Will the “gold card” sell to ultra high net worth investors around the world who want U.S. citizenship (“USC”)? What are the tax costs of USC? * About the Author: Patrick W. Martin
President Trump again announced on April 3, aboard Air Force One his plan:
Whether the U.S. adopts a new “Gold Card” “For $5 million [that] we will allow the most successful job-creating people from all over the world to buy a path to U.S. citizenship,” is up to the U.S. government.
Congress can amend Title 8 and include a new “Gold Card” option.
Current law provides the EB-5 visa as one path towards a “green card” that ultimately can lead to U.S. citizenship through naturalization.
President Trump presented at his March 4th speech to a joint session of Congress, explaining the concept: “It’s like the green card, but better and more sophisticated. And these people will have to pay tax in our country.”
Sounds like a panacea to help the U.S. federal deficit problem? If 100,000 of these “Gold Cards” were sold for $5M each, and these funds were paid directly over to the federal government, that would raise $500 billion dollars. If 1 million were sold, that would be $5 trillion dollars to use to pay down the deficit (running annually at far greater than $1 trillion dollars since 2019).
To put that into perspective, the EB-5 visa that also leads to a “green card” that can further lead to U.S. citizenship through naturalization has an annual visa limit of about 10,000. See, USCIS’s article – (16 Aug 2024) – Annual Limit Reached in the EB-5 Unreserved Category There have been multiple years where the annual visa limit was not met. Prior to 2015, the 10,000 visa limit was never met and in several years there were less than 500 EB-5 visas issued annually.
There have been less than 150,000 EB-5 visas issued over the last 35 years since its adoption in 1990. Is it realistic to be able to “sell” even ten thousand $5M gold visas annually, when the “green EB-5 visa” costs $800,000 and has had less than 150,000 issued in nearly 35 years?
Equity Investment for EB-5 visa – $800,000 (Does NOT go to the Government)
The total required equity investment amount for an EB-5 visa in the qualifying project, is only $800,000 (if in a “TEA”). See, EB-5 Immigrant Investor Program, as published by the U.S. Citizenship and Immigration Services (USCIS). See, USCIS’s Chapter 2 – Immigrant Petition Eligibility Requirements. It used to be only $500,000 (1/10th of $5M). A TEA is a targeted employment area (“TEA”) that meets specific requirements under the law. If the capital investment is not in a TEA, the required minimal capital investment amount is $1,050,000 that increases in January 1, 2027 and each 5 years thereafter. Still about 1/5th the cost of a “gold visa”.
U.S. Estate and Gift Tax Consequences for U.S. Citizens and those with a Green Card (“Gold Card”?)
Finally, maybe the biggest impact on who wants an investor visa that leads to U.S. citizenship depends largely upon the U.S. income tax and U.S. estate and gift tax consequences. There are many tax implications. See, my case Aroeste v United States – Order Nov 2023, that was appealed to the 9th Circuit by the Office of Solicitor General (DOJ). U.S. District Court ruled in favor of green card holder.
These regulations are extensive and provide an explanation of the purpose of these rules.
II. Purpose of Foreign Gift and Trust Provisions
During the mid- to late-1990s, abusive tax schemes, including offshore schemes involving foreign trusts, reemerged in the United States after reaching their last peak in the 1980s. GAO, Efforts to Identify and Combat Abusive Tax Schemes Have increased, but challenges remain, GAO–02–733 (Washington, DC: May 22, 2002). In these schemes, foreign trusts were used to transfer large amounts of assets abroad, where it was much more difficult for the IRS to identify whether U.S. persons owned a trust.
interest in such trusts, and whether such persons were reporting and paying the required taxes on their income from such trusts. Many of the foreign trusts were established in tax haven jurisdictions with bank secrecy laws. Before the 1996 Act amended sections 6048 and 6677, there was no Form 3520-A), which was limited to five percent of the transfer or corpus of the trust, as applicable, not to exceed $1,000. In light of this, it was difficult for the IRS to obtain information about income earned by U.S.-owned foreign trusts and distributions to U.S. beneficiaries from foreign trusts, and Sections 6048 and 6677 were generally ineffective in ensuring that U.S. persons provided this information. information. The result was “rampant tax evasion.” 141 Cong. Rec. S13859 (daily edition of September 19, 1995) (comments by Senator Moynihan). Requirement for U.S. Persons to Report Distributions from Foreign Trusts and the Penalty for Failure to Report Transfers to a Foreign Trust or an Annual Foreign Trust Information Statement (in Federal Register/Vol. 89, No. 90/Wednesday, May 8 of 2024/Proposed Rules and 141 Cong. Rec. S13859 (daily edition of September 19, 1995) (comments by Senator Moynihan).
