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US Pre Immigration Tax Planning – February 2024

Does an EB-5 Offer the Same Green Card Benefits as an EB-2 or EB-3?

These categories are ‘employment-based.’ However, EB-5 is an investment and job creation immigrant category, while EB-3 is for skilled or professional workers who have received an offer of permanent employment from a U.S. employer/sponsor. This employer/sponsor has applied to the U.S. Department of Labor for a determination that the job is in a shortage occupation (i.e., U.S. workers are not available to fill the position).

The better choice for you depends on whether you wish to invest in your own business (or a regional center) or whether you have special skills or education and a willing potential U.S. company to sponsor you for the labor certification process.

There are many other differences in the requirements for these two immigrant categories. An experienced immigration attorney can explain them to you and advise you on which option or options will work best for your situation.

Determining the Best US Immigration Option

The United States offers a diverse array of visas to accommodate various purposes, from temporary visits to permanent immigration. Whether you’re a student, professional, or traveler, understanding the different visa types is essential. Let’s delve into the details:

 1. Nonimmigrant Visas

These visas are designed for temporary stays in the United States:

  • Visitor Visas:

B1 Visa: Intended for business visits.

B2 Visa: Ideal for tourism and leisure.

  • Student Visas:

F1 Visa: For academic studies.

F2 Visa: Reserved for dependents of F1 visa holders.

M1 Visa: Geared toward vocational training.

  • Exchange Visitor Visas:

J1 Visa: Facilitates exchange programs and practical training.

Q Visa: Supports participants in international cultural exchanges.

  • Temporary Work Visas:

H1B Visa: Suits highly specialized fields.

H1B1 Visa: Specifically for nationals of Chile and Singapore.

H-2A Visa: Granted to temporary agricultural workers.

H-2B Visa: Allocated to non-agricultural seasonal workers.

H-3 Visa: Provides opportunities for training and education.

L1 Visa: Issued to intracompany managers or executives.

 2. Immigrant Visas

These visas are for those moving permanently to the United States:

  • Extraordinary Ability Visas (O Visas):

O1 Visa: Reserved for individuals with extraordinary abilities in Arts, Science, Business, Education, or Athletics.

O2 Visa: Designed for assistants of O1 visa holders.

O3 Visa: Available to dependents of O1 visa holders.

  • P Visas: Issued to sportspersons and their coaching teams.
  • R1 Visa: For Temporary Religious Workers practicing within the US in religious capacities.
  • TN/TD Visas: For citizens of Canada or Mexico working under NAFTA agreements.
  • E3 Visas: Specifically for nationals of Australia engaged in specialty occupations.
  • I Visa: For representatives of foreign media and journalists participating in educational media activities.

Treaty Trader and Investor Visas (E Visas):

  • E1 Visa: Facilitates treaty trader activities.
  • E2 Visa: Supports treaty investors.

Will the U.S. Grant India – ‘Treaty Country’ Status for E1 and E2 Visas?

The possibility of India achieving E2 Treaty Investor and E1 Treaty Trader country status from the United States would significantly enhance international trade and investment relations. This status would substantially increase the number of US visas available for Indian nationals. However, the pathway to such a status is likely to be long and challenging, and it could take years, if it ever happens at all.

Context of ‘Treaty Country Status’

Understanding the concept of ‘Treaty Country Status’, the E2 and E1 treaty country status allows nationals from these countries to apply for E1 and E2 visas. These visas facilitate international trade and foreign investment. Currently, approximately 100 countries are on this list, but the addition of India is not yet certain and could involve a lengthy process.

Current Treaty Countries and Implications

Countries like Taiwan, Bangladesh, Ethiopia, Pakistan, the Philippines, and Sri Lanka currently enjoy this status, enabling their citizens to more easily obtain business and work visas for the US. The absence of a quota system for these visas may be controversial, as it raises questions about the potential volume of applicants, especially from populous nations like India.

Is the Owner of a Single-Person Company Eligible for an L-1 Visa?

