Before the EB-5 investor obtains a green card, if he/she spends less than 183 days in the U.S. for a three year period (calculation is based on a weighted formula), he/she will be subject to U.S. tax only on U.S. source income (income made by the US investment or earned in the U.S). Once an EB-5 investor obtains his permanent residence status, he immediately becomes subject to U.S. tax assessed on worldwide basis — income from the United States and income earned outside the United States is subject to U.S. taxation. For income tax purposes, annual tax filing compliance includes the following:
- Individual federal income tax return Form 1040, reporting all worldwide income
- State income tax return
- FinCEN Form 114, Report of Foreign Bank and Financial Accounts, if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year.
- Form 8938, Statement of Specified Foreign Financial Assets, for foreign financial assets (reporting thresholds vary based on whether the taxpayer is living in the U.S. or abroad and on marital status).
- Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, if the investor owns a controlled foreign corporation (CFC); or is an officer or director of the company and owns ten percent or more of the total value of the stock, or owns ten percent or more of the total voting power of stock.
- Form 3520, reporting a foreign gift received in excess of $100,000 from a foreign individual or estate.
Even though these forms are purely informational, failure to file them can result in significant civil penalties and in some cases criminal prosecution. Clearly it is very important for a EB-5 investor to engage a tax professional early in the process.
By: Summer N. Zhu