New Section 7345 completely modifies how U.S. citizens (“USCs”) living and traveling around the world have to now consider very seriously actions taken by the Internal Revenue Service (“IRS”). It is the IRS which now holds the power under this new law that requires the U.S. Department of State (“DOS”) to revoke or deny to issue a U.S. passport in the first place.
New Section 7345(e) provides in relevant part as follows: “upon receiving a certification described in section 7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section. . . ” [emphasis added].
This new law mandates (not at the discretion of the DOS) that various U.S. passports be denied at the direction of the IRS. Once the IRS issues the certification of “seriously delinquent tax debt.”
All it takes, is for the IRS to claim tax or penalties are owing of at least US$50,000 through an assessment (plus start a lien or levy action).
Also, we have seen several IRS assessments of income tax (not just penalties) against individuals of hundreds of thousands of dollars which are not supported by the law. For instance, it is not uncommon for the IRS to issue a “substitute for return” alleging income taxes owing. See, How the IRS Can file a “Substitute for Return” for those USCs and LPRs Residing Overseas, posted Nov. 8, 2015. We have a number of those cases pending, where the IRS has taken erroneous information and made such assessments against USCs residing and working outside the U.S. for much if not most of their professional lives.
New Section 7345 requires that USCs, wherever they might reside, take great care in knowing about any actions the IRS might be taking against them; as to tax and penalty assessments, whether or not they are supported under the law.
Entry in and out of the U.S. has just gotten more problematic under a new law for those U.S. citizens who the IRS asserts owes taxes. A new statutory concept has been added to the tax law called “seriously delinquent tax debt”; which is defined by new IRC Section 7345 as a tax that has been assessed, is greater than US$50,000, and where a notice of lien has been filed or levy made.
The administration of passports is the responsibility of the Department of State. [“Passport Act of 1926,” 22 U.S.C. sec. 211a et seq.] The Secretary of State may refuse to issue or renew a passport if the applicant owes child support in excess of $2,500 or owes certain types of Federal debts. The scope of this authority does not extend to rejection or revocation of a passport on the basis of delinquent Federal taxes. Although issuance of a passport does not require a social security number or taxpayer identification number (“TIN”), the applicant is required under the Code to provide such number. Failure to provide a TIN is reported by the State Department to the Internal Revenue Service (“IRS”) and may result in a $500 fine.
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Senate Amendment
Under the Senate Amendment, the Secretary of State is required to deny a passport (or renewal
of a passport) to a seriously delinquent taxpayer and is permitted to revoke any passport
previously issued to such person. In addition to the revocation or denial of passports to delinquent taxpayers, the Secretary of State is authorized to deny an application for a passport if the applicant fails to provide a social security number or provides an incorrect or invalid social security number. With respect to an incorrect or invalid number, the inclusion of an erroneous number is a basis for rejection of the application only if the erroneous number was provided willfully, intentionally, recklessly or negligently. Exceptions to these rules are permitted for emergency or humanitarian circumstances, including the issuance of a passport for short-term use to return to the United States by the delinquent taxpayer.
The provision authorizes limited sharing of information between the Secretary of State and
Secretary of the Treasury. If the Commissioner of Internal Revenue certifies to the Secretary of
the Treasury the identity of persons who have seriously delinquent Federal tax debts as defined
in this provision, the Secretary of the Treasury or his delegate is authorized to transmit such
certification to the Secretary of State for use in determining whether to issue, renew, or revoke a
passport. Applicants whose names are included on the certifications provided to the Secretary of
State are ineligible for a passport. The Secretary of State and Secretary of the Treasury are held
harmless with respect to any certification issued pursuant to this provision.