The United States has clarified that the owner of a single-person company is ineligible for an L-1 foreign worker’s visa. As per a policy update in 2023, the USCIS articulated that a sole proprietorship cannot file a petition on behalf of its owner, as it does not exist as a separate legal entity from the owner.

Can Dependents of E2 Treaty Visa Holders get SSNs?

An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS). This nine-digit number always begins with the number 9. The fourth and fifth digits range from 70 to 88.

As of April 12, 2011, the range was extended to include 900-70-0000 through 999-88-9999, 900-90-0000 through 999-92-9999, and 900-94-0000 through 999-99-9999.

The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number. This applies to those who do not have and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).

ITINs are issued regardless of immigration status. This is because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.

To receive an ITIN, individuals must have a filing requirement and file a valid federal income tax return, unless they meet an exception.

Are Tax-Free States Really Worth It?

As of 2023, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not levy a state income tax.

While New Hampshire does not tax most earned income, it does impose a 4% tax on dividends and interest. This rate will drop to 3% in 2024, and the tax will phase out completely in 2025.

Washington also levies a long-term capital gains tax rate of 7% on assets that were sold for a profit of $250,000 or more.

Although Washington doesn’t tax most earned income, in July 2023, the state implemented the WA Cares Fund. The program deducts 58 cents per $100 from employees’ paychecks to be funneled into the state’s long-term care program.

Perhaps the most critical number to crunch is your cost of living. This includes tallying up the costs of housing (rental or purchase), food, wages, health care, and lifestyle. The savings you gain on state taxes might not be worth the extra cost incurred to live comfortably in another state.

Migrating to the US with L or E Visas.

U.S. immigration law is based on the following principles: the reunification of families, admitting immigrants with skills that are valuable to the U.S. economy, protecting refugees, and promoting diversity.

Temporary employment-based visa classifications permit employers to hire and petition for foreign nationals for specific jobs for limited periods. Most temporary workers must work for the employer that petitioned for them and have limited ability to change jobs.

There are more than 20 types of visas for temporary nonimmigrant workers. These include L-1 visas for intracompany transfers; various P visas for athletes, entertainers, and skilled performers; R-1 visas for religious workers; various A visas for diplomatic employees; O-1 visas for workers of extraordinary ability; and various H visas for both highly skilled and lesser-skilled workers.

The visa classifications vary in terms of their eligibility requirements, duration, whether they permit workers to bring dependents, and other factors. In most cases, these workers must leave the United States if their status expires or if their employment is terminated.

It may be possible, depending on the type of job and the foreign national’s qualifications, for an employer to sponsor the worker for permanent employment. A foreign national does not have to be working for the employer in order to be sponsored. However, depending on the permanent immigration category sought and the foreign national’s current nonimmigrant category, he or she may be able to complete the steps to become an LPR while continuing to live and work in the United States.

Understanding Company Types in the U.S.

Many people might suggest that forming a Limited Liability Company (LLC) is as simple as logging onto the Delaware website and spending a few hundred dollars. However, unsurprisingly, any professional with tax and legal experience would agree that it’s not that straightforward.

If the intent is to use the LLC for serious business purposes, you would probably need professional advice and to spend thousands (rather than hundreds of dollars). The use of the limited liability company (LLC) has mushroomed in popularity over the past two decades.

IRS statistics show a 66% increase in domestic LLCs between 2005 and 2014, and in 2004, LLCs were already popular entities. The core reasons for their attractiveness for a wide range of business purposes are well-known: chiefly, passthrough tax treatment while offering their owners limited liability similar to that of a corporation.

Some may be less familiar, however, with some of the other nontax features of LLCs and instances in which forming one may not be advisable.

Choosing Wisely: What is the Best State to Start a Company in the US?

Start Your LLC Where You Are

Your home state, (i.e., the state where you’re residing,) will most likely be the best place to form your LLC. Why is this so? Forming your LLC in your home state is usually the simplest, most cost-effective way to start your LLC, despite all appearances to the contrary.

