Immigration Law Considerations

Coming Back to the U.S. as a Permanent Resident (“Repatriating”)?

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As discussed in the last post, this post addresses immigration law exclusively by a guest post writer, Ms. Teodora Purcell.  She provides a good overview of EB-5 visas and the current law and likely changes in the near future.

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The Pros and Cons of the EB-5 Immigrant Investor Program

 

The EB-5 Immigrant Investor program was created by the Immigration and Nationality Act (“INA”) of 1990 to stimulate the US economy through capital investments made by foreign investors to create jobs. It attracts capital by facilitating US permanent resident status (aka “green card”) for foreigners who make a $1 million USD (or in some cases, $500,000 USD) investment in an eligible business that results in at least ten US jobs and benefits the US economy.[1]

 

The pros of the EB-5 program to the US are evident from the numbers. In FY 2014, 10,928 EB-5 petitions were filed with the United States Citizenship and Immigration Services (“USCIS”), 5,115 approved, and 12,453 pending, which translates into over $2.5 billion approved for investment and an additional $6.2 billion in capital awaiting federal adjudication, and the creation of thousands of US jobs.[2] EB-5 capital is also an attractive low cost funding tool for project developers in the US, while it offers the foreign investor a path to permanent residency that is not visa backlogged and does not require sponsorship by a US employer or relative. But is the EB-5 an easy and quick way “to purchase your green card”?

 

Basic EB-5 Requirements

 

The EB-5 program includes two separate avenues: (1) Direct EB-5 investment – where the investor invests in an enterprise and plays a role in management or policy making, which will directly create ten jobs, or (2) Regional Center based EB-5 investment – where the investor invests in a USCIS approved regional center and plays a more passive role by having policy making authority. Both require: (1) the investment to be made in a for-profit, new commercial enterprise;[3] (2) a contribution of capital at risk in the amount of $1,000,000 USD, or $500,000 USD[4] if the business is in a targeted employment area (i.e. high unemployment or rural area), aka “TEA”;[5] (3) the investment to be used for creation of at least ten full time jobs for US workers;[6] and (4) the investor to establish the path and the lawful source of the investment.

 

Pros and Cons of Direct and Regional Center EB-5 Investments

The Regional Center (“RC”) is an entity designated and regulated by USCIS, which pools EB-5 capital from multiple foreign investors in job-creating economic development projects within a defined geographic region and designated industries.[7] USCIS has approved approximately 600 RCs[8] and 95% of the EB-5 petitions are based on a RC investment.  Notably, EB-5 RC investment funds are subject to U.S. securities and anti-fraud laws and regulations,[9] and the Securities Exchange Commission (SEC) and USCIS are raising awareness of how the EB-5 program can be misused and of the importance of proper due diligence to be conducted by foreign investors.[10]

The direct EB-5 program is permanent, whereas the RC EB-5 program sunsets on September 30, 2015, but is expected to be reauthorized by Congress for another five years, and there is proposed legislation to make it permanent.[11] The most recent bipartisan bill on the RC EB-5 program, The American Job Creation and Investment Promotion Reform Act, was introduced on June 3, 2015, known as The Leahy-Grassley Bill.[12] The proposed legislation would reauthorize the EB-5 RC program until September 30, 2020, rather than make it permanent, and will provide an overhaul of reforms to improve the program’s integrity, including raise the requirement investment amount to $800,000/ $1,200,000, respectfully.[13]

With the direct EB-5 investment, the foreign national accomplishes not only an immigration purpose but also a purpose of investing in a business that he or she runs and that may provide significant return, whereas with the RC EB-5 investment, the rate of return is typically 0.5-2% and the investor plays a more passive role. However, the direct EB-5 investor must prove direct employment of ten U.S. workers, whereas, with RC EB-5 investment, the job creation is shown by a combination of direct, indirect and induced employment using reasonable economic methodologies. Most (but not all) RCs are located in $500,000 TEAs but there can be direct EB-5 investments that also qualify for the reduced capital. Both EB-5 options require the investor to be engaged in the “management” of the enterprise, which can be satisfied if the investor is a limited partner with the rights, powers and duties normally granted to limited partners under the Uniform Limited Partnership Act.[14] Which EB-5 option to choose requires an individualized analysis of the investor’s circumstances and goals.

