Immigration Considerations and FATCA

For many folks who immigrate to the United States and gain permanent residency or US Citizenship, the US becomes their primary place of residence forever after. However, in this increasingly international world, immigrants may often find themselves relocating away from the US later in life. For individuals with a green card, they may think that simply moving away from the US for a long period of time, is enough to relinquish permanent residency. Or for individuals with dual US citizenship and citizenship of another country, they may one day think US citizenship “no longer matters” if they have no further plans to reside in the United States.

In the past, these understandings, while not legally correct, had little practical significance. Yet FATCA now does have important ramifications for these individuals. FATCA was a US tax disclosure law, designed to “snag tax cheats” who avoid paying US taxes through offshore accounts. While the effectiveness of FATCA, and its broad adverse impact on tens of thousands of law abiding US expats, is hotly debated, the reporting and disclosure reuqirements of the law continue to be implemented. Failure to comply with FATCA’s reporting requirements, can result in very high penalties and fines, even where no US income tax itself was ever owed.

In order to ensure compliance with FATCA, the US government has entered into agreements with foreign governments and financial institutions, requiring them to report extensive data regarding accounts held by “US persons”. If a financial institution does not report such data, then their access to US banking markets may be restricted. Thus, most large institutions in foreign countries are compelled to follow the dictates of FATCA. Several institutions have stopped doing business with US citizens and US permanent residents as a result, given the onerous reporting burden imposed on those financial institutions under FATCA. Other institutions who choose to continue to serve US citizens and US permanent residents, are now requiring such individuals to report whether or not they are a “US person” under the law.

That leads to some interesting immigration considerations. For example, what about individuals who once had a green card, but moved away from the US without ever formally abandoning permanent residency, or relinquishing it upon a later entry with Customs and Border Protection? Are those individuals considered to be a US person as applied under FATCA? My answer to that is yes, as the term US person is applied under the law and by financial institutions. Attached is a sample financial institution disclosure form from a major European institution, to show its reporting form and definition of US person.

Fatca_US Person_Disclosure_Form

The bottom line, is that individuals with prior permanent residency, or who possess US citizenship, even if they have not resided in the US for many years (or possibly ever), still have reporting requirements under FATCA, and given international enforceability of US tax laws under FATCA, may find themselves liable for US penalties and fines that could be enforced against foreign assets. Thus, if US permanent residency and/or citizenship is no longer desired (and relinquishing US citizenship is something that should only be done after extremely careful consideration of the consequences, both present and future), then a formal relinquishment should be submitted. This is especially true of permanent residents. Alternatively, permanent residents and US citizens (even dual citizens), should carefully comply with the reporting requirements of FATCA each year, even if they have not been present in the United States for a considerable period of time.

For more information about the impact FATCA and your immigration status may have on you, feel free to contact my office, and I’ll be happy to schedule a consultation with you to discuss this important issue!

Richard