Exceptions to the Rule of Thumb

As with everything in life, and especially where legal rules and regulations are involved, there are exceptions to this rule of thumb. Here are some of them:

Operating Business in Another State: If you live in one state but operate your business solely in another, you might be better off forming your LLC in the state in which you operate your business.

Note, however, that if you work on your business while you’re in your home state, you’ll likely be considered to be operating your business in your home state as well. In this case, you’ll probably want to follow the general rule of thumb.

Investing in Real Estate: If your LLC’s business is investing in real estate, your LLC will be operating its business in the state where it’s invested in real estate. That’s where you’ll be renting out your property or selling it for gain. In this case, it’s likely better for you to start your LLC in the state in which your LLC will be investing in real estate.

Non-U.S. Residents: If you’re a non-U.S. resident, you don’t actually reside in the United States, so you don’t have a home state. This rule of thumb won’t apply to you. Your nonresident status may mean you’ll attract nonresident taxes, so you should consult with a tax professional before forming your LLC.

What if I Migrate to the US in the Middle of the Year?

You are considered a dual-status individual if you have been both a U.S. resident and a nonresident in the same tax year. The term “dual status” does not refer to your citizenship, but rather to your resident status for tax purposes in the United States. When determining your U.S. income tax liability for a dual-status tax year, different rules apply for the part of the year you are a resident of the United States and the part of the year you are a nonresident. The most common dual-status tax years are the years of arrival and departure.

  • Dual Status Individual – First-Year Choice

A nonresident who becomes a U.S. resident under the substantial presence test in the following tax year may choose to be treated as a dual-status resident for this taxable year if certain tests are met.

  • Tax Treaties

Most tax treaties contain an article that defines tax residency for purposes of the treaty. Tax residency determined under the residency article of a tax treaty may differ from the residency provisions of the Internal Revenue Code.

  • Dual Status Individual Married to U.S. Citizens or Resident

A dual-status individual married to a U.S. citizen or to a U.S. resident may elect to file a joint income tax return with their spouse.

  • For the Part of the Year, You are a U.S. Resident

For the part of the year, you are a U.S. resident, you are taxed on income from all sources. Income from sources outside the United States is taxable if you receive it while you are a resident.

  • For the Part of the Year, You are a Nonresident

For the part of the year, you are a nonresident, you are taxed on income from U.S. sources only.

Biggest Mistakes Wealthy Migrants to the US Make?

For foreign nationals who are considering relocation to the U.S., we specialize in designing pre-immigration planning structures and solutions. These are aimed at substantially minimizing U.S. taxation.

Given the global reach of the U.S. income and transfer-tax systems, timing a non-resident’s status is essential. Once an individual becomes a U.S. resident for tax purposes, they will be exposed to U.S. income taxes on worldwide income. Additionally, they will be subject to estate and gift taxes on worldwide assets.

To achieve maximum results and minimize taxes, all pre-immigration tax planning must be completed before an immigrant becomes a U.S. resident alien.

Pre-immigration tax planning strategies include:

  • Recognizing capital gain on appreciated assets (such as real estate, stocks, shares in privately held companies).
  • Accelerating income and deferring (postponing) deductions.
  • Transferring appreciated assets to a foreign trust for the benefit of the grantor’s (trust creator’s) family.

Please note, you are considered a resident alien for a calendar year if you meet either the green card test or the substantial presence test for that year.

EB-5 Investment: Do I Declare “Source of Funds”?

EB-5 investors commonly have income from various sources. For instance, an individual might be employed at a corporation and possess income-generating assets such as patents or stocks. The funds for the investment can originate from bank account deposits or other securities. Regardless of the source, it’s crucial that all investment funds can be traced back to their origin.

The United States Citizenship and Immigration Services (USCIS) takes anti-money laundering (AML) seriously and conducts thorough verification of an investor’s funds. Consequently, it’s essential for investors and their immigration lawyers to make strategic decisions about which sources to utilize. It’s vital to ensure that all verifying documentation is available, valid, and accurately depicts the origin of the EB-5 investment capital.

