# US Tax residence



## barbara_s

Hi all,
I am an German citizen and so is my husband. He moved to the US for work reasons (he will be there for 2 to 3 years). I am not interested in becoming US resident for tax purposes because I have substantial foreign assets / pensions and the disclosure requirements / potential liabilities are just unmanageable, even with the help of a professional (I have had 3 different contradicting advice from 3 separate law firm on the same topic! I also raised questions with the IRS directly but they couldn't help). My husband is supportive but I wish I could spend more time with him than the weighted 180 days the substantial presence test allows...
I will get a spouse visa so no pb on the immigration front and I won't work at all in the US, won't get an ITIN etc.. Do I have to file a tax return? If I were to overstay by a couple of months, how likely would it be that the IRS would pick up on this?
Thank you!
B.


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## barbara_s

one thing I could do is giving away my assets to friends and family before becoming resident from a tax standpoint (although wouldn't work for pension plans...)... They would hopefully give me back those assets when we've left the US. That would obviously be super risky and require a high level of trust but, should I go down that root, is there any precaution I should take to make sure the gift is valid with the IRS? 
thanks again!


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## Bevdeforges

If you are sure that your husband will be taxed as a non-resident, he can always file as married, filing separately (listing NRA for his spouse information). As long as you limit your visits to either VWP or the 180 days or less on a B2 visa, you wouldn't fall under the purview of the IRS (at least I don't think so) because you wouldn't be resident in the US that way.

Now, if you husband has to file FBAR filings and you have any joint accounts, he would have to report those accounts. 

Don't fool around with overstaying any sort of visa. In that case, it's not the IRS you'd primarily have to worry about, but you don't want to have to deal with the consequences.
Cheers,
Bev


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## barbara_s

Thanks Bev for your quick response. Actually my husband will be taxed as resident alien (he lives and works there now for the next 2 -3 years). He will file separately. We've closed joint accounts before his move so no problem on that side.
The immigration/visa shouldn't be a problem either ( I can get a spouse visa which would allow me to stay 365 days a year if I wanted to). I am more concerned about the absolute pain and potential liabilities associated to reporting my foreign assets / pensions if I became tax resident (despite the fact that (i) I won't work nor will I have any income in the US and (ii) I wouldn't touch any of these foreign assets nor would I get any distribution during my short stay in the US...).


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## BBCWatcher

No, you cannot get a U.S. green card because that would trigger a U.S. tax filing requirement regardless of physical presence. That's the point. You have to stay on visa waiver or B2 and keep your visits short if you want to avoid a tax filing requirement.

With respect to joint accounts, keep in mind that's a calendar year basis. That is, if he removed his name from the accounts in 2013 then his financial account filing requirement must start only in 2014 in order to avoid a 2013 filing. The 2013 filing is not a report on the status of accounts on December 31, 2013. It is a report listing all accounts on any/every day of that year, even if they were closed or restructured in that year. The accounts don't have to be closed, actually -- just removing his name from joint accounts works. But you/he have to wait until January 1 of the year after the change is made until the reporting requirement disappears.

But I think people completely misinterpret the point of those reports. The financial account reporting is financial account reporting. There is no tax liability associated with that reporting, and the U.S. government probably already knows about those accounts, as recent events have revealed. Those reports are simply "honesty tests." Truthful reports are boring. Hiding something from the U.S. Treasury Department is much more interesting.


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## barbara_s

Hi BBC watcher and thanks for your response.
I guess my message was not clear, sorry about that: I really don't want to have a green card to be honest given the worldwide tax liability that comes with it. My husband has an L-1 Visa and, as his spouse, I can have an L2 Visa which grants me access to the US as long as my husband has his Visa (as far as I understand).
We actually closed the joint accounts in 2012 so no problem on that front.
I just don't want to appear anywhere on the IRS database. The rules regarding foreign pensions / saving plans / life insurance policies / participation in funds and investment companies / trusts... are just unmanageable. For example I have been told by an advisor that my lifetime UK pension pot (I was living in the UK for a while) would be taxed in the US (not transferable to any local plan!!) which makes a massive difference. I am told that there not less than 4 forms to fill per year for each "PFIC" or "CFC" investment companies, that trust would be taxed to me even if I am not a beneficiary... it's just a nightmare... I don't think anybody would be able to sort that out efficiently (unless I hire an institutional law firm which would charge me a small fortune...)... That's why I want to avoid it all if at all possible (or convince my husband to leave the US sooner  )


