Consular processing is a means of applying for an immigrant visa (commonly known as a ‘green card’) through the U.S. embassy or consular office in a foreign country. Consular processing is the most common path to obtain a green card for individuals living abroad. The process is divided into two broad steps: the US Citizenship and Immigration Services (USCIS) petition, and the Department of State (DOS) visa application.

The consular process begins when a U.S. citizen or lawful permanent resident files a Form I-130, Petition for Alien Relative, on behalf of a family member, known as the intending immigrant, with USCIS. The purpose of Form I-130 is to establish a qualifying relationship as either an immediate relative (spouse, parent, minor child of US citizen) or preference relative (spouse or child of permanent resident, adult or married child, or sibling of US citizen), so that the intending immigrant may then apply for a green card. Currently, USCIS is taking approximately 5-8 months to review and adjudicate I-130 petitions for immediate relatives.

Upon approval, USCIS will send the petition and file to the Department of State’s National Visa Center (NVC) to begin the second step of the process. For immediate relatives, the next step begins immediately, but for preference relatives, the intending immigrant must wait for their priority date to become current before they can proceed with their visa application, which may be many years for some categories. You can review the Visa Bulletin to determine how long the wait will be.

At this step, your relative will complete a visa application (form DS-260) and submit it, along with copies of his or her supporting documents and your affidavit of support, to the NVC. The NVC is only an intermediary where the application is reviewed for completeness, before being sent on to the US embassy or consulate in your relative’s home country. Before sending the file out, the NVC will schedule your family member for his or her visa interview and send the interview date to you both.

The consular visa interview causes much stress and concern, but it is a rather straightforward and anticlimactic process. The consular officer will be reviewing the file for two main findings: First, was the I-130 petition approved properly? Meaning, is the underlying relationship real and well documented. And Second, is your relative ‘admissible’ to the United States. Admissibility looks at your relative’s prior immigration violations, criminal convictions, any contagious or dangerous medical conditions, and whether she or he has a qualified financial sponsor. If all of those things are in order, an immigrant visa will be issued.

If the beneficiary is granted an immigrant visa, the consular officer will give him or her a packet of information, known as the Visa Packet, and affix the actual immigrant visa into their passport. The visa is valid for 6 months, meaning your relative must travel to the United States before the visa expires.

When your relative arrives in the United States, she or he will give the Visa Packet to the Customs and Border Protection (CBP) officer at the port of entry and will be inspected by a CBP officer for one final review, and will then be admitted as a permanent resident of the United States. USCIS will mail the actual green card to the new immigrant once he or she is inside the United States and has paid an additional card fee.

Consular processing can take between 10-18 months from the filing of the I-130 to admission to the United States, for immediate relatives. The entire process may span many years for preference relatives.

A move to the United States brings forth a number of unique challenges. Where will I live? Does it make sense for my family join me? Where will my children go to school? Do I need private health insurance? A car? Understandably, U.S. taxes are generally an afterthought.

Unfortunately, if you will continue to maintain a retirement plan, real estate, or other investments abroad, U.S. tax rules can create a challenging landscape, littered with complications, even if the anticipated U.S. visit is short-term. To confound matters, these issues generally must be addressed prior to the move or planning around the adverse tax implications may not be possible.

While every situation is unique and working with an attorney or financial advisor with knowledge and experience serving clients from your home country is crucial, the following three U.S. tax tips should be considered by anyone contemplating a move to the United States:

1. Consider disposing of appreciated assets prior to establishing U.S. residency status – U.S. residency for tax purposes is determined either by immigration status or mere presence in the United States. Though several exceptions apply, a foreign national who spends more than 183 days in the United States may be classified as a U.S. resident, subject to tax on their worldwide income – not just the income received in the United States.

For U.S. purposes, capital assets will be taxed and gain figured based on residency status as of the date of sale. This would mean that if you have owned real estate abroad for twenty years and sell it one day after having established U.S. residency status, gain would be fully taxable in the United States – even if fully attributable to the period of time prior to your move!

2. Make sure that you understand the U.S. tax treatment and reporting requirements applicable to non-U.S. retirement plans – Foreign retirement arrangements generally will not qualify for the same tax deferral benefit available to U.S. qualified plans. Someone immigrating to the United States will want to seriously consider the utility of maintaining retirement assets overseas. First of all, your ability to continue contributing to the non-U.S. plan will be greatly limited. Secondly, foreign retirement plans will likely be subject to tedious U.S. tax reporting obligations and, for certain types of plans, undistributed earnings at the plan-level will be taxed currently in the United States, creating a tax liability from income you are note even able to access.

Closing out of a foreign retirement plan may seem the right choice, particularly when a move to the U.S. is permanent or indefinite. Nevertheless, foreign law may limit the ability to access retirement funds prior to reaching a certain age. In such a scenario, understanding the applicable U.S. tax rules will be a crucial detail of your financial planning landscape.

