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A Look at Some Hidden Costs of Lawful Permanent Residence

by Jessica L. Marks

The potential tax consequences of obtaining lawful permanent resident status in the United States are continuously expanding while the vast majority of green card holders remain oblivious to these changes; so many foreign nationals wait so long to become lawful permanent residents that rarely do they contemplate the drawbacks that sometimes accompany the benefits. We previously reported on the little-known “exit tax,” which applies to many long-term, high-net-worth permanent residents, but 2012 marks the first year that U.S. taxpayers are required to report certain information about foreign financial assets. Unlike the exit tax, this obligation immediately ensnares the taxpayer upon the granting of lawful permanent residence, provided that the minimum reporting threshold is met.

The Foreign Account Tax Compliance Act (“FATCA”) provides that U.S. income tax residents (U.S. citizens, lawful permanents residents, certain nonresident foreign nationals, and residents of American Samoa and Puerto Rico) must file Form 8938 along with their Form 1040 if they hold foreign financial assets exceeding $50,000. Higher thresholds apply to taxpayers who are filing a joint tax return or who reside abroad. This new reporting obligation applies to assets held in taxable years since March 18, 2010. Those who meet the minimum threshold therefore face an April 17, 2012 deadline unless a Form 1040 extension is requested. According to the IRS, this legislation was enacted to combat tax evasion by U.S. taxpayers who had been relegating assets and investments to offshore accounts. Failure to report will result in a penalty of $10,000 and a penalty of up to $50,000 for continued failure after notification from the IRS.

U.S. income tax residents should also be mindful of the Report of Foreign Bank and Financial Accounts (“FBAR”) regulations enacted last year, an initiative of the Financial Crimes Enforcement Network designed to identify individuals who may be using financial accounts abroad to circumvent U.S. law. While there are many exceptions to the FBAR filing requirement, United States citizens, residents, and entities are generally required to file an FBAR if:

  • He/she/it had a financial interest in or signature authority over at least one financial account located outside the United States; and
  • The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
  • As tax season swings into high gear, it behooves every lawful permanent resident (and even foreign nationals contemplating pursuing permanent residence) to consult a qualified tax advisor who can assist with assessing non-U.S. asset holdings, determining whether either or both the FATCA and FBAR thresholds are met and, if so, whether any exceptions apply. Foreign nationals who decide that the price of permanent residence is too high should consult with experienced immigration counsel to develop an alternative immigration strategy.

    About The Author

    Jessica L. Marks specializes in both immigrant and nonimmigrant visa applications as well as a wide variety of employment-based immigration cases with a demonstrated expertise in immigration issues facing the healthcare industry. She is also an accomplished appellate advocate having successfully appealed denials of hardship waivers and immigrant visa petitions to the Administrative Appeals Office. Ms. Marks has co-authored and edited several articles published in AILA's "The Consular Practice Handbook" and "Visa Processing Guide." She received her law degree from The George Washington University Law School where she was a Notes Editor on the Public Contracts Law Journal and was awarded a Bachelor Degree in Economics by the University of Michigan.

    The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.