 

No Fast Track EB-5 Process and No Guaranteed US Permanent Residence

The EB-5 investors are not guaranteed a green card because of the lengthy process and possibility that the project in which they invest could fail or undergo material changes, and there is no expedite processing of EB-5 petitions. The process starts with the filing of an I-526 immigrant entrepreneur petition with USCIS, in which the investor must establish the lawful source of funds, document the path of the required investment, and show that the ten US jobs will be created within two years,[15] or that the jobs have already been created as a result of the investment.

 

The filing of an I-526 petition alone does not give the investor the right to stay or work in the US. Current I-526 average processing time is approximately 14 months and the I-526 approval does not give the investor permanent residence. Rather, after the approval, if the investor is outside the US, he or she and dependent family members will apply for their immigrant visas at the US Consulate in their home country, which requires additional documentation, security checks and adds another 6-12 months to the process. If the investor is in the US in valid nonimmigrant status, he or she will adjust status to permanent resident in the US, which takes about six months.[16] So after 2-3 years (provided no visa retrogression), the investor receives a green card that is conditional and valid for only two years.

 

Within 90 days of the conditional green card expiration (i.e. between the 21 to 24 month after the green card approval), the investor must file an I-829 application to remove the condition on permanent residence with USCIS[17], and prove that the investment has been sustained and that the requisite jobs have been created or will be created within a “reasonable time.”[18] The current average I-829 processing time is 10 months and if unsuccessful, the EB-5 investor may not only lose the green card but end up in removal proceedings. If the I-829 is approved, the EB-5 investor receives his or her permanent green card. During this process, the EB-5 investment must remain in the enterprise until the condition is removed (i.e. for 4-5 years), whereas in all other employment based green card categories, the result is a permanent green card and no such significant financial commitment is required.

 

The EB-5 program accounts for less than 1% of the immigrant visas issued annually by the US and throughout the process, investors are subject to the same background checks as applicants in any other visa category, and their ability to eventually apply for citizenship is the same as others. The INA allocates 10,000 EB-5 immigrant visas, of which 3,000 are reserved for the RC program, and no more than 7 percent of the visas can be allocated to any one country.[19] Since close to 85% of the investors are from China, for the first time in September 2014, the EB-5 visas became unavailable for Chinese nationals, and EB-5 visa backlog for Chinese investors may be expected in 2015. There are more significant immigrant visa quota backlogs in other categories of family and employment-based immigration, which is why the EB-5 still remains attractive.

 

EB-5 and Other Green Card Options

 

Despite the challenges investors may face in tracing the invested funds or in the job creation, and the possibility of visa backlog for some, the EB-5 is still a good option, although it is not the panacea for all foreign nationals seeking permanent residence in the US.  There are other employment based visa options that may be available for the investor and these alternatives, if successful, lead to a permanent green card, do not require placement of a $1,000,000 investment at risk, and there are minimal concerns about visa availability. For the foreign nationals who choose the EB-5 green card avenue, it is important to put together a competent team that includes an immigration counsel, as well as business, tax, and securities counsels, to advise on the multiple complex issues that go into determining whether the EB­5 green card path is the right choice for the client.

 

Immigrant investors and entrepreneurs bring substantial value to the United States, not only through the capital they deploy or the jobs they create, but also with the knowledge and experience they bring to US businesses, and working with such clients is very rewarding.

 

[1] The immigration EB-5 laws can be found at INA§203(b)(5); 8 CFR§204.6 and 8 CFR§216.6.

[2] https://iiusa.org/blog/government-affairs/uscis-government-affairs/citizenship-immigration-services-uscis-adjudication-data-i526-i829-petitions-reveal-unprecedented-growth-eb5-program-fiscal-year-2014/ /

[3] 8 CFR §§204.6(e) & (h).

[4] There is a proposed legislation to increase the investment amount to $1,200,000 USD and $800,000 USD, respectively. See S.1501, The American Job Creation and Investment Promotion Reform Act, available at https://www.congress.gov/bill/114th-congress/senate-bill/1501/text

[5] 8 CFR §§204.6(e) & (f)(2).

[6] 8 CFR §§204.6(e) & (j)(4). The USCIS deems the two year period to commence six months after the adjudication of the I-526 petition. See USCIS Policy Memorandum (May 30, 2013)

[7] 8 CFR §204.6(e).

[8] http://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/immigrant-investor-regional-centers

[9] The interest being offered and sold in an EB-5 offering by regional centers constitute securities. See Securities Act of 1933; Securities Exchange Act of 1934.).

