By: Hector Chichoni, Esq. and Ruben Gotlieb, Esq.
One of the most complex hurdles for international business owners and families is understanding the intersection of U.S. immigration and tax law.
In a recent webinar, we discussed one of the most persistent misconceptions we counter, which is the belief that “immigration status” and “tax residency” are the same thing. They are not, in fact, you can be a non-resident for immigration purposes while being treated as a full resident for tax purposes. Understanding this distinction is vital to protecting your global assets.
The Global Reach of U.S. Taxation
The U.S. operates on a global taxation system. This means if you are deemed a “U.S. individual” for income tax purposes, the IRS taxes your income regardless of where in the world it is earned.
Whether it’s rental income from an apartment in Costa Rica or dividends from a business in Brazil, once you trigger U.S. tax residency, those assets fall under the U.S. tax umbrella.
The Three Tests for Tax Residency
There are generally three ways the U.S. government identifies you as a tax resident:
- Citizenship: Being born in the U.S. (unless renounced at 18) or naturalizing.
- The “Green Card” Test: Becoming a Lawful Permanent Resident.
- The Substantial Presence Test: This is where things get tricky. It is a calculation of the days you are physically present in the U.S. over a three-year period.
The Fine Lines: Exemptions and Medical Exceptions
Not all days spent in the U.S. are treated equally. For instance, individuals on F-1, M-1, Q, or J-1 visas are often exempt from counting days toward the substantial presence test for up to five years.
We also frequently see “fine line” cases involving medical treatment. If you come to the U.S. specifically for a scheduled treatment, those days do count toward your tax residency. However, if you are here on a visit and suffer an unexpected medical emergency, like a heart attack or an accident, those recovery days do not count.
These nuances are a prime example of how a mistake in timing can lead to significant tax liabilities.
Why Timing is Everything
We recently worked with a client from Brazil whose visa was approved in October. From an immigration standpoint, they were ready to move. However, from a tax perspective, moving in October would have made them a U.S. tax resident for that year, potentially exposing the sale of their Brazilian real estate to U.S. capital gains tax.
By simply waiting until January to officially enter, a client can often save hundreds of thousands, if not millions in taxes. This is why we tell our clients to always work with an immigration lawyer who works alongside a tax lawyer.
A Holistic Approach
At Greenspoon Marder, we believe you need a legal strategy that views your immigration status, corporate structures, and estate planning as a single, cohesive picture.
Every family situation is different. Whether you are fleeing a dangerous situation abroad or expanding a global enterprise, the legal and financial implications of your move must be managed simultaneously.
