Pre-Immigration Tax Planning and Why We Need It?

The Sogal's: On the banks of the Tunga river, South India. 

As part of our practice we work with those who are planning to immigrate to the United States or those who are already in the United States on a work-visa and are planning on applying for permanent residency. 

This could not have hit closer home when my parents finally decided that it was time to listen to their children, my brother and I, and make the decision to come live with us in the United States. My father is a gentle, humble soul who with my mother lived a quiet retired life in a small but bustling town in South India. He is a retired Civil Engineer and has played big roles in some of the biggest oil and gas projects in India-you wouldn't know if you met him. He likes to go by "Children's Author" these days and has published 3 books already, translating folk tales from all over the world to our mother tongue, Kannada. My mother rules the family with her love for routine, her classical Carnatic music and delicious cooking. My father is an avid reader of my blog and has been asking me why I have not been at it since my last post in April! So this one is dedicated to my parents, who landed just before the lock-down (thank god!) and have been doing great, adjusting to a different routine in the United States! 

Pre-immigration tax planning is imperative to minimize impact of US taxes on your world-wide income, your foreign assets, financial accounts and investments. Planning for such a tax impact should start as soon as a foreign national begins to consider moving to the United States or plans on otherwise becoming a US person. 

If you are a regular reader of my blog, you already know that the US taxation is a CBT system. If you are a US person for tax purposes, your "worldwide" income is considered subject to US taxation rules and regulations largely grouped under FATCA. Compliance with these rules and regulations require reporting your foreign accounts, assets, investments and foreign income on certain forms known as "International Information Forms". The penalties and fines for non-compliance in filing these forms is substantive, it could even wipe out your entire bank balance!  

This is why anyone with plans on becoming a US person or permanent resident AKA Green Card holder, should be aware of these consequences before their plans are finalized and their tax picture changes permanently. 

US Persons And The Substantial Presence Test {SPT}: 

In a previous blog post, we examined how to determine if you were a US person or not for US tax purposes here. Your visa has to specifically state that the days in the US will not be counted for the SPT. If it does not, your stay will eventually mean that your world-wide income is reportable in the United States on a regular Form 1040 (instead of the Form 1040-NR). Hence a visitor on a B1/B2 visa or someone on an EB-5 Investment Visa could find that their world-wide income is subject to US tax reporting. 

Quick snap-shot-- you maybe considered a US person if you pass the SPT as follows: 

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. {More about substantial presence on my post here}
To meet this test, you must be physically present in the U.S. on at least: 

1. 31 days during the calendar year and

2. 183 days during the 3 year period that includes the current year and the previous 2 years, counting-

      a. All the days in the current year and

      b. 1/3 of the days you were present in 2019, and

      c. 1/6 of the days you were present in 2018.

Consequences of Getting a Green Card/ Legal Permanent Residency:

As a Green Card holder, you will be taxed on your world-wide income as if you were a US Citizen. This is true even if you do not live in the United States, maintain all your assets outside and your income is sourced outside of the United States. If you held a Green Card for at least eight of the last fifteen years, you will be considered a "Covered Expatriate".  

What happens if you are considered a Covered Expatriate?
  • Covered Expatriates pay tax when they renounce their Green Card or Citizenship. 
  • Covered Expatriates cannot make tax-free gifts or bequests to U.S. persons. 
  • They may not be allowed to re-enter the United States, thanks to the Reed Amendment. 
  • A Covered Expatriate need not have resided in the US for any of the eight years to be considered one. 
Remember, your Green Card is not relinquished just because it has expired. If I had a dollar for every time I see this mistake on a client's return, I would be a very rich woman! 

Plan for all this before applying for a Green Card or becoming a US person and make your non-taxable gifts and transfer assets if need be, before taking this step. Have a strategy in place!

What Are International Information Forms?

Among the forms required for US persons with foreign financial assets, the two most commonly known are Form 8938 (under FATCA) and the FinCEN Form 114 AKA the FBAR. These forms require that you disclose the highest balances in your foreign financial accounts for the calendar year. 

You need to also disclose if you have or are a part of a foreign trust/ receive gifts or inheritances from non-US citizens (Form 3520 and Form 3520-A), foreign partnership (Form 8865),foreign corporation (Form 5471) and own foreign mutual funds or other passive investments (Form 8621). 

If you have not planned for these disclosures, catching up with the filing is a nightmare in itself!  

If you are planning on immigrating to the United States, make sure you are consulting with tax professionals in the country where you live right now and coordinating it with US tax professionals who are experts in the field. Contact us if you need more advice (like my parents did!).

Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website,



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