[10] For more information, see http://www.sec.gov/investor/alerts/ia_immigrant.htm

[11] S.744, H.R. 2131, H.$. 4178, and H.R. 4659 in the 113th Congress

[12] S.1501, The American Job Creation and Investment Promotion Reform Act, available at https://www.congress.gov/bill/114th-congress/senate-bill/1501/text. Also see http://www.leahy.senate.gov/imo/media/doc/The%20American%20Job%20Creation%20and%20Investment%20Promotion%20Reform%20Act.pdf

[13]If implemented, the Leahy-Grassley legislation will have a significant impact on Regional Centers and investors alike, some of the most notable changes proposed to the EB-5 Program include: (1) Raise the minimum investment amount for all EB-5 investors to $800,000 for TEAs and $1,200,000, respectively; (2) Establish an “EB-5 Integrity Fund”  to cover the costs associated with audits and site visits to detect fraud in the United States and abroad; (3) Increased oversight of TEA designation; (4) Expanded USCIS authority to terminate Regional Center designation; (5) Establish a premium processing option to expedite USCIS adjudication of EB-5 petitions at an additional filing fee.

[14] 8 CFR §204.6(j)(5).

[15] The USCIS requires that the I-526 petition be accompanied by a detailed and credible business plan compliant with the requirements in the precedent decision of Matter of Ho, 22 I&N Dec. 206 (INS Assoc. Comm’r, Examinations, 1998).

[16] https://egov.uscis.gov/cris/processingTimesDisplay.do;jsessionid=dbcqHwZ-eEZPOcoHaz5Ru.

[17] 8 CFR §216.6

[18] 8 CFR §216.6(a)(4)(iv) . In its May 30, 2013 Policy Memorandum, USCIS has interpreted “reasonable time” to mean one year, starting at the end of the conditional residence period.

[19] INA §203(a) ; INA §204(1) & INA§202(a)(2).

 

Teodora Purcell | Attorney at Law
FRAGOMAN

11238 El Camino Real, Suite 100, San Diego, CA 92130, USA
Direct: +1 (858) 793-1600 ext. 52424 | Fax: +1 (858) 793-1600
TPurcell@Fragomen.com

“Expatriation” Implies Leaving the U.S., But Many More Want to Come to the U.S.: Tax Consequences

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U.S. citizens and long-term residents who are considering renouncing their citizenship or abandoning their lawful permanent residency (“LPR”) are increasingly undertaking more sophisticated life and tax planning before “taking the plunge”!

Many (in my experience – all) of these “expatriates” eventually want to be able to visit the U.S. and in some cases possibly come back to live permanently.  Many simply apply for and obtain a B1/B2 visa.

To appreciate how many more persons want to immigrate to the U.S. compared to emmigrate from it, see an earlier post:  The Number of Citizens Leaving (Renouncing) Versus Coming (Naturalizing) is Just a Speckworld-map.png

This is the other “side of the coin” so to speak, since individuals contemplating coming to the U.S. often should undertake pre-immigration tax planning.  One means for non-U.S. citizens to become LPRs and eventually U.S. citizens, is through the EB-5 visa program.

Immigration attorney Ms. Teodora Purcell has written prior guest posts, including:  When is the loss of US nationality effective? [Guest Post from Immigration Lawyer]

The next post on this site will be a complete article by Ms. Teodora Purcell explaining in more detail the EB-5 visa program and recent developments.

As to the tax implications of immigration to the U.S. (as opposed to emigration from it), I wrote the tax chapter in the latest edition of the American Immigration Lawyers Association (“AILA’s) treatise –  Immigration Options for Investors & Entrepreneurs US$199.

That treatise is heavily focused on “EB-5 investors”  and the tax discussion is titled:  Key U.S. Tax Considerations for EB-5 (& Other) Visa Applicants.

Ms. Teodora Purcell’s contact information is set out below:

Teodora Purcell | Attorney at Law
FRAGOMAN

11238 El Camino Real, Suite 100, San Diego, CA 92130, USA
Direct: +1 (858) 793-1600 ext. 52424 | Fax: +1 (858) 793-1600
TPurcell@Fragomen.com

The Intersection of U.S. Federal Tax Law with Collection of International Information – Including other Federal Agencies

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For decades, the IRS largely worked in a vacuum, relative to other government agencies.

Changes started in earnest in 2003 after September 11, 2001, when Congress past various anti-terrorism laws.  For details of the history and how and when the IRS became responsible for these functions, the IRS Internal Passport Inside Back Page - USC Taxation ReferenceRevenue Manual has a detailed explanation – Part 4, Chapter 26, Section 5. Bank Secrecy Act History and Law

In April 2003, the IRS became in charge of civil enforcement of foreign account information under Title 31.  See IRM, Part 4, Chapter 26, Section 16. Report of Foreign Bank and Financial Accounts (FBAR).

