Category: GreenCard Holders

The proper care and feeding of the Green Card – An interview with “long term resident” Gary @Clueit

UPDATE 10 SEP 2018

Gary replied to this same post on the Citizenship Taxation Facebook Group. .

Gary Clueit In the example of the Covered Expat inheritance 40% tax on heirs I gave during the interview, I misstated that there was no credit available for any foreign estate tax or IHT paid, giving the UK as an example. Apparently, the amount due to the IRS can be offset by any amount paid to a foreign country. It makes no difference in my case, since my domicile is a country that has no estate or inheritance tax.

Also, only 4 OECD countries (Japan, South Korea, France, UK) have an estate tax equal to or more than the US. Every other country either has none (including 15 OECD countries), or is at a lower rate than the US. Which means, unless you are domiciled in one of the very few high tax countries, your heirs will still lose a significant portion of their inheritance.

It is one thing to pay death taxes where you are living/domiciled. It is an entirely different matter to have to pay anything to somewhere you once lived, left and paid an exit tax on ALL unrealized gains at the time. And zero credit for any increase in wealth since you departed.

Exceptionalism at its best!

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Cross-posted from Citizenshipsolutions

JR 24UG2014 pic

                  INTRODUCTION

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).

        John Richardson

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. The following tweet links to the podcast of the conversation. Anybody considering moving to the United States as a “permanent resident” should listen to this podcast.

Mr. Clueit has previously written on how the S. 877A Exit Tax affects his situation. The following two tweets link to posts which capture his writing.
 
First, from CitizenshipTaxation.ca:

Gary Clueit:

As a long-term GC holder with no way to escape “covered expatriate” status, the article doesn’t really cover all the insidious side-effects. For example, determining the $2M net worth threshold does not cover any assets you might have had before moving to the US, or assets due to bequests from relatives that have never set foot in the US. Even after paying the exit tax on the “deemed sale” of everything you own worldwide, you will have to pay actual capital gains when you do actually sell. And every penny of any bequest or gift you make to someone resident in the US (i.e. a child or grandchild, even if they are not US citizens) is then further taxed at 40% (that they have to pay) with no limit. So, for example, if your net worth is $2.5M on the date of expatriation (i.e. covered expat), you pay the exit tax. Say your wealth increases to $250M AFTER you leave the US – if your heirs live in the US (again, whether citizens or not) and you leave that wealth to them, the entire $250M estate will be taxable to them at 40% regardless of the fact that 99% of your wealth at the time of death was created outside the US.

Even if GC holders decide to stay in the US, they are perpetually screwed. Besides never being allowed to vote (not really an issue since one never desired to be a citizen), though they are still expected to pay taxes on worldwide income. The worst comes at death:
US citizen spouses can transfer or gift an unlimited amount between each other. If you are the spouse of a GC holder the maximum transfer is $149,000 annually.

Upon death, a citizen can leave an unlimited amount to their spouse. If your spouse is a GC holder, the max is just over $5M. If you spouse is a nonresident alien, the maximum is $60,000. Amounts above that are subject to 40% estate tax.

There is also the possibility of being caught up in double estate tax issues when you die.
This is the ultimate in taxation without representation – one of the founding principles behind the creation of the US. Tea parties were held!

Second, from the Isaac Brock Society:

Perils & Pitfalls of Being a Green Card Holder

gary clueit

I am posting this comment of Gary Clueit that appeared on the Robert Wood article couple of days ago. Over the past few months, we have “met” Gary on FB, Twitter etc. Especially the Wednesday Tweet Rally- A group that just keeps on giving!!

by Gary Clueit
continued at the original post here

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For more on Green Cards please see the following three articles by John Richardson:

Green Card Holders; the Tax Treaty TieBreaker rules and taxation of subpart F and PFIC income

Green Card Holders, the Tax Treaty Tie Breaker and REporting Forms 8938, 8621, and 5471

Green Card Holders, the Tax Treaty Tiebreaker and Eligibility or Streamline Offshore

Testimony: Green Card Holder Victim Of FATCA After Failing To Return Expired Card

cross posted from Tax Connections

Original Statement on April 9, 2015

Submission to the United States Senate Finance Committee
International Tax

To anyone who doesn’t really understand the fear and frustration of FATCA and the insanity of the US tax system:
 
I am not and never have been American. I don’t live in the USA and I have no financial connections to the USA.

