Moving to the U.S.
In anticipation of a move to the U.S., tax planning is extremely important.
The U.S. taxes its residents (including U.S. citizens and green card holders residing abroad) on a worldwide basis. The tax assessment can apply to income and gains that accrued outside the U.S. and prior to the foreign national’s arrival in the U.S. Simply recognizing a gain while a resident of the U.S. will trigger the tax, irrespective, of where or when the gain accrued (foreign tax credits may provide relief).
The U.S. gift and estate tax rules also apply to foreign nationals living in the U.S. These rates are currently 40% of the value of the property transferred by gift or bequest. IRS liens also often prevent the property from being transferred prior to the payment of tax.
We can help you achieve significant savings by recognizing gains and completing gifts prior to a move to the U.S. Similarly, we can assist with estate plans to provide relief from the estate taxes (or to minimize the impact).
Departure from the U.S.
Termination of U.S. residency requires careful planning.
First of all, it is important to make sure that U.S. citizens and U.S. green card holders formally terminate their citizenship or permanent residence status if their goal is to break U.S. tax residency. If not, the individual will continue to be taxed as a U.S. resident even though they now live abroad.
Once the individual’s immigration status is formally addressed, it will then be important to review the so-called substantial presence test to determine a U.S. residency termination date.
It is equally important to consider the likelihood of future visits to the U.S. Careful planning is necessary to prevent future visits (although temporary) from triggering the so-called “anti-lapse rule” with the result being continued U.S. residency.
These rules are complex and require careful planning. We have helped many global clients navigate through the rules around U.S. residency.
It is also important to consider the impact of the so-called “expatriation rules” when the taxpayer is a U.S. citizen or a long-term permanent resident (i.e. someone who held a green card for any part of the prior 15 years.
If these individuals have a net worth of $2,000,000 or have had an average tax liability of $165,000 for the past 3 years, further testing needs to be done to determine if they meet the definition of a “covered expatriate”.
If someone is a covered expatriate, they can be subject to an exit tax when they terminate residency. If their heirs remain in the U.S. they can be subject to punitive inheritance taxes or amounts owed, received years later from someone who was a covered expatriate.