EB-5 Investors & the Perils of U. S. Estate and Gift Taxes
Making an EB-5 investment is an important decision for anyone interested in the EB-5 program. Investors are routinely warned to perform due diligence on the professionals and regional centers they choose, and to consult with trusted advisors on all aspects of projects they are considering, but in my EB-5 practice it is alarming to witness how few EB-5 investors obtain income, estate, and gift tax advice from qualified U. S. tax professionals. Most immigration attorneys, both verbally and in their written fee agreements, recommend that their clients seek tax counsel, even though clients rarely do so. The United States imposes income tax on the worldwide income of its citizens and green card holders, even if they reside overseas. EB-5 investors who receive their green cards through the program— or through any other means— automatically subject themselves to classification as a U. S. domicile and the tax requirements that come with it. Taxes collected by the United States government, at both the state and the federal level, go toward providing important public services in the country. Tax dollars help pay for infrastructure, public safety, health services, and notably education, which is an important benefit for investors and their children. Without taxes, the United States would not be able to fund programs that make the country so appealing to foreign investors in the first place. Nonetheless, there are steps investors can take, with tax advisors, to ensure that they are paying the appropriate amount of tax for their situation. EB-5 investors are well-advised to seek out comprehensive tax planning advice to ensure that they achieve their immigration goals while avoiding unnecessary taxes. by Mark Ivener and Gary Wolfe
Domicile
A U. S. domicile is a non-U. S. citizen who relocates to the United States with the intention to reside permanently in the country. EB-5 investors who receive both conditional and permanent green cards subject themselves to classification as U. S. domiciles, and are hence subject to U. S. estate and gift tax on their worldwide estates. If EB-5 investors receive green cards, under IRS audit procedures, it may be construed as evidence of intent to permanently reside in the United States, subjecting them to U. S. estate and gift tax on their worldwide assets.
Classification as a U. S. domicile may invite increased scrutiny by the IRS— what industry insiders refer to as an audit trap— so it is important that EB-5 investors and their advisers understand which tax classification applies to their specific cases to avoid unnecessary trouble and costs. Additionally, classification as a U. S. domicile is especially important because it affects the amount of taxes that a tax subject is required to pay. Avoiding U. S. domicile status may seem inviting to the tax-conscious EB-5 investor, since non-U. S. domiciles living in the country are only subject to U. S. estate and gift tax in certain circumstances. Furthermore, a non-U. S. domicile would not have a U. S. estate and gift tax on non-U. S. assets( ie. worldwide assets), or be subject to U. S. estate tax on life insurance proceeds, and certain bank accounts and portfolio debt. However, because the very nature of the EB-5 program is to establish investors as permanent residents, and therefore U. S. domiciles according to the IRS, can EB-5 investors simultaneously protect their immigration benefits and minimize their tax liability?
Is the EB-5 investor a U. S. domicile?
Although the EB-5 program was first established in 1990, it has only picked up steam in the last decade, making it a newer program, so U. S. estate and gift tax law has not yet definitively addressed EB-5 tax issues. While the classification of a U. S. domicile applies to a variety of resident visas, rarely is the topic approached in an EB-5-specific context. Given the U. S. government’ s huge deficits and need for new sources of revenue, it is likely this issue will be addressed as more foreign investors pour funds into U. S. real estate, companies, and investment portfolios.
38 EB5 Investors Magazine