Investors from non-English speaking countries should pay special attention to the official translation of their documents.

Lawful Path of Funds

In addition to the source of funds, there should also be a lawful path of funds. This necessitates documentation that shows how the investor acquired the funds and transferred the money to the New Commercial Enterprise (NCE) in the United States for the investment. Immigrant investors in countries that restrict the outflow of money may encounter difficulties, and multiple transactions may be necessary to transfer the full investment amount to the NCE.

Minimizing Taxes: Where Should Wealthy Families Move in the U.S.?

Nine states in the US do not levy a state income tax on individual earners: Alaska, Florida, Nevada, New Hampshire (though they tax interest and dividends), South Dakota, Tennessee, Texas, Washington (although they have a capital gains tax on high earners), Wyoming.

However, please note that some of these states have higher sales taxes than the national average.

Should Wealthy Seniors Migrate to US

Advantages of Migrating to the USA:

  • Favorable Tax Treatment: The US offers a more favorable tax environment for high-income earners compared to some countries, especially those in Europe.
  • Warmer Climate: Whether you prefer warm or cold weather, the USA has it all. Some parts of the US offer a warmer climate year-round, which might be appealing to those seeking to escape colder winters.
  • Business Opportunities: The US boasts a dynamic and innovative business environment, which could be attractive for entrepreneurs or those interested in investing.
  • Lifestyle: The US offers a diverse range of lifestyles, with vibrant cities, suburban communities, and scenic rural areas.

Disadvantages of Migrating to the USA:

  • Healthcare System: The US healthcare system is complex and expensive. While wealthy individuals might have access to good healthcare, it often comes at a high cost.
  • Social Safety Net: Social safety nets are less comprehensive in the US compared to many European countries. There is less public support for areas like unemployment benefits and retirement pensions.
  • Cost of Living: The cost of living can vary depending on location, but housing and other expenses can be high in some parts of the US.

From Foreign Investor to U.S. Taxpayer : Tax Implications

Fixed, Determinable, Annual, or Periodical (FDAP) income includes all income, except:

  • Gains from property sales, including market discounts and option premiums, excluding the original issue discount.
  • Income excluded from gross income, like tax-exempt municipal bond interest and qualified scholarship income.

Income is fixed when paid in known amounts, determinable when there’s a basis for figuring the amount, and periodic if paid intermittently.

A 30% (or lower treaty) tax applies to FDAP income from U.S. sources not connected with your U.S. trade or business. The rate applies to the gross amount of U.S. FDAP income. Deductions are not allowed against FDAP income.

FDAP income examples include compensation for services, dividends, interest, pensions, annuities, alimony, real property income, royalties, scholarships, grants, winnings from certain games, a sales commission paid monthly, a commission for a single transaction, the distributable net income of an estate or trust that is FDAP income, a distribution from a partnership that is FDAP income, taxes, mortgage interest, or insurance premiums paid to a nonresident alien landlord by a tenant, prizes awarded to nonresident alien artists, purses paid to nonresident alien boxers, prizes awarded to nonresident alien golfers, and payments made to third parties for the benefit of performance income earned by nonresident alien individuals.

When foreign persons conduct business in the US, all US-sourced income is considered Effectively Connected Income (ECI), regardless of its connection to their U.S. business activities within the tax year.

Tax Considerations for Families Moving to the U.S. for Education Opportunities.

Arguments for the US having a strong higher education system:

Top-Ranked Universities: Many US universities consistently rank high in global university rankings, such as QS World University Rankings and Times Higher Education World University Rankings.

Diversity of Institutions: The US offers a wide range of public and private universities, catering to various needs and budgets.

Research and Innovation: US universities are at the forefront of many research fields, fostering groundbreaking discoveries and technological advancements.

Flexibility and Choice: Students can choose from a vast array of programs and disciplines across different universities.

Arguments against the US having the unquestionable best system:

Cost: US universities can be very expensive, with high tuition fees and living expenses.