The world has changed dramatically in these past few years and the IRS no longer works in such  a vacuum.  For a history of foreign bank and Congressional influences, see, How Congressional Hearings (Particularly In the Senate) Drive IRS and Justice Department Behavior

Today there are a host of governmental inter-agency activities along with foreign government exchanges of information;  e.g., DHS, Department of State, ICE, USCIS, foreign government exchanges of information under FATCA IGAs, a plethora of federal “intelligence agencies” for “terrorism related requests” as identified in IRM pursuant to IRC Section 6103(i), foreign governments under tax treaty exchanges, among many others.

The law is not even clear as to which agencies qualify as “intelligence agencies” as they are not identified in the statute and many are presumably classified organizations.

  • Who is an “intelligence agency” for purposes of the statute?

The following is a list of some of the intelligence agencies that are presumably included in the federal tax statute Section 6103(i)(7):

National

United States Intelligence Community
Director of National Intelligence
National Intelligence Council [NIC]
National Counterterrorism Center (NCTC)
National Counterintelligence Executive [NCIX]
Official
Official
Official
Official
Official
Central Intelligence Agency Official
National Security Agency Official
National Reconnaissance Office Official
National Geospatial-Intelligence Agency Official
Defense Intelligence Agency Official
Federal Bureau of Investigation Official
Department of Homeland Security Office of Intelligence and Analysis Official

Other Defense Department

Assistant to the Secretary for Intelligence Oversight Official
Under Secretary of Defense for Intelligence
Under Secretary of Defense for Policy
Official
Official
Assistant Secretary of Defense for Networks and Information Integration Official
Defense Information Systems Agency Official
Defense Advanced Research Projects Agency Official
Defense Protective Service Official
Defense Security Service Official
US Special Operations Command Official
Army
Army Deputy Chief of Staff for Intelligence
Intelligence and Security Command
Official
Official
Official
Navy
Office of Naval Intelligence
Naval Security Group Command
Naval Criminal Investigative Service
Official
Official
Official
Official
Marine Corps Official
Air Force
Air Force Technical Applications Center
Air Intelligence Agency
Official
Official
Official

Other Federal Agencies

National Security Council
President’s Foreign Intelligence Advisory Board
Office of National Drug Control Policy
Official
Official
Official
Energy Department
Office of Intelligence
Official
Official
Justice Department
Justice Intelligence Coordinating Council
OIG – Office of the Inspector General
DEA – Drug Enforcement Administration
NDIC – National Drug Intelligence Center
USNCB – U.S. National Central Bureau
Official
Official
Official
Official
Official
Official
Official
State Department
INR – Bureau of Intelligence & Research
INL – Bureau for International Narcotics and Law Enforcement Affairs
CT – Counterterrorism Office
DS – Bureau of Diplomatic Security
Official
Official
Official
Official
Official
Treasury Department
Office of Intelligence Support
Office of the Under Secretary (Enforcement)
FINCEN – Financial Crimes Enforcement
FLETC – Federal Law Enforcement Training Center
Official
Official
Official
Official
Official
National Archives and Records Administration
Information Security Oversight Office
Official
Official

A less secret organization is the Social Security Administration which now increasingly intersect with the work of

Passport Inside Back Page - USC Taxation Referencethe IRS.  Also, the Department of State now provides warnings on its Passport applications about tax consequences and requirements of social security numbers (“SSN”s).

See also how in an Application for a U.S. Passport there are now specifically references IRC Section 6039E.

Finally, see also how on the last page (page 28) of currently issued U.S. Passport (“Book“) and paragraph D that explains generally the taxation obligations of citizenship.

USCs without a Social Security Number (and a Passport) Cannot Travel to the U.S.

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Recent posts have focused on the dilemma facing U.S. citizens (USCs) who have no social security number (“SSN”).  See an older post (23 July 2014) –  Why do I have to get a Social Security Number to file a U.S. income tax return (USCs)?

These problems are quickly coming to the surface, now that financial institutions US Passport(“FFIs”) around the world and private companies and trusts (e.g., non-financial foreign entities -NFFEs) must have their owners and clients certify they are not U.S. citizens; OR report the accounts of such U.S. citizens to the IRS under FATCA and the intergovernmental agreements (“IGAs”).