However, many years ago I got a green card when I married an American. We lived in the so-called, Land of the “Free”, until we decided to move permanently to my home country to care for my elderly parents.

A year or so after my return to my home country my green card expired, became null and void, but I didn’t know I was supposed to return it to USCIS along with an I-407 form. (Green cards don’t come with a set of disposal instructions.) Years later when I found out about this I searched for days to find that old green card and then I sent it away. It was received (according to the mail trace) but never officially acknowledged and there were no replies to my follow-up inquiries.

This left me trapped in a perpetual state of deemed US “personhood” which comes with onerous US tax filing and now highly intrusive FATCA reporting too. The threatened penalties for not filing FBAR (FinCEN114) forms are staggering. They would exceed my life savings (mostly a modest inheritance from my non-American parents). If I lose my life savings to the IRS I could end up on welfare and that would not be fair to taxpayers here in my home country.

What did I take from the USA when I left? I took savings of less than $5K and a gain of less than $75K from the sale of the house we built with our own labour and paid for entirely from the savings I brought with me from my home country (no mortgage on that house). All of this was reported to the IRS and taxed appropriately.

What do I get from the USA? Absolutely nothing – NO right to return to the USA to live or work; NO US Social Security because I have never had US income; NO rescue by US marines in a disaster; NO US vote; NO representation in the US Congress; and since I haven’t visited the USA in almost 20 years (and never will again), NO benefit from the USA’s infrastructure. I do not want any of those things anyway.

What do I want from the USA? I want to be left alone so that I can lead a normal life without the stigma of being called a “US person for tax purposes” (and ONLY tax purposes).

What’s the biggest irony of my whole situation? Well, my husband is no longer American since he recently relinquished his US citizenship. He now has a priceless piece of paper called a CLN (Certificate of Loss of Nationality) which means he can open and retain bank accounts here with no intrusive FATCA reporting.

Meanwhile I, who never was American, will have to live with uncertainty for the rest of my life. If my bank finds out about my past connection and failed disconnection to the USA, it will report me and my accounts to my country’s tax agency which will forward that information to the IRS. And then … well I shudder to think.

Some Americans may hate me for saying this but I have no love or respect for what the USA is doing with its irrational citizenship-based tax system and now its FATCA overreach. These same Americans might even laugh and gloat about how I became trapped as a “US person for tax purposes” but at least my husband, an upstanding citizen, has escaped the clutches of the USA. He did so with no regrets and when his CLN finally arrived he felt nothing but relief. I and my country are proud and pleased to have him. His warm and welcoming citizenship ceremony here in my, now OUR, country was one of the best days of both of our lives.

Neither of us is “un-American” but we are “non-American” and we cannot fathom why the USA will not graciously let its people go.

Anonymous

Topsnik 2 : Green Card Expatriation And The Exit Tax

 

reposted from Tax Connections Blog

Written by John Richardson | Posted in International

John Richardson
 
 

Introduction – Introducing Gerd Topsnik

“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.

This is part of a series of posts on: (1) tax residency, (2) the use of treaty tiebreakers when an individual is a tax resident of more than one jurisdiction and (3) how to use treaty tiebreakers to end tax residency in an undesirable tax jurisdiction.

This is the second of the two Topsnik posts. Topsnik 1 focused on the tax residence of Green Card Holders.

This post – Topsnik 2 – focuses on the expatriation of Green Card Holders and under what circumstances and in what manner they may be subjected to the S. 877A Exit Tax. The text of Topsnik 2 is here:

TopsnikOpinion2016

The Teachings of Topsnik 2

Green Card Holders ARE U.S. tax residents

Once again, the case confirms that one does NOT abandon the Green Card simply by moving from the United States. The Green must be either taken away by the Government, abandoned by the Green Card Holder, or be the result of a treaty election.

Tax Residence: The case confirms that the U.S. Germany Tax Treaty (as is true of all other treaties) requires that one be a tax resident, as defined by the treaty, to get any benefits of a treaty.

These benefits of being a tax resident of Germany (as defined by the treaty) potentially INCLUDE:

the right to be treated as a tax resident of Germany as well as being treated as tax resident of the United States
the right to use the tax treaty tie breaker (assuming that he is a tax resident of both countries) to make him ONLY a tax resident of Germany
the right to have the years that he is a tax resident of Germany NOT count toward determining whether he is a long term resident of the United States (Internal Revenue Code 877(e)(2)
Topsnik was not a tax resident of Germany as defined by the U.S. Germany tax treaty.