Accessibility: Acceptance rates at top universities can be highly competitive, making it challenging for some students to gain admission.

Focus on Prestige: There might be an overemphasis on attending high-ranking universities rather than finding the best fit for individual needs.

Insights into U.S. Healthcare for New Immigrants

Navigating healthcare as a new immigrant in the US can be complex. Here’s a breakdown of the situation:

Challenges:

Cost: Without health insurance, medical bills can be very expensive in the US. Even with insurance, deductibles, copays, and out-of-pocket costs can be high.

Language Barriers: Communication difficulties can occur if you don’t speak English fluently.

Available Options:

Public Programs (with limitations): Medicaid and CHIP: Lawfully present immigrants who meet income eligibility requirements and haven’t reached their waiting period can potentially qualify for these programs.

Emergency Medicaid: Undocumented immigrants might be eligible for limited emergency medical services.

Marketplace Coverage: Lawfully present immigrants who are not eligible for Medicaid or CHIP can potentially purchase health insurance through the Marketplace after they go through the qualifying process. Some may qualify for subsidies to help lower the cost.

Employer-Sponsored Insurance: If you have a job with health insurance benefits, this can be a good option, although not all employers offer coverage.

Community Health Centers: These centers offer affordable primary care services to all residents, including immigrants, regardless of their immigration status or ability to pay.

Tax Strategies for US Immigrants with Dubai Rental Properties and Equity Investments

Pre-immigration tax planning is important for those wishing to migrate to the USA because it can help minimize their tax liability and avoid unexpected surprises.

Here are some of the benefits of pre-immigration tax planning:

  1. Identifying and Understanding Tax Obligations: The USA has a complex tax system, and it can be difficult to understand all of your tax obligations if you are not familiar with the system. Pre-immigration tax planning can help you identify and understand your tax obligations so that you can plan accordingly.
  2. Reducing Tax Liability: There are a number of strategies that you can use to reduce your tax liability.
  3. Avoiding Unexpected Surprises: USA tax laws are constantly changing. Staying up-to-date on the latest changes is important. Pre-immigration tax planning can help you avoid any unexpected surprises by making sure that you are aware of the latest tax laws. If you are considering migrating to the USA, it is important to speak with a tax advisor to discuss your individual circumstances and develop a pre-immigration tax plan. This will help you minimize your tax liability and avoid any unexpected surprises.

Here are some additional tips for pre-immigration tax planning:

  1. Start Planning Early: The sooner you start planning, the more time you will have to gather all the necessary information and make informed decisions.
  2. Get Professional Help: A tax advisor can help you understand the US tax system and develop a tax plan that is right for you.

When Do Migrants Become U.S. Tax Residents?

You typically become a U.S. tax resident when you enter the States on an immigrant visa. Qualified tax professionals conduct pre-immigration tax planning by following these steps:

  • Gather information from the client. The tax professional will need to gather information from the client, such as their citizenship, visa status, income, assets, and investments. This information will be used to assess the client’s current tax situation and identify potential tax risks.
  • Analyze the tax laws. The tax professional will need to analyze the U.S. tax laws, as well as the tax laws of the client’s home country. This will help the tax professional understand the client’s tax liability and identify potential tax planning strategies.
  • Develop a tax plan. The tax professional will develop a tax plan tailored to the client’s specific needs and goals. The tax plan may include strategies to reduce taxes, such as transferring assets to a foreign trust or donating assets to charity.
  • Implement the tax plan. The tax professional will help the client implement the tax plan. This may involve changing the client’s financial arrangements or filing amended tax returns.
  • Monitor the tax plan. The tax professional will monitor the tax plan to ensure that it is still effective. The tax professional will also make adjustments to the plan as needed, such as if the client’s circumstances change.

Tax Planning Before Migrating to the US

For foreign nationals who are looking to relocate to the U.S., we offer pre-immigration planning services.

