Legal Resident for Tax Purposes

LEGAL RESIDENT FOR TAX PURPOSES: Oftentimes, non-U.S. citizens are surprised to learn that even though they are not considered a U.S. Citizen, they are still considered a Legal Resident for US Tax Purposes. The three (3) main categories for individuals who are considered US persons are: U.S. Citizens, Lawful Permanent Residents, (Green Card Holder) and Foreign Nationals who meet the Substantial Presence Test (SPT) -- but do not qualify for the closer connection exception or other exceptions/exclusions. Let's go through the basics of who is a legal resident for tax purposes.


The main reason why it is important to determine whether or not a person is considered a legal resident for tax purposes, is because it helps determine whether or not they are subject to U.S. tax on their worldwide income and required to report their global assets, accounts and investments on various international reporting forms such as FBAR and FATCA.


When a person is considered a US Citizen, they are subject to worldwide income and global reporting of their worldwide assets. It does not matter whether they are U.S. citizen by birth or by naturalization -- and it also does not matter whether or not they acquired the assets or accounts before they
became a U.S. citizen or not. Once they are U.S. citizen, they must report their worldwide income and global assets.


When a person is considered a Lawful Permanent Resident, they are also subject to worldwide income and global reporting of their worldwide assets. One important aspect of becoming a lawful permanent resident, is that once the person becomes a lawful permanent resident, they are required to report their assets and accounts -- even if they acquired the accounts/assets before the person became a lawful permanent resident. In other words, there is no exclusion for reporting accounts that were acquired before the person became an LPR.


This third category is more of a catchall category, in which the US government can still tax non-U.S. Citizens and non-Lawful Permanent Residents on their worldwide income -- and require global reporting. This test is a "counting days test" which is calculated over a three-year period. The days are calculated at different ratios depending on whether the year the person was in the United States was is in the current year, one year back -- or two years back. There are some exceptions and exclusions which could eliminate the tax requirement if the taxpayer qualifies.


If you missed tax filing or foreign reporting in prior years, take a deep breath -- it is not as bad as some online scare mongers want you to believe.

One important recommendation is to not take the quiet disclosure route (submitting to the IRS outside of the amnesty procedures).

That is because if you get caught in a silent or quiet disclosure, it may lead to extensive fines and penalties. Instead, if you are inclined to get into compliance, consider one of the offshore voluntary tax amnesty programs listed below:

• Streamlined Domestic Offshore Procedures
• Streamlined Foreign Offshore Procedures
• Voluntary Disclosure Program
• Reasonable Cause
• DIIRSP (Modified on 11/2020)

Speak with Experienced Counsel

If you are out of compliance, you should speak with an experienced Attorney before making any affirmative representations or statements to the IRS.

IRS Voluntary Disclosure law is a specialty. In IRS offshore disclosure, experienced tax attorneys will have 20+ years of attorney experience, Board-Certification, and credentials such as an LL.M. and dual-licenses in tax and law.

ABOUT THE AUTHOR: Golding & Golding
Our Managing Partner, Sean M. Golding, is a 20+year Attorney and Board-Certified Tax Law Specialist (a distinction earned by less than 1% of attorneys nationwide). His team specializes exclusively in IRS Offshore & Voluntary Disclosure matters. They have assisted thousands of clients nationwide and across the globe.

Copyright Golding & Golding, Attorneys at Law

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws they may affect a case. For specific technical or legal advice on the information provided and related topics, please contact the author.

Find a Lawyer