See, U.S. Citizens Overseas who Wish to Renounce without a Social Security Number will Necessarily be a “Covered Expatriate”

The intricacies of this problem are highlighted in a technical paper I recently drafted and presented to the U.S. Treasury Department and the Joint Committee of Taxation, among other federal government groups.  Some key excerpts of that paper titled URGENT NEED FOR U.S. CITIZENS RESIDING OUTSIDE THE U.S. TO BE ABLE TO OBTAIN A TAXPAYER IDENTIFICATION NUMBER (“TIN”) OTHER THAN A SOCIAL SECURITY NUMBER are set out below in this section:

The U.S. tax law imposing taxation on the worldwide income of USCs[1] residing overseas has created a dilemma that prejudices these USCs without a SSN. This strict SSN/TIN regulatory rule undermines the basic tax administration system and discourages tax compliance for those USCs who never obtained a SSN.  This dilemma affects numerous USCs throughout the world, which is now compounded by the certification and reporting requirements of USCs and third parties, such as FFIs and NFFEs[ under the Foreign Account Tax Compliance Act (“FATCA”).

In short, USCs without a SSN, necessarily cannot be in compliance with U.S. federal tax law.  As I point out in my paper, such –

A law that cannot be complied with is surely a bad law, the same as a “ . . .law that cannot be enforced is a bad law.”[a]

[a] See, The Case Against Taxing Citizens, Reuven S. Avi-Yonah (March 31, 2010), University of Michigan School of Law, Law & Economics Working Papers.

The paper referenced above explains how difficult it is for USCs residing overseas to ever obtain a SSN.  Specifically, it explains how difficult it is to have an in-person interview at only 18 different locations around the world with a U.S. Department of State employee.  See,  12 Year Old (and Older) U.S. Citizens Residing Outside the U.S. Must Have An “In-Person” Interview in a U.S. Embassy or Consulate for SSN Application in 1 of Just 17 Posts WorldwideExpatriates US citizens renounced chart through 2014

As a USC residing somewhere around the world, you might decide to simply spend the time, money and resources to travel internationally to arrive in the U.S. to apply for a SSN directly with the Social Security Administration within the U.S.  Unfortunately, any USC is now legally prohibited from traveling in or out of the U.S. without a U.S. passport.  There are few exceptions to this general rule, none of which contemplate U.S. federal tax compliance.    See, the relevant excerpts from the white paper:

C.               Travel to the U.S. is Also Not An Option for a USC without a SSN, Due to 22 CFR § 53.1 Requiring a U.S. Passport

A possible solution to this TIN/SSN dilemma may appear to be a trip to the U.S. by the USC to apply for a SSN in the U.S. Unfortunately, this simply creates another dilemma, since the USC must have a U.S. passport to travel to the U.S.   The immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States. The relevant part of the regulations is § 53.1(a) which provides as follows:

Passport requirement; definitions.

(a) It is unlawful for a citizen of the United States, unless excepted under 22 CFR 53.2,[2] to enter or depart, or attempt to enter or depart, the United States, without a valid U.S. passport.

These regulations were first published in 2006 and unfortunately, simply create another dilemma for the USC residing overseas without a SSN. This additional dilemma is that an application[3] for a U.S. passport requires the individual have a SSN; a vicious circle back to the inability to obtain a SSN.

At the end of the day, the restrictions imposed on USCs make it legally impossible for a USC without a passport to travel to the U.S. (even if they wish they could) to obtain a SSN.

[1] See, IRC § 61 and Treas. Reg. §§ 1.1‑1(b) and 1.1‑1(a)(1)..

[2] The exceptions set forth in this regulation would not generally be applicable in the case of USCs residing overseas without a SSN.

[3] Application for a U.S. Passport – http://www.state.gov/documents/organization/212239.pdf.

Does the IRS have access to the USCIS immigration data for former lawful permanent residents (LPRs)?

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Information about former LPRs, such as the individuals names, is not published under the statute, IRC Section 6039G, which only covers former U.S. citizens.  I-407 New LPR Abandonment Form P1 Complete

This raises the question of whether the Department of Homeland Security tracks former LPRs – names and addresses overseas and provides that information to the Internal Revenue Service?

A prior post discussed the newly published  USCIS immigration form I-407 for LPRs who must now use it when formally abandoning LPR status.  See,  More Information and More Information: USCIS Creates New Form for Abandonment of Lawful Permanent Residency

The new I-407 Form requires much more information and is 2 pages in length.  The old form had only 6 lines and was less than 1/2 of a page in length.  These forms I-407 Abandonment Formare set forth here.  The new form requires the address overseas of the individual.

