Planning for being a U.S. Tax Resident
Applying for the EB-5 investor program for Indians should include meeting all U.S. tax requirements. An investment of either $1,000,000 or $500,000 requires having the best strategies in place from the start. The more information an investor can provide their financial advisor and attorney, the more helpful they can be.
Tax impact strategies may include transferring financial assets to U.S. banks, disposition of certain assets, and perhaps liquidation of passive investment companies.
Conversely, a thorough review of a visa or investor visa program applicant’s current assets could produce other short term benefits.
Becoming a U.S. tax resident could allow an applicant to capitalize on those tax rules which allow for stepping up the cost basis in appreciating assets. If feasible, this could significantly reduce taxes on capital gains when selling those assets.
Accordingly, your professional financial and/or legal advisor should help with specific circumstances. Tax laws and regulations often differ from one home country to another. Some countries have a U.S. tax treaty, which must be taken into account in that event.
Chances are the applicant has foreign assets, which could lead to significant U.S. tax implications.
Upon becoming a U.S. resident for tax purposes, the investor must file Form 1040 with the Internal Revenue Service.
It is the Income Tax Return Form used by residents (and citizens) of the U.S. for the purpose of filing an annual income tax return. Form 1040 includes worldwide income.
Additional forms to be filed by EB-5 Investor Applicants
In addition, a FBAR should be filed, which is the Report of Foreign Bank and Financial Accounts. This is necessary when the aggregate value of foreign financial records exceeds $10,000 any time during the reported calendar year. This includes when an investor has a financial interest in (or signature authority) in at least one financial account outside of the U.S.
Moreover, the scope of filing may go beyond an individual’s involvement. Corporations, partnerships, and limited liability companies organized within the United States must also file an FBAR. The same applies to trusts or estates formed under U.S. laws and regulations.
There are at least three other required forms for the visa or investor visa program applicant within this process.
Form 8938 is the Statement of Specified Foreign Financial Assets. It shows whether or not the total value of all specified foreign assets exceeds the appropriate reporting threshold.
The Information Return of U.S. Persons With Respect To Certain Foreign Corporations is Form 5471. This applies if the investor owns a CFC, which stands for a controlled foreign corporation. It also applies if the investor is an officer or director of the company, owns at least 10% of the stock’s total value, or owns at least 10% of full voting power over the capital.
Form 3520 is the Annual Return To Report Transactions with foreign trusts and receipt of certain foreign gifts. This form only becomes a factor if the investor needs to report a foreign gift of at least $100,000.
Along with any financial (and application) consequences, failing to file these forms could also result in criminal prosecution.
Taking these important steps at the beginning reduces the likelihood of long term or future tax consequences for investors.