A U.S. citizen is required to have a U.S. passport to enter the U.S., according to 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.). See a prior post, USCs without a . . . Passport . . . Cannot Travel to the U.S., Posted on May 17, 2015. In that post and a later post, I explained how a social security number is currently not an indispensable requirement for U.S. citizens who wish to travel to the U.S. and need to apply for a passport.
This background is relevant for U.S. citizens who take the oath of renunciation. Previously, many U.S. embassies and U.S. Consulates around the world would physically take the U.S. passport of the individual upon taking the oath of renunciation and completing U.S. Department of State Form DS-4080. See, a prior post, Documents to Request the Consular Officer When Renouncing U.S. Citizenship, Posted on May 28, 2014, which provides as follows:
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The U.S. Department of State does not always provide any specific document, e.g., a certified copy of any of the following documents, after you take the oath of renunciation:
Fortunately, I have been told by several Chiefs of American Citizen Services in different U.S. Consulates and U.S. Embassies that they have been advised from Washington that they are NOT required to physically take the U.S. passport, until after the issuance of the CLN. This now seems to be consistent practice throughout the world, and most all Chiefs of American Citizen Services use this approach, based upon my personal experience with different clients.
In addition, the second quarter saw a total of 460, for a cumulative total for the year (mid way through the year of 1,795). At this pace, the year 2015 could be a slight record of U.S. citizenship renunciations compared to the record year of 2014.
The names of each citizen can be located in the list published in the Federal Register.
There are a number of key considerations and strategic decisions that most all U.S. citizens need to consider prior to renouncing citizenship. See, for instance –
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”).
However, my experience on several cases is that consular officer will generally allow the 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.
There are several observations to be made about this approach.
First, some USCs living overseas will find this a welcome development, as it provides a method of basic education of how U.S. tax laws work. The newer U.S. passports do have an obscure reference to U.S. tax obligations of USCs. In the past, there was generally no communications from the U.S. Department of State to USCs, including newly naturalized U.S. citizens about their U.S. tax obligations.
Second, there is much helpful information provided in the U.S. Department of State’s explanation. The key tax forms that are most relevant for USCs and LPRs residing overseas are explained in the government e-mail. See, USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms
All of the following forms are identified by the U.S. Department of State:
Substantive Income Tax Forms (Affecting Tax Liability)
These are the most relevant forms for the majority of USCs and LPRs; although there are numerous other forms and calculations that may be required depending upon the particular circumstances, income, assets, employment, etc. for each individual
The third observation, relates to how employees of the U.S. Department of State will use this information and communicate with USCs? Will they begin asking (even if infrequently) whether a U.S. citizen overseas is in compliance with their U.S. federal tax requirements? What are the consequences to the U.S. citizen if they state yes, no or refuse to answer? What can happen to an individual if they provide a false statement to a federal employee or file a false document? See What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?
However, there are significant exceptions in the law, that do allow disclosure of taxpayer financial and taxpayer information to other agencies (particularly “Intelligence Agencies,” which presumably includes the U.S. Department of State). See, for instance, IRC Section 6103(i)(7). The statutory requirements of 6103(i)(7) are not particularly rigid.
renouncing USC and triggering the U.S. “expatriation tax” that is the primary focus of these materials. See, these regulations – here: Guidance Under Section 2801 Regarding the Imposition of Tax on Certain Gifts and Bequests From Covered Expatriates
taxes are owing. See IRS website – FAQs 5 and 8 regarding civil penalties (see also How is the offshore voluntary disclosure program really working? Not well for USCs and LPRs living overseas).
cumulative total for the year (mid way through the year of 1,795). At this pace, the year 2015 could be a slight record of U.S. citizenship renunciations compared to the record year of 2014.
Washington 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.
he 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.
basic education of how U.S. tax laws work. The newer U.S. passports do have an obscure reference to U.S. tax obligations of USCs. In the past, there was generally no communications from the U.S. Department of State to USCs, including newly naturalized U.S. citizens about their U.S. tax obligations.