3. Determine the cost of selling any foreign mutual fund investments – Foreign mutual funds and similar pooled investments will be classified as passive foreign investment company (PFIC) holdings for U.S. tax purposes. Additional taxes, penalties, interest, and costly compliance fees render these investments toxic from the moment you become an American taxpayer. If you expect to keep your U.S. residency status for any considerable period of time, continuing to maintain this type of investment makes sense in only a handful of circumstances.Exactly what strategy should be taken to change an investment position in foreign mutual funds will largely depend on market conditions, your personal financial goals, and your expected length of stay in the United States. Regardless, the punitive U.S. taxes and penalties assessed against foreign mutual funds will begin to accrue as soon as U.S. residency status is obtained.

Developing a pre-immigration tax plan requires you to take a long-term view of your situation and consider a number of important factors. The plan must account for:

1. Potential tax liabilities of recommended transactions;
2. Continued reporting and tax burdens in your home country of nationality following the move;
3. Current and future market conditions;
4. Current and future currency exchange conditions; and
5. Your personal and financial goals.

If you are preparing for a long-term work assignment in the United States or are in the process of obtaining lawful permanent residency status, contact the attorneys at Expat Legal Services Group to develop a pre-immigration tax plan that will allow you to avoid unnecessary economic challenges.

Contemplating the decision to relinquish U.S. citizenship or long-term U.S. permanent residency status will take both an emotional and financial toll. Largely due to the Foreign Account Tax Compliance Act (FATCA) and the additional challenges it creates for Americans living abroad, many U.S. citizens have started weighing the benefits of U.S. status against the financial hardship it can create while living in a foreign country. Onerous U.S. tax filing and asset reporting requirements, new limitations on access to banking options overseas, and increased restrictions on available financial products in the U.S. have effectively tipped the scales for many considering the move.

The numbers demonstrate that the complexity of the new legal operating environment for American expats has resulted in many turning in their American passports. In 2016, 5,411 Americans renounced their U.S. citizenship or long-term residency status. While not a staggering number, by comparison, only 231 Americans made this decision during all of 2008.

Americans who have made the decision to abandon citizenship will be obligated to comply with a two-part process that intersects both tax and immigration laws.

Renunciation Process. The first step of the process is to schedule a meeting at a U.S. consular or embassy location outside of the United States. In this meeting, a U.S. consular official will ask questions to ensure that the decision to renounce is both intentional and voluntary and an oath indicating that the individual intends to renounce U.S. citizenship will be signed.

Specific renunciation procedures vary widely across U.S. consulate locations globally, but the fee for renouncing is set at $2,350 in all locations. Following the renunciation, the U.S. government will issue a Certificate of Loss of Nationality documenting the change of status and effective date.

Tax Filing Process. Americans who have abandoned their citizenship at a U.S. consular location will then file Form 8854 and certify under penalties of perjury that they have complied with their U.S. tax responsibilities for the prior five-year period. A copy of the form is also submitted with the individual’s final U.S. tax return.

The reporting is purely informational and no tax is typically owed. However, high net worth individuals who meet the definition of a “covered expatriate”, meaning over $2 million in net worth or an average annual tax liability in excess of $162,000 over the prior five-year period, face a costly exit tax on the value of their assets and certain deferred income streams.

American expatriates in most countries will be able to structure their finances in a way to minimize duplicative tax responsibilities. U.S. tax laws are designed in theory to eliminate exposure to “double taxation” and, in many instances, expats will fare as well as (if not better than) their U.S.-based countrymen with proper advice and planning.

Nevertheless, the issue can be highly emotional and more associated with the cost of continued annual U.S. tax compliance and the exposure to additional financial restrictions that U.S. citizenship may be creating locally.

When contemplating a decision to abandon citizenship, conducting a robust, long-term analysis that answers the following questions is crucial:

• What are the filing requirements and associated costs?
• Is there an ideal time for me to abandon my U.S. citizenship status?
• What are my projected future U.S. tax compliance costs and are there ways to minimize these fees?
• Does my U.S. status provide any benefits in my new home country that I would lose?
• Will I be subject to exit tax?
• How will gifts I’ve made be treated for purposes of the exit tax?
• How can I minimize my exposure to exit tax?
• How will my eligibility for U.S. social security benefits be impacted if I abandon my U.S. citizenship?
• Will any U.S.-based pensions or other investments be taxed differently in the future?
• Am I able to transfer or close out any U.S. pensions?
• What will be the restrictions on my ability to continue travelling to the United States for work or vacation? How long can I remain in the United States?
• Will losing my U.S. passport prevent future travel to other countries?
• Should my children or spouse consider abandoning their U.S. citizenship as well?
• Will abandoning citizenship change my exposure to U.S. estate tax if I have assets in the U.S. or anticipate a U.S. inheritance?
• Will property ownership rules be any different if I continue to have a home in the United States?

Expat Legal Services Group focuses on providing bespoke legal advice to Americans considering relinquishing their U.S. citizenship. We offer detailed analysis of your situation to help you feel confident that you are making the right decision.

If considering relinquishing your U.S. citizenship contact us now to schedule a consultation with our tax and immigration attorneys to obtain a holistic view of the details surrounding this important decision.