Given the worldwide reach of the U.S. income and transfer-tax systems, timing is essential. Once an individual becomes a U.S. resident for tax purposes, they may be exposed to U.S. income taxes on worldwide income, and estate and gift taxes on worldwide assets.

With proper planning, a taxpayer’s exposure to these taxes can be minimized.

How are Company-Paid Accommodation and School Fees Taxed by the US?

Fringe benefits are typically included in an employee’s gross income, although there are some exceptions. These benefits are subject to income tax withholding and employment taxes. Fringe benefits encompass cars and flights on aircraft provided by the employer, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events.

In general, the employer must include the amount by which the fair market value of the benefits exceeds the sum of what the employee paid for it and any amount that the law excludes.

Employers and employees may use other special rules to value certain fringe benefits.

Are There Country Restrictions for US Immigration?

On January 20, 2021, President Biden signed a Presidential Proclamation titled “Ending Discriminatory Bans on Entry to the United States.” This proclamation puts an end to the travel restrictions under Presidential Proclamations 9645 and 9983. These proclamations had previously suspended entry into the United States for certain nationals, based on visa type, from Burma, Eritrea, Iran, Kyrgyzstan, Libya, Nigeria, North Korea, Somalia, Sudan, Syria, Tanzania, Venezuela, and Yemen.

In addition to the numerical limits placed on the various immigration preference categories, the Immigration and Nationality Act (INA) also places a limit on the number of immigrants that can come to the United States from any one country. Currently, no group of permanent immigrants (comprising both family-based and employment-based immigrants) from a single country can exceed seven percent of the total number of people immigrating to the United States in a single fiscal year.

This is not a quota set to ensure that certain nationalities make up seven percent of immigrants, but rather a limit that is set to prevent any immigrant group from dominating immigration flows to the United States.

Let’s Talk About the Beneficial Owner Information Requirements

Starting on January 1, 2024, a significant number of businesses were required to comply with the Corporate Transparency Act (CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA mandates the disclosure of beneficial ownership information, also known as “BOI”, from individuals who own or control certain entities.

It is anticipated that 32.6 million businesses will need to comply with this reporting requirement. The purpose of the BOI reporting requirement is to assist U.S. law enforcement in combating money laundering, the financing of terrorism, and other illicit activities.

The CTA is not part of the tax code. Instead, it falls under the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing for certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS. Instead, they will be filed with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.

Options for Americans in Dubai Who Aren’t U.S. Tax Compliant

Under certain circumstances, Americans residing in another country can back-file their returns. This complex process effectively erases tax penalties and settles their bill with the IRS.

If you are a U.S. citizen or a legal permanent resident who has been living abroad for some time, you are likely filing local tax returns. However, you may have overlooked the requirement to file tax returns in the U.S. If this is the case, you can rectify this oversight to avoid serious consequences in the future. If you suspect that you may owe the IRS, it would be prudent to explore your options for tax amnesty.

There are three general criteria for proceeding under the streamlined procedures:

  1. The applicant must certify, under oath, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, was the result of non-willful conduct. Non-willful conduct is defined as conduct that is a result of negligence, inadvertence, or mistake, or conduct that is the result of a good faith misunderstanding of the requirements of the law.
  2. The IRS must not have initiated a civil examination of the taxpayer’s returns for any tax year. This holds true regardless of whether the examination relates to undisclosed foreign financial assets.
  3. The taxpayer must have a valid Taxpayer Identification Number (TIN).

Do U.S. Expats in Dubai File U.S. Taxes?

We would like to start by confirming four points:

If you have exposure to the US (being a citizen, holding a green card, or having substantial presence), you are typically taxed on your worldwide income.

These tax obligations do not cease simply because you live outside of the US.

Even if your earnings fall below the threshold of the foreign earned income exclusion, and you live outside of the US, you may still be required to file US tax returns.

Since the early 1970s, US persons have been obligated to report any foreign financial assets once the maximum aggregate balance surpasses a certain threshold.

US Immigration Options for Investors.