Applicability of the S. 877A Exit Tax:

Abandoning the Green Card by filing the I-407 is an expatriating act. Because, Topsnik was NOT a tax resident of Germany as defined by the tax treaty, he could NOT argue that he was NOT a long term resident (within the meaning of Internal Revenue Code 877(e)(2). As a result, Mr. Topsnik’s (1) expatriating by abandoning his Green Card, coupled with (2) the fact that he was a long term resident, meant that he could prevent the S. 877A Exit Tax ONLY if he was NOT a covered expatriate.

The failure to certify 5 years of tax compliance is a sufficient condition for being a covered expatriate:

Subparagraph (C) provides that a person is a covered expatriate if such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.

Notice 2009-85, sec. 8, 2009-45 I.R.B. at 611, explains that for purposes of certifying tax compliance for the five years before expatriation pursuant to section 877(a)(2)(C):

– 21 All U.S. citizens who relinquish their U.S. citizenship and all longterm residents who cease to be lawful permanent residents of the United States (within the meaning of section 7701(b)(6)) must file Form 8854 in order to certify, under penalties of perjury, that they have been in compliance with all federal tax laws during the five years preceding the year of expatriation. Individuals who fail to make such certification will be treated as covered expatriates within the meaning of section 877A(g)

Because Mr. Topsnik was a covered expatriate he was subject to the S. 877A Exit Tax:

All of the property that he owned on his date of expatriation was deemed to have been sold on the day before his expatriation. This resulted in an Exit Tax payable to the IRS.

IRS Notice 2009-85 is NOT a regulation and is therefore NOT binding:

Section 877A(i) provides that the Secretary shall prescribe regulations as may be necessary and appropriate to carry out the purposes of the section. Such regulations have not been yet been provided. Instead, the IRS has promulgated guidance regarding this section in Notice 2009-85, 2009-45 I.R.B. 598. We are not bound by Notice 2009-85, supra, see Compaq Computer Corp. v. Commissioner, 113 T.C. 363, 372 (1999), but it is an official statement of the Commissioner position and we may let it persuade us, see Nationalist Movement v. Commissioner, 102 T.C. 558, 583 (1994), 37 F.3d 216 (5th Cir.1994).

Summary

The 2016 Topsnik decision reminds us tax residence in both countries (as defined by the treaty) is necessary to invoke treaty tiebreaker rules. In addition, in order to avoid covered expatriate status (making one subject to the S. 877A Exit Tax) one must file Form 8854 certifying 5 years of tax compliance

Furthermore the case reminds us that the S. 877A Exit Tax is real, alive, well and brutal confiscatory.

All the Side Effects of being a “covered expatriate” Green Card Holder

 

reposted from CitizenshipTaxation FB Group
 

Gary Clueit:

As a long-term GC holder with no way to escape “covered expatriate” status, the article doesn’t really cover all the insidious side-effects. For example, determining the $2M net worth threshold does not cover any assets you might have had before moving to the US, or assets due to bequests from relatives that have never set foot in the US. Even after paying the exit tax on the “deemed sale” of everything you own worldwide, you will have to pay actual capital gains when you do actually sell. And every penny of any bequest or gift you make to someone resident in the US (i.e. a child or grandchild, even if they are not US citizens) is then further taxed at 40% (that they have to pay) with no limit. So, for example, if your net worth is $2.5M on the date of expatriation (i.e. covered expat), you pay the exit tax. Say your wealth increases to $250M AFTER you leave the US – if your heirs live in the US (again, whether citizens or not) and you leave that wealth to them, the entire $250M estate will be taxable to them at 40% regardless of the fact that 99% of your wealth at the time of death was created outside the US.
Even if GC holders decide to stay in the US, they are perpetually screwed. Besides never being allowed to vote (not really an issue since one never desired to be a citizen), though they are still expected to pay taxes on worldwide income. The worst comes at death:
US citizen spouses can transfer or gift an unlimited amount between each other. If you are the spouse of a GC holder the maximum transfer is $149,000 annually.
Upon death, a citizen can leave an unlimited amount to their spouse. If your spouse is a GC holder, the max is just over $5M. If you spouse is a nonresident alien, the maximum is $60,000. Amounts above that are subject to 40% estate tax.
There is also the possibility of being caught up in double estate tax issues when you die.
This is the ultimate in taxation without representation – one of the founding principles behind the creation of the US. Tea parties were held!