Monday, April 22, 2013

EB-5 Primer: Understanding the Tax Consequences of U.S. Residency



The accents are for the most part different these days, but the issues are the same: wealthy entrepreneurs from troubled nations writing and calling me as they scramble to relocate their hard–earned assets before corrupt politicians steal what is not theirs.  Twenty years ago the financial exodus was occurring in Brazil, Russia, and the UK.  These days, it’s more than likely a client in China, Vietnam, or a Venezuelan finally pulling the trigger after years of sitting on the fence.   (I should also note that the past month did trigger a fresh round of inquiries from Russians with fast–disappearing assets in Cypriot banks.)  Soon, I believe, as the true measure of the Euro zone crisis becomes impossible to whitewash, a new exodus of European cash will be next.

As a U.S. Atty., one would think that the majority of these folks contact me to discuss U.S. immigration options.  At this stage of globalism, that is not the case.  The very high net worth clients I counsel are generally sophisticated enough to distinguish between immigration objectives and sound financial planning...and know that the two do not necessarily go hand-in-hand.   These days, I would estimate that 75% of those who contact me are looking for a solution designed to protect their investments and assets from expropriation, inflation, and devaluation, most often the result of corrupt politicians and their home country. 

The more problematic clients are those who are looking at U.S. immigration options, most of whom find me after being ill-advised by a swarm of commission-starved U.S. developers, U.S. attorneys, and foreign migration agents who are far more concerned with profiteering than with protecting the client and finding the best solution for his or her particular needs.  At least once a week I will tell a client that if I were secure to U.S. residency for someone with his or her foreign assets and income, I would be committing malpractice.  IMHO, that is exactly what is happening in China on a daily basis, primarily through EB-5 "force feeding" by the increasingly fractured and greedy migration agency system required by the GOC.

So, more often than not, instead of directing that very high net worth client toward EB-5 – even my beloved, hand-crafted Lake Point EB-5 – I advise them on the implications of becoming a U.S. tax resident and help them relocate assets to an appropriate tax free jurisdiction – pricey Singapore and ever-reliable Bahamas are my favorites these days – so they can park their assets, quit stressing out about the local financial chaos in their home country, then take a deep breath and intelligently consider U.S. immigration from an intelligent and informed standpoint.

It is striking to me that, by my estimates over the past 2-3 years, 3 out of 4 EB-5 investors have given zero consideration to the issue of global taxation as it relates to their U.S. residency.   As a result, many of these folks – especially those from the Far East and Russia, as my Middle Eastern, Latin American, and European clients are generally more informed about U.S. tax laws – have no idea that after they get their conditional green card, the sale of the family farm back home will generate capital gain tax liability in the U.S.; that the earnings of their profitable factory in a third country are considered taxable in the U.S.; that U.S. estate taxes can devour foreign assets after the death of a new U.S. resident who did not plan ahead.

It is, therefore, CRITICAL for a prospective U.S. resident having a substantially high net worth to examine these issues BEFORE they immigrate to the U.S. There are many folks I can help and guide on the subject of pre-U.S. immigration tax planning, and then there are some folks who require a level of expertise which goes far beyond my own.  When that is the case and the stakes are particularly high, I send them all to Steve Cantor, who is the best in the business.

Don’t get me wrong...I would love to see you invest in our Lake Point EB-5…but I would much prefer to see you do so with the peace of mind which comes from advance planning and guidance on the impact of U.S. tax residency on your assets.

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