Once an EB-5 Investor gets their I-526 approval and completes the interview process abroad at a US embassy or consulate, they become a US Tax person from the day they land in the US on their conditional green card status. What does a US Tax person mean? In simplified terms, they need to declare all their worldwide income and assets from the day of landing. As one can imagine, this can be a pretty daunting task for EB-5 investors who have assets in their home country.
It is important that a new EB-5 green card holder understand the Tax laws of the United States so that they don’t run afoul of the US Internal Revenue Service (IRS) tax declarations and payments. Failure to declare and pay taxes to the IRS can lead to costly penalties and interests on taxes owed to Uncle SAM.
Below are the 4 forms that are required to be filed. More forms may need to be filed based on the green card holders unique circumstances.
1) Form 1040NR for the Non resident portion of the year (prior to landing period in previous year)
2) Form 1040 for the resident portion (Post landing period in 2022)
3) FinCen form 114 FBAR (To be filed in foreign bank account has more than $10,000 USD at any given point in 2022)
4) Form 8938 (Stock ownership a foreign company)
FinCen form 114 description:
The conditions for filing FinCEN Form 114, also known as the Report of Foreign Bank and Financial Accounts (FBAR), are as follows:
You are a U.S. person: The FBAR must be filed by U.S. citizens, resident aliens, and entities, including corporations, partnerships, and limited liability companies, that are organized under U.S. laws.
You have a financial interest in, or signature authority over, one or more foreign financial accounts: The FBAR must be filed if you have a financial interest in, or signature authority over, one or more foreign financial accounts, and the aggregate value of the accounts exceeded $10,000 at any time during the calendar year.
The foreign financial accounts are reportable: The FBAR must be filed for foreign financial accounts that are reportable, which includes bank accounts, securities accounts, and other financial accounts located outside of the United States.
It’s important to note that the FBAR has a different filing deadline than individual income tax returns, and it must be filed electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. Additionally, there can be significant penalties for failing to file or for filing an incomplete or inaccurate FBAR, so it’s important to ensure that you are in compliance with all FBAR filing requirements if you are required to file.
Form 8938 IRS:
The conditions for filing Form 8938, the Statement of Specified Foreign Financial Assets, are as follows:
You are a U.S. taxpayer: Form 8938 must be filed by U.S. citizens, resident aliens, and certain nonresident aliens who have an obligation to file an income tax return.
You have specified foreign financial assets: Form 8938 must be filed if you have specified foreign financial assets that meet or exceed certain thresholds. Specified foreign financial assets can include foreign bank accounts, brokerage accounts, certain foreign retirement and pension accounts, and interests in foreign entities, among other assets.
The value of your specified foreign financial assets exceeds the reporting threshold: The reporting threshold for specified foreign financial assets depends on your filing status and your physical location. For example, for a taxpayer living in the United States and filing a joint tax return, the threshold is $100,000 in specified foreign financial assets on the last day of the tax year, or $150,000 at any time during the tax year. For a taxpayer living abroad, the threshold is higher.
Under Form 8938, an “interest in a foreign entity” generally refers to ownership in a foreign business or investment entity, such as a foreign corporation, partnership, or trust. The term “foreign entity” includes both foreign financial institutions and non-financial foreign entities.
For the purposes of Form 8938 reporting, an interest in a foreign entity is generally considered to be any direct or indirect ownership interest in the entity, including:
Stock ownership in a foreign corporation
Partnership interests in a foreign partnership
Membership interests in a foreign limited liability company (LLC)
Beneficial interests in a foreign trust or estate
In addition to direct ownership interests, an interest in a foreign entity can also include indirect interests, such as through an intermediary or holding company. For example, if a U.S. taxpayer owns shares in a U.S. corporation that in turn owns shares in a foreign corporation, the taxpayer may be considered to have an interest in the foreign corporation for the purposes of Form 8938 reporting.
It’s important to note that the reporting thresholds and requirements can be complex, and it’s a good idea to consult with a tax professional to ensure that you are in compliance with all applicable tax and reporting requirements if you have specified foreign financial assets. Additionally, penalties can be imposed for failing to file or for filing an incomplete or inaccurate Form 8938, so it’s important to ensure that you are in compliance with all reporting requirements. We at EB5 Resources have close relationships with CPAs in the USA to help our clients transition into their new life as a green card holder.