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## Bevdeforges

Here is the page from the IRS website that describes the substantial presence test for aliens: Substantial Presence Test

To avoid falling into the clutches of the IRS, you are going to have to limit your physical presence to 183 days or less. Be very careful to keep your airline ticket receipts and other proofs of when you entered and left the US, because if it comes into question they will count days (and IIRC the day you enter and the day you leave each count as a full day, no matter what time your flight left or arrived).
Cheers,
Bev


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## BBCWatcher

barbara_s said:


> I really don't want to have a green card to be honest given the worldwide tax liability that comes with it. My husband has an L-1 Visa and, as his spouse, I can have an L2 Visa which grants me access to the US as long as my husband has his Visa (as far as I understand).


Yes, that's correct, but you have three parts to avoid to avoid a U.S. tax liability (or filing requirement):

1. Avoid U.S. source income;
2. Avoid physical presence in the U.S.;
3. Avoid U.S. permanent residency (green card).

Considering point #2, and considering that an L-2 isn't free, you may decide to just stick with the maximum 90 days in/90 days out visa waiver program (VWP). In other words, if you're OK with two visits to the U.S. per year, each with a maximum of 90 days, and with at least 90 days in between, you're OK and can do that on VWP.

But if you want more than 90 days at a time spent in the U.S., the VWP won't do.



> We actually closed the joint accounts in 2012 so no problem on that front.


Perfect.



> I just don't want to appear anywhere on the IRS database.


Oh, you're already in a U.S. government database, I can assure you. Probably several.  And actually the IRS doesn't handle FBAR. The Treasury Department does.

By the way, assuming your husband has a U.S. tax filing obligation, for the duration he does his estate will presumably be subject to U.S. inheritance tax rules. I certainly don't expect his untimely passing, and U.S. inheritance tax rules require a rather substantial estate before taxes kick in (over $5.25M), but I thought I'd mention it.

He also has limitations in the amount of wealth he can transfer to you per year while he is under U.S. tax rules. I think the 2013 limit is something like US$143,000, but please check me on that. Above that amount he would have to pay gift tax. Note that certain expenses, such as any medical expenses he pays for you, are not counted as part of that limit. I can elaborate on that part of the U.S. tax code if you need more information.



> I am told that there not less than 4 forms to fill per year for each "PFIC" or "CFC" investment companies, that trust would be taxed to me even if I am not a beneficiary... it's just a nightmare...


He'll have that responsibility to the extent he triggers PFIC rules. Yes, I assiduously avoid triggering PFIC rules. I don't like having that complexity, so I share your concern. The PFICs are rather easily avoided, but you have to know that you want to avoid them in advance. I can understand how it'd be at least somewhat difficult to avoid those complications when you're coming into the U.S.


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## Bevdeforges

Honestly, I wouldn't worry too much about gift tax. Take a look at the FAQ from the IRS website on the subject: Frequently Asked Questions on Gift Taxes

Part way down the page it says that gifts to your spouse are generally not considered subject to the gift tax.

The other thing is that, even if you "gift" an amount larger than the annual allowance to someone, it doesn't mean you're going to pay a tax on the gift. It depends on the donor's estate situation at the date of the gift and a few other factors.
Cheers,
Bev


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## BBCWatcher

Bev, the poster is neither a U.S. citizen nor U.S. green card holder (permanent resident). Thus gifts from her husband would fall under the annual gift limit to foreign (non-U.S.) spouses which is $143,000 in tax year 2013 -- that figure is correct now that I checked it more carefully. I think the exact part of the tax code describing this gift limit to foreign spouses is IRC 2523(i).

That word "generally" is a bit dangerous.  This situation is one of the exceptions.

Now, for the vast majority of people an annual gift limit of $143,000 plus amounts that aren't considered gifts (like payments for medical services) between spouses is not at all a problem. But it's worth mentioning given that the original poster is concerned about taxes in general and seems to have some substantial wealth to worry about. It's also an avoidable problem. Once her husband "disconnects" from the U.S. tax code when he is no longer a green card holder, the U.S. rules (such as the annual gift limit) don't apply. (Though check me on that.) That's unlike, say, Japan which has much lower gift limits between spouses, and with those limits applying for a full 5 years after leaving Japan. Aren't international taxes "fun"? 

