This is the third and final article in our series about a Bermudian with US connections returning home and making a decision about permanent residence. Please be aware that this article is general in nature, and take note of the full disclosure at the end.
Our composite Bermudian has returned home permanently after an extensive residence in the United States. His friend inquired as to whether he will have any US tax consequences going forward. In the previous two parts of this series, we covered his very limited fact profile, but found we can only speculate as to how he obtained US residency.
There are a number of legitimate immigration positions that allow a person to have short, long-term or life United States residency. The three most visible are listed below. In another article we will discuss special situations as foreign government officials, athletes, students, medical treatment patients, investing in US businesses as a foreigner.
1. US citizen. May be acquired by birth in the US regardless of citizenship of parents, as a child born abroad of one or two US parents, as a naturalised US citizen (after holding a US green card), etc
2. US lawful permanent resident, aka a US green card holder, sponsored by relative, employer, lottery, etc
3. US tax resident, actually a foreign person who has overstayed in the US (say by renewing a six-month visa) thus breaching the 183-day rule under the Substantial Presence Test, a three-year rolling tally math formula.
The first two categories listed subject individuals to annual US tax reporting and filing based upon various income thresholds, as well as reporting on their foreign bank/financial interests to the US Treasury Financial Crimes Enforcement Network regardless of where they live in the world, and where their income is derived. These are broad categories, meaning Bermuda and other foreign country-held accounts, income derived from starting a Bermuda businesses, Bermuda salaries, investments and so on.
Regarding the third position listed, residency is a temporary one. Once the foreign national leaves the US, they have no connection and thus, generally, no requirement to continue to file and report anything to the US Internal Revenue Service.
So what should our Bermudian returning home do? There are four choices.
1. Stay the course as a US citizen or US green card holder. US citizens are citizens for life whether they reside in the United States or elsewhere permanently. Their tax and reporting positions are as described in position one.
US long-term green card holders are in a similar situation relative to US tax and reporting responsibilities. However, a person can lose his right to permanent US resident status by moving to another country permanently, remaining outside US for an extended period of time, not staying US tax compliant and other issues. Consulting with the US Consulate for clarification is highly recommended.
2. Renounce his US citizenship. US expatriation is an expensive, complicated process involving both the United States State Department and US Internal Revenue Service along with a possible assessment of a US exit tax over certain thresholds covering expatriates. There are exceptions for individuals with dual-citizen status, a tax compliance certification requirement, a forward US estate tax on beneficiaries and other essential filing/reporting documents.
3. Relinquish his US green card if he is not a US Citizen. Long-term green card holders (another residence-type math calculation) face similar complications as renouncing US citizens. Again, consultation with the US Consulate is recommended.
4. Do nothing. Yes, this is a choice, but is it a wise one?
These are the people we discussed last week, resolved that if they put documents in a drawer, don’t renew a green card, or a US passport, the whole situation just goes away. Anecdotal comments have indicated this may have worked in the past, but that was then, this is now. Do not bet the farm on this decision.
Today’s complicated border crossings, whether electronic or physical, are under increased unpredictable scrutiny. The US/Bermuda IGA Model 2 Agreement mandates the Bermuda financial institutions to categorise Bermuda residents with US connections and to report those account holders directly to the US Internal Revenue Service.
US ICE Immigration and Customs Enforcement work along side US border control officials in monitoring entry and exit immigration portals. Effective October 18, 2017, the US Department of Homeland Security is also monitoring the social media of all immigrants, including green card holders and naturalised US citizens.
Ultimately, our Bermudian with US connections has some decisions to make. He must keep in mind also that cutting all ties to the US must have a valid reason, and not tax avoidance.
In recent years, thousands of US persons have renounced US citizenship, and the pace continues to grow unabated. https://www.bloomberg.com/news/articles/2017-11-01/americans-are-renouncing-citizenship-at-a-record-pace
Virginia LaTorre Jeker, “Let’s Talk About: US Tax” Giving up US citizenship or US green card — Escape route for non-filers of tax returns, FBARs and other tax forms? https://www.angloinfo.com/blogs/global/us-tax/giving-up-us-citizenship/
Giving Up Your US Green Card — Make Sure It is Done Correctly or Pay the Price!
Disclosure: This article is general in nature and cannot be considered in any way whatsoever as specific tax, investment, immigration, legal, or any other financial planning advice for anyone reading or referencing this article. Tax, financial, legal, immigration legislation and regulations are subject to change without notice. I make no representation as to the current accuracy of hypothetical facts. Readers, if you, or anyone you know has similar questions, you must seek advice specific to your personal situation from qualified licensed professionals (in Bermuda) experienced in both domestic and international tax, legal, and financial planning relative to the jurisdictions connected — in this case United States and Bermuda
Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: email@example.com