“Non-citizenship” has its privileges: An overlooked reason why a Green Card holder may NOT want to become a U.S. citizen https://t.co/yzxRjFikhp
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) July 30, 2018
U.S. Tax Residency – The “Readers Digest” Version
Last week I participated in a “panel discussion” titled: “Tax Residency In A World Of Global Mobility: What Tax Residency Means, How To Sever It, The Role Of Tax Treaties and When Exit Taxes May Apply”
— 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.”
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) June 21, 2015
How could somebody possibly not know about FBAR?
In our case my wife hailed from the Republic of Ireland. We were married in the early 1990’s. As any immigrant knows it is a hard road. Homesickness, difficulties with the Immigration Service, it’s an enormous adjustment. In our immigration packet of hundreds of documents I recall one that was quite frightening. It was from the US treasury and said that if you have more than $10K in assets you need to file an FBAR or you could lose half of what you owe. Thankfully we didn’t owe anything. At that time there was not 1040 tax requirement to list all overseas assets. That came in a few years later, about 1998. By 1997 my wife received a small lump sum pension. It put her over the limit, but by then we had plenty of other issues consuming us that drove the FBAR issue out of our line of sight. She was suffering from a mysterious illness that was weakening her by the month, she was homesick and I was struggling on a new job. I work somewhere else now. It was a very difficult time and difficult times can leave you open to mistakes.
Eventually somehow around 2000 I was reminded of the FBARs but realized that we were already in deep trouble. Had the first offense been in any way reasonable I would have paid up and gotten into compliance. The penalties however were far too harrowing. Today, you look on the internet and there are articles by the hundreds about filing an FBAR. Back then, because the government wisely didn’t enforce the FBAR rules and their draconian penalties, except for the most egregious offenders there simply were no reminders out there.
Fast forward to about 2010 and FBARs suddenly were pressing news, but for many it was simply too late.
There are several problems with the current scheme. Number one the penalties are insanely draconian for people who often owe less than $1K in taxes over the past 8 years. In our case that translates to $10K to a lawyer (the IRS highly suggest you get one) and $29K in IRS penalties. Any way you cut it that is a $40K penalty for less than $1K in back taxes. In fact it is possible that my attorney didn’t include foreign tax credits which could have brought our back taxes down to $0K. Because he is afraid of the Big Bad IRS, he doesn’t want to irk them and get penalized worse or rejected from the OVDP program. Another crazy thing is that if the IRS owes YOU in back taxes for previous years that doesn’t count by their reckoning. The only thing that matters is what you owe them. Therefore if they owe you $5K over the past 8 years but you owe them $3K over the past 8 years – are you ready for this accounting trick ? Therefore you owe them $3K over the past 8 years. They forgive themselves for the $5K that they owe you over the past 8 years. Therefore if in the Real World if you were owed $2K by the IRS thus strengthening your hand in opting out of the OVDP, think again. They only count what you owe them and you cannot carry forward what they owe you to cancel out what you them. How freaking convenient is that ?
This is a very dangerous trend. When truth and common sense are not the basis for our laws and regulations then we cease to live in a free and democratic society.
As I mentioned previously, every day, you and I are either heading to the light or to the darkness. We choose. We make the same choices with our country. It is “We The People” that is the conscience of our government. If we are too indulgent of our government, it is our fault if our government grows perverted, out of control and rapacious. We The People are our countries disciplinarian. We The People make our own collective breaks in what type of government we must live with. Silence is not Golden. It’s Golden only to tyrants.
This post was prompted because …
Today I had a brief conversation with somebody who was moving to America. I thought I would share some thoughts from the conversation. After all, tens of thousands of people move to the United States each year. Some move there as U.S. citizens. Some move there on Green Cards. Some move there on another type of U.S. visa.
The purpose of this is to reinforce some very simple points. I find that people always have more trouble remembering what’s simple. Here goes: Moving to America 1. Taxation of income from your remaining “non-U.S. assets”
You will be shocked to find that many of your “foreign assets” will be subject to particularly punitive U.S. taxation. 2. Reporting of your “non-U.S. assets”
If you are moving to America, you are moving from another country. You will very likely retain financial assets and bank accounts in that country. From a U.S. perspective, these assets are “foreign” and therefore a “fertile ground” for taxation and penalties. Please remember that if you are:
– a U.S. citizen – Internal Revenue Code – S. 7701(a)(1)(50)
– a Green Card holder – Internal Revenue Code – S. 7701(b)(1)(A)
– a person who meets the substantial presence test – Internal Revenue Code – S. 7701(b)(3)
that you are required to file FBARs, FATCA Form 8938s and possibly more forms (the same forms required of Americans abroad) and reporting requirements. Those who are leaving behind a limited company may meet the requirements to file Form 5471.
The failure to meet these reporting obligations has caused untold misery for may immigrants to the USA. Remember how many immigrants to the U.S. were damaged by the OVDI program in 2011. (The hyperlink in the previous sentence leads to a post with 382 comments!) 2. Make sure that you know the fair market value of any assets that you own at the time of your move to the USA. This (depending on your status at the time you entered the U.S.) may have implications for future taxes (including the S. 877A Exit Tax). 3. If possible do NOT enter the U.S. on a Green Card and do NOT acquire a Green Card.
If you acquire the Green Card you are one step away from being subjected to the S. 877A Exit Tax if you decide to leave America! If you only want to live in the United States for business reasons, you should consider a visa that does not allow for “permanent residence” AKA the Green Card. Examples include the E-1 and E-2 visa. Green Card Holders Moving From America
".. also include the green card holders who left, were never citizens anyway, and have no intention of returning." http://t.co/2s5Ifq5sY6
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) June 22, 2015
Potential problems exist for those with a Green Card who move from the USA. A partial list includes:
1. Read S. 877A of the Internal Revenue Code. You will see that if you held a Green Card for 8 of the last 15 years, you will be a “long term resident” and subject to the S. 877A Exit Tax rules.
2. You are deemed to be a tax resident until you File I-407 (or other reasons described in Internal Revenue Code Sec. 7701(b). In order to cease to be a “U.S. tax resident” you would file your I-407. But, be careful! The filing of your I-407 may (depending on whether you are a “long term resident”) trigger the Exit Tax rules! To put it simply: If you file the I-407, and you are a “long term” resident, you will be subject to the S. 877A Exit Tax rules. Extreme caution is warranted! Moral of the story! Be careful. You will avoid many problems by avoiding the Green Card. Conclusion:
To be forewarned is to be forearmed!