As one more thought, for perspective, taxes (and tax complexity) aren't the only factors to consider. Marital bliss is almost always far more important. If living apart from your spouse is a hardship -- and it probably is -- then that hardship should be weighed against taxes. Said another way, there are many considerations besides taxes, and there are too many people that forget that. The total lifestyle and enjoyment of life is what ought to count.


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## Bevdeforges

Kind of comes back to the old saw from B-school - you should never make important decisions based solely on the tax consequences. 

But as long as the husband (who is the resident alien here) gave up his rights to the assets before he became resident in the US, would he be subject to gift tax at all? (Maybe I read something into the scenario I shouldn't have - but I thought all the transfer of assets was done prior to his going to the US.)
Cheers,
Bev


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## BBCWatcher

That'd probably be fine. He'll just be limited to $143,000 (the tax year 2013 figure) in annual gifts to his non-U.S. spouse (the original poster) while he's under U.S. tax rules if he wishes to avoid paying U.S. gift taxes. I'm guessing that won't be a problem for many reasons, but I mention it for completeness.

Interestingly there's probably a very good case for his maximizing his U.S. tax-advantaged retirement savings opportunities. That's another big and interesting topic.


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## barbara_s

Thank you Bevdeforges and BBCWatcher!
Regarding gifts, I was thinking of giving away my foreign assets to non resident aliens friends and family before moving (so not to my husband as he is in the US already although he did donate a few assets before moving indeed). That's the only thing I see that would guarantee minimal tax liabilities and over complex reporting requirements.
Other than that I guess I don't really have a choice. I will have to comply with the substantial presence test or face an unmanageable tax filing/reporting. The thing is, even if wanted to do it properly, I am pretty sure I wouldn't be able to. It's just too complex and I would make (potentially costly) mistakes. I like to do things by the book to avoid worrying night and days about them but that just won't be possible in that case.
I wonder how the treasury or IRS would know about my whereabouts in the US and the number of days I would spend there in total given that I wouldn't even work there in any case... but better safe than sorry. 
I agree that tax shouldn't drive our lives but it's just too much information / too complex to process. I face a big (life changing) dilemma and regardless of our decision, it's sad to say that it will impact our life as a couple.


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## BBCWatcher

barbara_s said:


> Regarding gifts, I was thinking of giving away my foreign assets to non resident aliens friends and family before moving (so not to my husband as he is in the US already although he did donate a few assets before moving indeed). That's the only thing I see that would guarantee minimal tax liabilities and over complex reporting requirements.


We're confusing a couple things here. One issue is gifts from your husband to you. If a spouse covered under the U.S. tax code (U.S. citizen or U.S. permanent resident) makes a gift to a spouse who is not covered under the U.S. tax code (a "foreigner"), there's a limit to that giving before U.S. gift taxes apply. The limit is $143,000 in tax year 2013. Consequently your husband shouldn't be giving you too much while he's covered under the U.S. tax code _unless (importantly) you also are covered_. If you are also covered, transfers between spouses are unlimited.

Interestingly the opposite is usually OK. That is, the U.S. spouse can generally receive unlimited gifts from (living) foreign spouses without any U.S. taxes. (There's that word "generally.")



> Other than that I guess I don't really have a choice.


You do. You have two choices. You can accept the tax complexity and (probably) hire a qualified tax expert to assist. Or you can exchange PFIC-problematic assets for non-problematic assets. There are several ways to do that. The easiest way is to liquidate the problematic assets and buy mutual funds, stocks, bonds, and other investments through a U.S. brokerage trading in the U.S. (There are several foreigner-friendly U.S. brokerages.) There are two big assumptions, though. One assumption is that your sales occur in a calendar year prior to first U.S. tax year so that you're clear of U.S. tax issues. Another assumption is that you don't have to pay tax (in Germany or elsewhere) when you sell problematic assets. If the sales trigger tax liabilities, that obviously wouldn't be so good.



> I wonder how the treasury or IRS would know about my whereabouts in the US and the number of days I would spend there in total given that I wouldn't even work there in any case... but better safe than sorry.


Your husband has to file using one of the married filing statuses (Married Filing Separately I assume), or possibly Head of Household (though that one's a bit uncommon). So you won't be a total stranger to the IRS.



> I agree that tax shouldn't drive our lives but it's just too much information / too complex to process. I face a big (life changing) dilemma and regardless of our decision, it's sad to say that it will impact our life as a couple.


OK, but make sure you're weighing the pros and cons in the way that makes sense for you and for your family. It's only money.


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