the promoters of EB-5 programs!
A “permanent resident” visa AKA the “Green Card” means that you could end up being “in prison in America”.
P.S. For a particularly graphic example of what happens when one becomes a “permanent resident” of the United States and moves from the United States without properly surrendering the Green Card see:
Topsnik 1 – “If at first you don’t succeed”
Topsnik 2 – “Then, try again”