I recently spoke on the US tax issues faced by the holder of the green card. To be or not to be such a holder? The podcasts (links below) may help you decide.
The podcasts were made with John Richardson, a US and Canadian attorney. John, who is based in Canada, has seen his fair share of clients in messy situations all because of this little green card (actually it is white, green and red now). Here is an overview of some of the issues we discussed. You can learn more by listening to the podcasts.
Ignorance is Bliss
Often individuals taking on US green cards are blissfully (at least, temporarily) unaware of the worldwide reach of the US tax laws. In my experience it is often the case that such individuals are not advised or made to understand their US tax responsibilities with respect to their ownership of foreign (non-US) assets such as pensions from a foreign employer, the tax information returns required to report such assets or their continued US tax responsibilities when living outside of the US. It is usually a shock to learn of the US tax problems associated with having made foreign investments (for example, a non-US mutual fund or foreign “life insurance” product which are treated as “PFICs”), or the duty to report foreign financial accounts on the notorious FBAR.
Once the individual leaves the US and moves abroad, often returning to live in his country of origin and pay taxes there, he or she often mistakenly believes that US tax obligations have terminated. It comes as a rude awakening that even though the individual no longer has the right to live and work in the US from an immigration standpoint, his US tax duties remain intact. Yes continuing to hold the card keeps the individual on the hook for annual US income taxes and reporting obligations. Many individuals are under the mistaken belief that simply because their green cards have “expired” they are no longer US tax subjects. This is incorrect. The tax law is very precise on this topic: once “resident” status is acquired, it is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned. A full discussion of this topic can be found here and here.
The problems only become worse if the green card is held for 8 “tax years”. There’s a reason the terms are in quotes. You can learn why by listening to the podcasts referenced below. Once held for that time period, the entire expatriation regime will kick in upon giving up the card. In the best case, this regime causes nothing but angst …. but more often than not, in most cases it causes far bigger problems – not only for the individual giving up the card, but for any US members in his family or close circle.
In the Dark
No one involved in the United States governmental process tells the individual who is getting a green card about the worldwide tax system the US has in place. Sadly, it is often the case that individuals find out all of this information years later when they have left the USA and moved overseas. Many come to me in a state of severe panic over their many years of inadvertent tax noncompliance.
Two short podcasts set it all out. Have a listen – pass them on! Think it through and obtain professional tax guidance before you get that green card… and if you already have the card and wish to abandon it, you certainly need professional advice.
Posted July 2, 2020
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