As readers here know, the names of former U.S. citizens are published quarterly by the U.S. federal government for the world to see.  See a prior post, The 2014 Third Quarter Renunciations Is probably the New Norm –

The complete set of lists going back to the mid-1990s can be reviewed here.  Quarterly Publications.

Of course, the IRS can easily select and identify individuals for audit, by simply drawing from the published names of former U.S. citizens, which is currently tracking at an average of about 850 former USCs quarterly.  In contrast, the number of former LPRs who have filed USCIS Form I-407 is tracking at an average of about 4,000 to 5,000 individuals quarterly.  Chart - USCs Who Renounce Compared to LPRs who Abandon

While citizens are often the focus of the public press and Congress regarding “expatriation taxation”; the statute also wraps in so-called “long-term residents.”  These are individuals who had or continue to have “lawful permanent residency status.”  There are numerous technical considerations in this area, but needless to say, the number of former lawful permanent residents who have simply filed Form I-407 – Abandonment is far in excess of those U.S. citizens who have filed for and received a Certificate of Loss of Nationality (“CLN”) – Form DS-4083 (CLN).  The graph reflects the enormous difference.

See, earlier post  The Number of LPRs “Leaving” the U.S. is 16X Greater than the Number of U.S. Citizens Renouncing Citizenship

On a related post, the question was raised –What are the Number of LPRs who Leave U.S. Annually without filing Form I-407 – Abandonment?

This is important, since many LPR individuals will have “expatriated” without actually having filed USCIS Form I-407.  See, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware! International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9 I-407 New LPR Abandonment Form P2 Complete

While the IRS has specific information about U.S. citizens, it is not clear whether the Department of Homeland Security via the USCIS provides data to the IRS regarding lawful permanent residents who have filed Form I-407?  If such an individual becomes a “covered expatriate” under the U.S. tax law, the range of adverse tax consequences can follow them and their future beneficiaries and heirs, including as follows:

  • “mark to market” taxation on their worldwide assets,
  • 40% inheritance tax to U.S. beneficiaries,
  • 40% tax on gifts to U.S. beneficiaries,
  • etc.

It seems fairly easy, from a legal perspective, that the IRS can request the names, addresses (and indeed the newly completed form) from the USCIS of all individuals who have filed USCIS Form I-407.  From the USCIS records, the IRS will be able to determine if the individual was a “long term resident” based upon the number of years the individual had such status.

Assuming the IRS determines the individual is a long term resident, they can then simply check to see if the they have received IRS Form 8854 from the former LPR; in order to determine if she or he satisfied the certification requirement of Section 877(a)(2)(C).  If not, the IRS will necessarily know the individual is a “covered expatriate.”

More Information and More Information: USCIS Creates New Form for Abandonment of Lawful Permanent Residency

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The U.S. Customs and Immigration Service (USCIS) just announced on 23 March 2015, that a new Form I-407 is available and is to be used, per the USCIS website announcement, which announcment provides in part as follows:New LPR Abandonment Form P1

New Version of Form I-407 Now Available

USCIS has published a new edition of USCIS Form I-407, Record of Abandonment of Lawful Permanent Status (OMB No. 1615-0130). You can download the form on our website.

You may begin using the revised Form I-407, Record of Abandonment of Lawful Permanent Resident Status today. The current edition is dated 02/26/2015, and we will not accept previous form editions

The new form has additional information compared to the prior form.  Specifically, the Alien Registration Number and USCIS ELIS Account Number is required to be included.

Now, the individual is required to state the reasons for abandoning lawful permanent residency status.

Responses to I-407 New LPR Abandonment Form P2each of these questions will have important legal consequences, including potential tax implications under IRC Sections 877, 877A, et. seq.  See, for instance a prior post:  What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?

One of the important enforcement and practical questions raised, is:  Will the IRS be able to better track former “long-term residents” (certain former lawful permanent residents) for purposes of the “expatriation tax” under the new reporting form and system?

As has been explained, if an individual fails to certify under the tax law, they will necessarily be a “covered expatriate”; even if they do not meet the asset or income tax liability thresholds.  See a prior post, Certification Requirement of Section 877(a)(2)(C) – (5 Years of Tax Compliance) and Important Timing Considerations per the Statute.

 

 

U.S. Department of State has Allowed (Starting in at least 2013) USCs to Keep their U.S. Passports After Oath and Prior to Receiving CLN

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shutterstock_1078286Washington Post journalist, Ms. had an interesting article on March 3, 2015, titled Yes, the State Department can jump on a problem and fix it in record time.

