Taxation Without Representation

I've been representing foreign investors in the U.S. for 18 years.  So have many of my colleagues.  So why is it that the notion of "tax planning" is such a conundrum for most immigration attorneys?  The truth is that we, as immigration counsel, are "programmed" to steer most folks to legal permanent residency.  There are valid reasons, the primary one being that the majority of clients seek such status.  But a significant (and growing) number of foreign investors in the U.S. wish to preserve their foreign residence as primary…and have no desire on becoming subject to taxation in a country in which they do not intend to live permanently!

It seems like on an almost-daily basis I'm approached by a client with substantial offshore assets who is neither interested in U.S. permanent residency nor in abandoning his home country…but is being advised by immigration counsel that getting a green card is their sole option…not so!

I am hardly an expert on international taxation but I know the basics:

  • whether you like it or not, the U.S. taxes worldwide income on anyone who is a "tax resident" within the meaning of the Internal Revenue Code
  • tax residency is automatic for persons who get permanent residency
  • tax residency is triggered by so-called "physical presence" tests which determine tax status based upon the amount of time a foreign national has been physically present in the U.S.
  • In addition to worldwide taxation of all income anywhere, U.S. tax residency means estate taxes apply for assets worldwide (unless legal protective mechanisms, such as trust structures, have been established.)

All this adds up to one thing: for high-net-worth foreign nationals, a complete understanding of the income and estate tax implications is essential BEFORE they get their green card…or before they establish tax residency via physical presence.

What are the implications of this for immigration counsel?  Several important considerations:

  1. It is critical to insure that the client receives competent tax counsel both in his/her home country AND in the U.S….before U.S. tax residency is manifested and the individual is subject to U.S. tax laws.
  2. On many occasions, it is necessary to defer the U.S. permanent residency — even prolongued presence in the U.S. — until all of these issues are resolved under a tax planning arrangement most prudent for that individual client.

It's a shame to see the colossal financial damage which can occur to clients who have been given limited options by immigration counsel.  Once you are a resident like the rest of us, you have to cough it up, and that's what the law requires.  Before you are U.S. tax resident, however, you have a number of legal tools and options with which to minimize the financial impact of coming to the U.S.

Perhaps as immigration counsel we should step back and look beyond the next immigration step to consider the client's big picture.