The E-2 visa, commonly referred to as the Treaty Investor visa, is a non-immigrant visa that grants eligible individuals from specific countries the opportunity to reside and work in the United States. To qualify, applicants must either make a substantial financial investment in a U.S. business or work as an executive, manager, or essential employee in a company owned by someone from their home country.

While there is no legally defined minimum investment amount, the investment must be significant. Additionally, the U.S. enterprise must be a legitimate and operational commercial entity. It should generate more income than merely sustaining the individual and their family, or it must have a notable economic impact within the United States. If the applicant is the principal investor, their purpose for coming to the United States should be to develop and oversee the enterprise

US Tax Strategies for American Entrepreneurs in Dubai

Section 951A of the U.S. tax code mandates that a 10% U.S. shareholder of a controlled foreign corporation (CFC) must include their share of the CFC’s Global Intangible Low-Taxed Income (GILTI) in their current income. This GILTI regime was created to prevent the erosion of the U.S. tax base by discouraging taxpayers from moving or retaining valuable intangible property and related income outside the U.S.

However, GILTI extends beyond intangible asset earnings, taxing U.S. shareholders on earnings exceeding a routine return (typically 10%) on foreign tangible assets. These rules apply universally to all U.S. shareholders in a CFC.

Calculation of GILTI Inclusion:

  • Net CFC Tested Income: Comprises a CFC’s gross income (with certain exclusions) minus allocable deductions. Exclusions include income connected with a U.S. trade or business and Subpart F income.

Net Deemed Tangible Income Return (NDTIR):

  • NDTIR: Reflects a 10% return on the U.S. shareholder’s pro rata share of the adjusted tax basis of tangible depreciable property held by CFCs with tested income.
  • Reduction: This return is reduced by allocable interest expense if it decreases tested income.

Most income is taxable unless specifically exempted by law. Income can take the form of money, property, goods, or services. Even if you don’t receive a form reporting income, you should still report it on your tax return. Income becomes taxable when you receive it, even if you don’t immediately cash it or use it. It’s considered your income, even if it’s paid to someone else on your behalf.

The USA’s reputation as a secrecy jurisdiction for non-Americans is complex. Here’s a breakdown of why it might be considered attractive in some ways, but also has limitations:

Perceived Advantages:

  • Limited Public Disclosure: The US does not have a central public registry for beneficial ownership of companies. This can provide some anonymity for non-American owners. The Corporate Transparency Act (CTA) is being phased in this year, so there may soon be a registry, but there are loopholes that make it less than perfect.
  • State Incorporation Options: Delaware and other states are known for business-friendly environments with minimal disclosure requirements for company ownership.
  • Strong Legal System: The US has a well-established legal system that can make it challenging to pierce the corporate veil and uncover beneficial ownership.

Important Considerations:

  • Increased Scrutiny: Global initiatives like the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) require US financial institutions to report certain financial information about foreign account holders to their home tax authorities. This reduces anonymity for tax purposes.
  • Law Enforcement Cooperation: The US has strong law enforcement cooperation agreements with many countries. If there’s suspicion of criminal activity, information sharing can occur, compromising secrecy.
  • Anti-Money Laundering (AML) Regulations: US financial institutions have strict AML regulations that require customer identification and verification. This makes it harder to use the US financial system anonymously.
  • Corporate Transparency Act (CTA): While not fully implemented yet, the CTA aims to establish a central database of beneficial owners for certain business entities. This could increase transparency in the future.

Overall, the USA is not as strong a secrecy jurisdiction as some other countries known for banking secrecy. However, it can still offer some level of anonymity for non-American company ownership, particularly at the state level.

Remember: Secrecy laws and regulations can be complex and change over time. It’s crucial to seek professional guidance to ensure you’re acting in compliance with the law.