The focus of the article was that the U.S. Department of State can indeed fix a problem (in this case how and when U.S. passports are taken from U.S. citizens who take the oath of renunciation).

The article was a bit of a surprise to me, as I have had experience with several clients where the Consulate offices have indeed allowed the U.S. citizen to physically maintain their U.S. passport after taking the Oath of Renunciation (Form DS-4080, Oath of Renunciation of the Nationality of the United States) but prior to actually receiving the  “Certificate of Loss of Nationality” (“CLN”).Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)

After a U.S. citizen has formally renounced (or relinquished) their U.S. citizenship, the U.S. Department of State provides a CLN.  This form can be located here at – Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)

You can go to the page “U.S. Department of State” under “Resources” for further U.S. Department of State Documents related to loss of nationality.

Sometimes, the U.S. Department of State will take several months to process the file in Washington D.C., before they actually issue the CLN.  I have had cases (worst case scenarios) that take upwards of 9-10 months.   See, The IRS does not give a “Certificate of Expatriation” or similar tax document . . .

However, my experience on several cases is that consular officer will generally allow tFAM foreign affairs manual 1229 re passport and CLNhe individual to physically keep the U.S. passport until the CLN is actually issued and received by the individual in exchange for their passport.  This has been the case for some 2 +/- years.

This procedure has been formalized in the Foreign Affairs Manual which added the additional key language in paragraph (4) regarding U.S. citizens who need their passport for travel to the U.S.

 

WSJ: When American Expats Don’t Want Their Kids to Have U.S. Citizenship By: Chantal Panozzo

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WSJ:  When American Expats Don’t Want Their Kids to Have U.S. Citizenship
By: Chantal Panozzo (18 Feb. 2015)
A recent article this week by Ms. Chantal Panozzo in the Wall Street Journal, explains in practical terms the decisions faced by many multi-national families; typically where one parent is a U.S. citizen.  The child will typically be a U.S. citizen, as a matter of law through what is known as “derivative citizenship” as explained in prior posts (see, Famous Americans who Renounced U.S. Citizenship – Elizabeth Taylor!).
The Wall Street article uses various family scenarios around the world, with some key interviews , including the following with “Jessica” that demonstrates the choices individuals are making around the world:

Jessica, who asked that her last name not be used, says she initially looked forward to getting her infant son an American passport. But after considering the implications of American citizenship, including the possibility of her son being drafted or taxed by a country where he may never live, she and her husband decided against applying for the moment.

The article seems to imply that a U.S. citizen may be “U.S. person” for U.S. federal tax purposes, but will not need to file U.S. tax returns or report their worldwide assets, if they do not apply for a U.S. passport:
That said, U.S. citizens born abroad are technically liable for taxes even if their parents don’t register their birth with American authorities . . .
It’s probably worth clarifying, that Title 26, the federal tax law, has a clear dictate that all U.S. citizens (whether they know of their citizenship status or not) are “U.S. persons” and therefore subject to worldwide taxation and worldwide reporting of their assets.  Whether the U.S. citizen without a U.S. passport actually owe any taxes or not, is a different question.  See, How the IRS Can file a “Substitute Return” for those USCs and LPRs Residing Overseas
Every individual who is born to a parent who was a U.S. citizen must consider whether they too are a U.S. citizen as a matter of law via “derivative citizenship“; i.e., “derived” from a U.S. citizen parent.   The U.S. Citizenship and Immigration Services (USCIS) has a “Nationality Chart 1, for Children Born Outside U.S.” to help determine if the individual was a U.S. citizen at birth.  
Whether a U.S. passport is ever applied for, is irrelevant for purposes of the tax definition of who is a “U.S. person” (See, IRC Section 7701(a)(30)(A) and Treas. Reg. § 301.7701-6 Definitions; person, fiduciary); including for FATCA reporting requirements when forms and information are provided under penalty of perjury with financial institutions around the world.  See, Part 2 – Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.

The President’s Proposal is NOT the Same as Current Law – Section 877A(g)(1)(B)

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Some individuals are mistaken that the Obama proposal to exempt certain U.S. citizens from taxation (including the “mark to market” exit tax), is the same as the exception in IRC Section 877A(g)(1)(B).Form 8854 Yr 2013

It’s not.  They are not the same, although they have some similar requirements (e.g., 5 years of certification of U.S. tax law compliance under penalty of perjury).

