So what is the investor’ s risk? Simply put, the EB-5 visa specifically designates an investor’ s intention to permanently reside in the United States, first by declaration to USCIS under her two year conditional green card, then prima facie under her permanent green card. If an investor receives her conditional green card within two years of the initial filing, her permanent green card about three years later, and then continues to reside in the United States, it is hard to imagine what evidence she could present to support her case that she is not a U. S. domicile and not subject to worldwide U. S. estate and gift tax on her total worldwide assets. What evidence would the IRS believe as credible under an IRS audit? As an IRS audit expert, I would be hard pressed to make a convincing case that EB-5 investors residing in the United States do not have an intention to permanently reside in the country, especially since such testimony is generally given to support their conditional green cards, and is prima facie evidence once they receive their permanent green cards.
In the case of EB-5 investors, it seems that their immigration interests and tax-minimization interests are in direct opposition; the very same evidence that the investor must prove in order to obtain her green card is what will ultimately also prove her to be a U. S. domicile, and hence, subject to U. S. estate and gift tax. Though the EB-5 investor may not be able to avoid domicile classification if she hopes to protect her immigration interests, much more goes into tax considerations than simply looking at U. S. domicile status; if the investor is to be truly prepared, she must also consider tax treaty issues and comprehensive tax planning.
Tax treaties and U. S. estate and gift tax
It is important for EB-5 investors to engage tax experts because, in many cases, there is a bi-lateral tax treaty issue at play. When dealing with international tax issues, there is a series of important questions that must be addressed: Is the investor a citizen or an estate / gift tax resident of another country? Does that country have a tax treaty with the United States? If so, what about the investor who is a citizen of a foreign country, but is also a U. S. domicile? Under the treaty rules, both governments would examine the investor’ s family, social, and business connections to each country, including where her permanent home is located, where her vital interests are centered, where her habitual abode is located, and in which country she holds citizenship. With this information, the countries would apply the treaty tie-breaker rules to determine which country imposes the estate and gift tax. Another important consideration is whether there are tax credits available for taxes paid in one country if the second country has a higher tax rate.
Pre-immigration tax planning
If investors are tax conscious, pre-immigration tax planning can go a long way in determining what taxes are appropriate for an EB-5 investor to pay. There are some strategies that can help EB-5 investors minimize their tax liability, while still fulfilling their duty as permanent residents. For example, investors can work with their advisors to establish an offshore trust in a reputable jurisdiction with an established banking system, infrastructure,“ secrecy laws,” and favorable asset protection legislation. The trust should be irrevocable and non-amendable so the trust assets will not be subject to U. S. estate tax( i. e. the trust assets would not be included in the U. S. estate for estate and gift tax purposes). Advisers can also assist investors in planning the best way to bring their funds to the United States. In one such strategy, investors should establish non-U. S. accounts in the( non-domiciliary) investor’ s name, and transfer funds to it. Next, they should have a U. S. donee( someone who will receive the investor’ s gift) set up a non-U. S. account in the donee’ s name and make gifts from the investor’ s non-U. S. account to the U. S. donee’ s non-U. S. account. The U. S. donee may then wire transfer funds from their non-U. S. account to the U. S. donee’ s U. S. account. Another consideration for non-domicilaries who own stock in a U. S. corporation is to gift the stock while alive so there will be no U. S. estate tax upon death. The non-domiciliary’ s gift of U. S. stock is U. S. gift tax free.
The wealthiest of investors( i. e., those with assets totaling over $ 10.5 million) should use the funds in their offshore trusts to purchase U. S. life insurance policies( after they get their green cards), ensuring that the offshore trust is the owner and beneficiary of the U. S. life insurance policy. If they purchase the policy before they get their green cards, there is a 30 percent U. S./ NRA withholding tax on the life insurance policy proceeds paid on the death of the insured. If they establish the“ pre-immigration trust,” and fund it before they move to the United States, they hit the“ tax trifecta”: no U. S. gift tax on funding the trust, and no U. S. estate or income tax on the life insurance death benefit proceeds.
representing foreign investors since 1996
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