Strategies often used in US Pre-Immigration Tax Planning:

  • PFIC Mitigation: This strategy aims to avoid punitive taxation on certain non-U.S. investments like mutual funds, life insurance policies, or pension plans that may be classified as Passive Foreign Investment Companies (PFICs). Holding passive assets through offshore corporations does not easily defer passive income due to U.S. anti-deferral rules. However, certain variable life insurance products can defer income, potentially avoiding U.S. income and estate taxes if structured correctly. PFICs are foreign corporations meeting specific criteria, and many foreign mutual funds, pension funds, money market accounts, and some REITs could fall under this category.
  • Accelerating Income: This strategy prioritizes realizing non-U.S. source income while deferring losses and deductible expenses. Accounts receivables, stock options, accumulated earnings from foreign entities, taxable deferred compensation plans, and notes from installment sales, are collected. Attention should be given to assets with substantial built-in gain.
  • Basis Step Up: To minimize U.S. taxation on appreciated assets acquired before moving to the U.S., individuals use a planning technique with no tax consequences in their country of origin. Engaging in a transaction before relocating to the U.S. treats it as a sale of the property for U.S. tax purposes while remaining non-taxable for foreign country purposes.
  • Foreign Tax Credit: For business holdings in high-tax jurisdictions outside the U.S., this strategy addresses double taxation. Earnings are first taxed in the foreign jurisdiction and again in the U.S. (at a fixed corporate rate of 21% and a maximum rate of 37% for individuals) upon distribution to the U.S. resident. Certain structures allow the U.S. resident to credit the foreign taxes paid against their U.S. taxes, eliminating U.S. taxation on foreign earnings. Treating a foreign entity as a disregarded entity for U.S. tax purposes, individuals credit the foreign taxes paid against their U.S. income taxes on the same foreign income.
  • Qualified Dividends: This strategy is suitable for business holdings in low-tax jurisdictions. It involves repatriating earnings through a qualifying treaty country, subjecting the earnings to lower taxation rates (rather than higher ordinary rates of up to 37%) and avoiding certain U.S. taxes.
  • Trusts: Finally, we help individuals establish trust before moving to the United States. A trust is a legal structure that holds assets in the name of the trust rather than the individual transferring the assets. The earnings are distributed to the person(s) designated in the trust. Asset protection, probate avoidance, and estate tax blockers are not typically considered tax plays.
Palantir collaborates with the IRS through a data analytics solution known as the Law Enforcement Case Analytics (LECA) platform. This system leverages Palantir’s Gotham and Foundry software to connect various datasets relevant to tax investigations. Here is a breakdown of how it operates:
  • Data Integration: The LECA platform integrates information from various IRS sources, including tax filings, bank transactions, phone records, and even social media posts (with proper warrants).
  • Data Analysis: Palantir’s software enables investigators to analyze large datasets and identify patterns or inconsistencies that might suggest potential tax fraud.
  • Lead Generation: By connecting seemingly unrelated pieces of information, the system can generate leads for further investigation by IRS criminal investigators.
  • Improved Efficiency: The LECA platform aims to enhance the efficiency of IRS investigations by streamlining data analysis and enabling investigators to focus on the most promising leads.
Benefits for the IRS: The ability to analyze vast amounts of data can help the IRS target investigations more effectively toward those suspected of significant tax fraud. Improved efficiency can potentially reduce the costs associated with manual data analysis and investigation. By uncovering more tax fraud, the IRS can potentially increase tax revenue.
Concerns and Criticisms: Critics raise concerns about potential privacy violations, especially regarding the use of social media data in tax investigations. There are worries that the algorithms used by Palantir’s software might exhibit bias, leading to the unfair targeting of certain groups. The specific details of how the LECA platform works and the data it analyzes remain somewhat opaque.Overall, Palantir’s data analytics platform plays a role in the IRS’s efforts to combat tax fraud. While it offers potential benefits for efficiency and revenue collection, concerns regarding privacy and algorithmic bias require careful consideration.
Additional Points to Consider: The LECA platform is not the only tool used by the IRS for tax investigations. Traditional investigative techniques are still employed. The contract between Palantir and the IRS is for a multi-year period, indicating a long-term commitment to this data-driven approach. The debate surrounding the use of such technology in tax investigations is likely to continue.

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