For a brief discussion on the President’s proposal, see –The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group

IRC Section 877A(g)(1)(B) is not the same as the President’s green book/budget proposal.
 –signature line -8854 perjury.
There are important differences.  Most importantly, the IRC Section 877A(g)(1)(B) exception requires the individual not only have been a dual citizen (of at least two or more countries) at birth, along with U.S. citizenship; but also continue to reside and be a tax resident of that country, i.e., the country of which they were also a citizen at the time of their birth.  This tax residency/dual citizenship rule is necessarily required by IRC Section 877A(g)(1)(B).  If the person has moved to another country, they will not be eligible for this treatment and will be subject to the mark to market “exit tax” if they renounce their U.S. citizenship.  Their U.S. heirs and beneficiaries will also be subject to the 40% (current tax rate) tax on “covered gifts” and “covered bequests.”
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The President’s proposal (if it ever becomes law) will also apparently exempt all qualifying individuals from any type of U.S. taxation; other than tax that would apply to a “non-resident alien” (which would be no U.S. tax – if the individual had no U.S. source income).  Not only would no “exit tax” apply, but so too would no U.S. income tax on their income from their country of residence or any other country outside the U.S.   The President’s proposal would also exempt them from all U.S. tax filing requirements (other than the 5 years) and from FBAR filing requirements.  See, Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.
Current law does not exempt U.S. citizens from U.S. taxation.  Indeed, to qualify for the exception to the “mark to market” tax under IRC Section 877A(g)(1)(B), the individual has to have complied with the provisions of Title 26 (which is a very complex U.S. tax law) for the last 5 preceding tax years.  See, Certification Requirement of Section 877(a)(2)(C) – (5 Years of Tax Compliance) and Important Timing Considerations per the Statute

 

The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group

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A prior post explained the green book proposal published earlier in February: Obama Budget Proposal to “Provide Relief for Accidental Americans”? Will the Proposal to Modify the Expatriation Rules Become Law?

The unique consequence of such a proposal, would be to eliminate U.S. citizenship based taxation forWorld Map a very small, select group of U.S. citizens.  See, Co-author. Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,”  by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.

The group affected would indeed be very small.  Most importantly, the requirements that would limit the number of eligible persons to a very small class of individuals are the following:

  • [those who] have never held a U.S. passport or . . . held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,US Passport

 

  • [those who] relinquish . . .  his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen.

 

The immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States.  The relevant part of the regulations is § 53.1(a) which provides as follows:

Passport requirement; definitions.

(a) It is unlawful for a citizen of the United States, unless excepted under 22 CFR 53.2, to enter or depart, or attempt to enter or depart, the United States, without a valid U.S. passport.
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These regulations were first published in 2006, and rely in part on a Presidential Executive Order made by President Bush (Jr.).
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Presumably, it is a very small and select group of individuals who obtained a U.S. passport, merely to comply with this regulation, in order to depart the country.   How many individuals even know of such requirement and would have applied for a U.S. passport while in the U.S., to legally depart under the U.S. passport requirement regulatory rule?  See, Part I of III: Tracking Travelers’ Entries and Exits – Guest Immigration Law Post by Atty Mr. Jan Bejar
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Assuming an individual was aware of such regulatory rule, they could not qualify for this proposed exception, if they ever lived in the U.S. since becoming 18 1/2 years old.  This means that only those individuals with U.S. passports who (i) obtained a U.S. passport as a child (presumably through their parents) while (ii) living in the U.S. and (iii) did so in order to comply with this regulation 22 CFR § 53.1 would be eligible.  Since the regulations were just passed in 2006, anyone who obtained a U.S. passport, for instance in 2002 (even if they never lived in the U.S.) would presumably be disqualified from this tax treatment.

Also, if they did not get a passport when they were in the U.S., leaving the country after the 2006 passport regulations were adopted, would have been a violation of the law.

Bottom line, it seems nearly impossible that anyone who ever had a U.S. passport would ever qualify for this exception.

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Further, the two year rule, would seem to exclude most all other foreign resident USCs (of course, virtually none of whom could ever have had a U.S. passport).  Once an individual becomes aware they are a U.S. citizen (even if they are unaware of any U.S. tax or bank reporting requirements), the two year window starts ticking.  If they do not renounce their U.S. citizenship within that time frame, they too would also not qualify for such an exception.
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Finally, it is worth noting that it often takes several months to get an appointment with the U.S. Consulate or Embassy to even renounce in the first place.
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Therefore, in conclusion, even if the Obama proposal were to make its way into the law, those who could actually obtain relief would be a rare group of individuals.  In short, U.S. citizenship based taxation on worldwide income, will continue to be the law of the land.