By Steve Trow, Attorney / Owner / Founder
This article is the first in a series directed at high net worth clients and their professional advisors – accountants, attorneys, bankers, financial planners and trust officers. The focus of these articles is the intersection of U.S. immigration law and U.S. tax law. This can be a dangerous intersection, where clients who are looking in one direction can get run over by something coming from the other direction.
Understanding the Issue
Unlike many immigration attorneys, we have decades of experience crafting creative immigration plans for high net worth clients. U.S. immigration planning for high net worth clients is challenging because immigration lawyers and tax advisors often have different perspectives. Immigration lawyers generally think that getting U.S. permanent resident (green card) status is good; tax advisors warn clients that the price of a green card is U.S. taxation of their worldwide income.
Immigration lawyers generally think that U.S. citizenship is better than permanent resident status; tax advisors may have clients who wish to renounce their U.S. citizenship. Immigration lawyers like to tell clients they can stay as long as they please in America; tax advisors tell them to count their days in America and try to stay below the “substantial presence” threshold for U.S. tax residency. Immigration lawyers are eager to help clients hang onto U.S. green card status if they move abroad; tax advisors may suggest they get rid of it.
Many immigration lawyers see their role as putting clients on an escalator that only goes up.
The instructions go something like this: Start as a visitor or student. Get a nonimmigrant (temporary) visa that provides work authorization. Get permanent resident status – a “Green Card.” Apply for naturalization to U.S. citizenship. Live happily ever after in America.
With tax concerns in mind, immigration planning looks more like an elevator.
Go to the floor that has what you need – visitor, student, temporary work visa, permanent resident status or U.S. citizenship. Stay there as long as it suits you. Don’t assume that a higher floor will suit you better. The elevator goes down as well as up – there may be good reasons to give up permanent resident status, or to give up U.S. citizenship.
Some clients should avoid permanent resident status by using a nonimmigrant visa to reside and work in the U.S. Why? They can stay below the “substantial presence” threshold for U.S. income tax on foreign source income, or become an “exempt individual” who is not subject to the substantial presence test. They can avoid the mark-to-market “exit tax” upon departure from the U.S., or defer exposure to the exit tax by avoiding “long term residence.” If you are not familiar with these tax law concepts, ask your tax advisor to explain them. Trow & Rahal cannot give you tax advice, but we can work with your tax advisor to achieve these objectives.
A client may need to work intermittently in U.S. but not have his primary residence in the U.S. A client may be concerned about conditions in his home country and want a foothold in the U.S., but he is not yet ready to move to the U.S. A client may want his spouse and children to reside in U.S. for safety or schooling, while he continues to manage a business in his home country. There are a variety of nonimmigrant visas that can achieve these objectives. Some of them can provide U.S. work authorization for the client’s spouse and provide an easy path to permanent resident status if needed later.
Even if a client will be substantially present in the U.S. as a nonimmigrant, avoiding permanent resident status will eliminate exposure to the exit tax if the client later leaves the U.S. Deferring permanent resident status will postpone, perhaps for many years, becoming a long term resident who is subject to the exit tax. In some cases, cycling in and out of permanent resident status can confer immigration benefits on family members while avoiding exposure to the exit tax.
There are several nonimmigrant (temporary) visas that provide U.S. work authorization with long duration:
- H-1 visas based on education are valid for up to 6 years, or longer with a green card application pending.
- L-1 visas for “intracompany transferees” are valid for up to 7 years for managers and executives.
- E-1 visas for “substantial trade” and E-2 visas for “substantial investment” have no upper limit.
- O-1 visas for athletes, entertainers and others with “extraordinary ability” have no upper limit.
- TN visa status for citizens of Canada and Mexico has no upper limit.
For more information on these visas, view the section of our website pertaining to Employment-based Temporary Visas. For advice that is tailored to your particular circumstances, or to those of your client, please contact Steve Trow at 202-537-4830 or email@example.com.
Be on the lookout for Steve Trow’s next featured article
Future articles will address:
- The EB-5 Immigrant Investor Program — for obtaining U.S. permanent resident status through investment in a U.S. business.
- Green Cards and the Exit Tax — including preserving green card status while residing abroad, and continuing to reside in the U.S. after voluntarily surrendering green card status.
- Accidental American Citizens — spotting clients who are unaware that they are American citizens.
- Terminating American Citizenship — including pre-expatriation due diligence and post-expatriation visa planning.
About Steve Trow
Steve Trow has 30 years of experience in U.S. immigration law. He is a frequent speaker on U.S. immigration and citizenship planning for high net worth clients. The articles in this series draw on presentations he has made at professional development seminars hosted by the Society of Trust and Estate Practitioners (STEP) and other organizations in New York, Washington, Miami, London, Zurich, Bermuda, the Bahamas, the Cayman Islands, and most recently at the Canadian national STEP conference in Toronto.