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
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 →
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).
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.
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: