Taxation of undocumented immigrants

Undocumented immigrants venture to the United States from all parts of the world and endure enormous challenges in their new life, ranging from cultural ones to those that are language–oriented in nature. Another challenge for undocumented immigrants is compliance with our nation’s tax system. This analysis provides a guide for undocumented immigrants and their advisers to follow in order to comply with U.S. tax rules, highlighting areas that need special attention.

Discussions of how to address the problem of undocumented immigration are a prominent feature of the political landscape. But whatever the political approach may be toward addressing undocumented immigration, the Internal Revenue Code is indifferent: Its sole concern is that those individuals who live and work in the United States and engage in various business dealings properly pay the taxes it imposes. Indeed, while many harbor the false impression that undocumented immigrants pay no tax, the truth is the opposite: Multiple studies indicate that undocumented immigrants contribute a great deal of funds to the coffers of federal, state, and local governments.¹

This article provides an overview of the taxation of undocumented immigrants. First, it examines undocumented immigrants’ tax status, how undocumented immigrants find gainful employment, and the nature of individual taxpayer identification numbers (ITINs). With this background in mind, the article next summarizes typical tax issues undocumented immigrants face in the workplace as well as the unique tax issues they confront, followed by a discussion of their tax–filing responsibilities.

Tax status

In ascertaining the tax status of individual taxpayers, the Code splits non–U.S. citizens into two categories: residents and nonresidents. Resident taxpayers pay tax on their worldwide income.² By contrast, nonresident taxpayers generally pay tax only on their U.S.-source income.³ As defined in Sec. 7701(b), resident taxpayers include:

• An individual who is a lawful permanent resident of the United States at any time during a calendar year (i.e., a green card holder);⁴
• An individual who meets the substantial-presence test;⁵ or
• An individual who, in the year they arrive in the United States, qualifies to make and makes an election to be treated as a U.S. resident for that year (first-year election).⁶

All other non–U.S.-citizen taxpayers are, by default, deemed nonresidents.⁷

To meet the substantial–presence test, an individual must be physically present in the United States on at least:

• 31 days during the current year, and
• 183 days during the three-year period that includes the current year and the two years immediately before that, counting: all the days the individual was present in the current year, one-third of the days the individual was present in the first year before the current year, and one-sixth of the days the individual was present in the second year before the current year.⁸

Most undocumented immigrants likely meet the substantial–presence test and, as such, will be treated for U.S. income tax purposes as residents. Some undocumented immigrants initially enter the United States on a visa status (e.g., an F–1 visa for international students), and days spent here do not count toward meeting the substantial–presence test.⁹ Yet many stay beyond their allotted visa time, and thereafter, such days accrue toward meeting the 183–day threshold. Other undocumented immigrants simply cross the border without a visa, and all the days they reside in the United States count toward meeting the substantial–presence test.

As a practical matter, since most undocumented immigrants are residents for U.S. income tax purposes, they will be taxed on their worldwide income and have tax–filing responsibilities akin to those of U.S. citizens. The discussion that follows emphasizes these points but also highlights some distinctions.

US employment

As a preliminary matter, noncitizens working in the United States without proper documentation are here illegally and carry the risk of a monetary penalty and being deported.¹⁰ By the same token, employers of noncitizen employees who lack proper documentation cannot turn a blind eye insofar as they, too, risk being penalized,¹¹ including being subject to possible civil penalties and criminal sanctions.¹²

To secure authorized employment, foreign workers generally go through one of the following three processes:

• Obtain a valid temporary work visa (e.g., L-1 visa) or an Employment Authorization Document¹³ from U.S. Citizenship and Immigration Services (USCIS);
• Have a U.S. employer prepare and submit a Labor Condition Application to the U.S. Department of Labor (DOL) for approval and file certain nonimmigrant work visa (e.g., H-1B or E-3 visa) petitions with USCIS; or
• Have a U.S. employer secure a Program Electronic Review Management work permit¹⁴ from the DOL and obtain an approved immigrant petition for a green card for employment-based lawful permanent residence for such foreign workers.¹⁵

But most undocumented immigrants know that securing work authorization paperwork is either impossible or fraught with problems, and they likewise fear that merely applying will put them in jeopardy of being deported while giving away personal data and locations. This leads many undocumented immigrants to take one of four measures: They work for employers who are willing to hire them without the proper paperwork; they submit fabricated paperwork to unsuspecting employers who hire them; they establish their own business enterprises; or they work as independent contractors.

Despite employment obstacles, undocumented immigrants residing in the United States do not sit economically idle. They earn money, make investments, and engage in transactions with income tax consequences.

ITINs

The Social Security Administration will issue Social Security numbers (SSNs) only to U.S. citizens, permanent residents, and temporary residents authorized to work in the United States.¹⁶

In light of this restriction on undocumented immigrants’ ability to secure a valid SSN, those who wish to be tax–compliant and file tax returns must secure ITINs.¹⁷ However, having an ITIN does not entitle its holder to Social Security benefits or change the holder’s employment or immigration status under U.S. law.¹⁸

The IRS has set forth a clear methodology for obtaining an ITIN.¹⁹ The applicant must submit a Form W–7, Application for IRS Individual Taxpayer Identification Number, with the income tax return for which the ITIN is necessary. For applicants residing in the United States, submissions can be made in person, to an IRS–approved community–based certified acceptance agent, or by mail;²⁰ for applicants residing outside the United States, submissions may also be made to an IRS designee at a U.S. diplomatic mission or consular post.²¹

Along with the required Form W–7, applicants must submit either original or certified required documentation.²² “Required documentation” is defined as such documentation as the IRS may require to prove the individual’s identity, foreign status, and residency.²³ The regulations under Sec. 6109 amplify as follows: “Examples of acceptable documentary evidence for this purpose may include items such as an original (or a certified copy of the original) passport, driver’s license, birth certificate, identity card, or immigration documentation.”²⁴

Once an ITIN is issued, it will remain in effect indefinitely with one exception: If an individual does not file a return or is not claimed as a dependent for three consecutive tax years ending after the issuance of that number, the ITIN will expire on the day after the due date for the return for the third consecutive tax year.²⁵ Once an ITIN has expired, individuals can file for renewal by resubmitting a Form W–7 and checking the box “Renew an existing ITIN.”

There is one other critical element associated with ITIN issuance. Generally, the Code prohibits the IRS from sharing the information it gathers via an ITIN application with USCIS.²⁶

Workplace taxes

When undocumented immigrants enter the nation’s workforce, three possible scenarios may unfold: (1) They may work for an employer as an employee; (2) they may work as an independent contractor; or (3) they may conduct their own business enterprise.

Employee status: Employees and their employers are generally subject to employment taxes, which comprise (1) Social Security,²⁷ (2) Medicare,²⁸ and (3) Federal Unemployment Tax Act (FUTA)²⁹ taxes. These taxes are levied on wages³⁰ at flat rates of 6.2%, 1.45%, and 6%,³¹ respectively. The Social Security and Medicare taxes are imposed on both employees and employers,³² but the FUTA tax is imposed only on the employer.³³ Wage ceilings apply to the Social Security tax component ($168,600 in 2024; $176,100 in 2025)³⁴ and the FUTA component ($7,000 in both years);³⁵ however, no wage ceiling applies to the Medicare tax component.³⁶

Employment taxes generally are universally applied whether a person is a U.S. citizen or merely a resident. In other words, all employees and employers are subject to these taxes, with limited exceptions. For example, students with F–1 visas are generally exempt from employment taxes on wages paid for services performed in the United States.³⁷

Employers must withhold Social Security and Medicare taxes from employees’ wages and pay them to the government. This includes the additional 0.9% Medicare tax, but only to the extent of wages in excess of the threshold amount based on filing status.³⁸

Independent contractor status: Self–employment tax is imposed on the self–employment income of independent contractors. The tax has two components: (1) a 12.4% rate for Social Security (up to the wage base) and (2) 2.9% for Medicare (also with the additional 0.9% Medicare tax, with the same thresholds on self–employment income as on wages for employees).³⁹ An individual’s self–employment income for a tax year subject to self–employment tax is limited to the contribution and benefit base for the year ($168,600 in 2024; $176,100 in 2025), less any wages received by the individual during the year.⁴⁰

Independent contractors calculate self–employment tax using Schedule SE, Self–Employment Tax. When a taxpayer calculates adjusted gross income (AGI), the Code permits taxpayers to deduct one–half of the self–employment tax.⁴¹

To facilitate timely payments of this tax and to avoid failure–to–pay penalties, most independent contractors make quarterly estimated tax payments. These payments are made using Form 1040–ES, Estimated Tax for Individuals. To avoid being penalized, taxpayers must make estimated payments of at least 90% of their current tax liability or 100% of their previous year’s tax liability (110% if their AGI is over $150,000).⁴²

Business owner status: All business owners must pay tax on net income their enterprises generate. Some undocumented immigrants conduct business as sole proprietors and generally report the income on Schedule C, Profit or Loss From Business (Sole Proprietorship), of their Form 1040. Others will conduct business via a passthrough entity such as a partnership, limited liability company, or S corporation and will report the income that is passed through to them from the entity as reflected on their Schedule K–1, Partner’s [or Shareholder’s] Share of Income, Deductions, Credits, etc., from the entity on their Form 1040 where appropriate (e.g., interest income will be reported on Schedule B, Interest and Ordinary Dividends, and capital gains on Schedule D, Capital Gains and Losses). Still others will own interests in C corporations, and they will report the dividends they receive on Schedule B of their Form 1040.

Undocumented immigrants’ tax issues

Undocumented immigrants confront many of the same tax issues as U.S. citizens, but there are significant differences.

Availability of tax credits

Undocumented immigrants with ITINs may be eligible for certain federal tax credits. However, compared to those available to citizens and legal residents, the options to take credits are limited or denied. 

• The earned income tax credit (EITC) is designed to subsidize low-income working families. It provides a maximum refundable tax credit of $7,830 for tax year 2024 and $8,046 for 2025 (i.e., for taxpayers with three or more children).⁴³ To claim the EITC, the taxpayer and his or her spouse (if filing jointly) generally must be U.S. citizens or resident aliens for the entire year.⁴⁴ In addition, the immigrant, the immigrant’s spouse if filing jointly, and any children claimed for the credit must have an SSN that is valid for employment and issued on or before the due date (including extensions) for filing the income tax return for the tax year.⁴⁵
• The child tax credit (CTC) is designed to help families with children and may reduce their tax liability to zero. It provides a nonrefundable tax credit equal to $2,000 per child for tax years 2024 and 2025.46 The taxpayer claiming the credit (or if filing jointly, both the taxpayer and his or her spouse) must have either an SSN or ITIN issued by the due date of the return (plus extensions). Also, for years before 2026, each qualifying child for whom the credit is claimed must have an SSN valid for employment in the United States and issued before the due date of the tax return (including extensions).⁴⁷
• The additional child tax credit (ACTC) provides a refund for that amount of the CTC that a taxpayer would otherwise forfeit because their tax liability is reduced to zero. It is available up to $1,700 per child. The same identification rules applying to the CTC apply to the ACTC.⁴⁸
• The other-dependent credit is a $500 credit for each dependent of the taxpayer who for CTC purposes is not a qualifying child. The taxpayer claiming the credit (or if filing jointly, both the taxpayer and his or her spouse) must have either an SSN or ITIN, issued by the due date of the return (plus extensions). To claim this credit, the dependent must possess a valid SSN, ITIN, or adoption taxpayer identification number (ATIN) on or before the due date of the tax return (including extensions).⁴⁹
• The child and dependent care tax credit provides reimbursement of up to 35% of costs for caring for a qualifying child or adult dependent. Expenses for purposes of the credit cannot exceed $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals for 2024 and 2025 (and thus, the maximum credit is $1,050 for one qualifying individual and $2,100 for two or more qualifying individuals for those years).⁵⁰ ITIN holders are eligible to claim this credit if they provide (1) the tax identification number (TIN) of the care provider (an SSN or ITIN if it is an individual) or the care provider’s employer identification number if it is an organization⁵¹ and (2) the SSN, ITIN, or ATIN of the qualifying child or dependent.⁵²
• The federal premium tax credit (PTC) is a refundable credit that helps eligible individuals and families cover their premiums for health insurance purchased through the Health Insurance Marketplace.⁵³ ITIN holders may claim PTCs for family members eligible for health coverage under the Affordable Care Act, P.L. 111-148. However, a PTC is not allowed for health coverage for an individual for any period during which the individual is not lawfully present in the United States.⁵⁴
• The American opportunity tax credit (AOTC), with a maximum annual credit of $2,500 per student, is offered for qualified education expenses a taxpayer pays for eligible students in their first four years of higher education.⁵⁵ A taxpayer may not claim the AOTC unless the taxpayer, his or her spouse (if the taxpayer is filing a joint return), and the qualifying student have a valid taxpayer identification number (TIN) (SSN, ITIN, or ATIN) issued or applied for on or before the due date of the return (including extensions). A taxpayer may not claim the AOTC on a later original return or an amended return if the TIN is issued on or applied for after the due date of the return (including extensions).⁵⁶
• The lifetime learning credit is a nonrefundable credit of 20% of the first $10,000 of qualified tuition and related expenses a taxpayer pays during a tax year for an eligible student enrolled at an eligible educational institution. The credit applies to undergraduate, graduate, and professional degree courses — including courses to acquire or improve job skills. The student for whom the credit is claimed must have a TIN issued by the due date of the return (plus extensions).⁵⁷

As a practical matter, because undocumented immigrants typically earn less income than their U.S. counterparts, their income is generally subject to lower income tax brackets; however, their inability to claim tax credits often results in a higher effective tax rate than that imposed on the income earned by U.S. citizens and residents.

Offshore compliance

When U.S. persons hold a foreign financial interest, they must consider reporting on two forms: Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR), and Form 8938, Statement of Specified Foreign Financial Assets. These forms are established and regulated by different governing authorities. The FBAR is established under U.S.C. Title 31 and managed by FinCEN,⁵⁸while Form 8938 is established under Title 26 and regulated by the IRS. In terms of filing, the FBAR is a separate submission to FinCEN, whereas a Form 8938 for an individual is attached to the income tax return and submitted to the IRS.

FBAR: Title 31 defines U.S. persons⁵⁹ who are obligated to file an FBAR as U.S. citizens, residents, and entities.⁶⁰ A resident is defined the same way as in Sec. 7701(b) and the regulations thereunder but using the definition of “United States” provided in 31 C.F.R. Section 1010.100(hhh) rather than that in Regs. Sec. 301.7701(b)-1(c)(2)(ii),⁶¹ so most undocumented immigrants fall into this category. A U.S. person must file an FBAR if the person has a financial interest in, or signature or other authority over, at least one financial account located outside the United States and the aggregate value of all the person’s foreign financial accounts exceeds $10,000 at any time during the previous calendar year.⁶²

Reportable financial accounts include foreign bank accounts; securities accounts; commodity, futures, and options accounts; insurance or annuity policies with a cash value; mutual funds or similar pooled funds; and any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.⁶³ If two persons jointly maintain a foreign financial account, or if several persons each own a partial interest in an account, then each U.S. person has a financial interest in that account and each person must report the entire value of the account on an FBAR.⁶⁴

Required personal information contains the filer’s name, TIN, and address, along with information about the foreign accounts, including the type of account, foreign financial institution name and address, account number or other designation, and the maximum account value. For joint ownership, the principal owner’s information must be reported, and for signature authority, the owner’s information is required. If the filer has a financial interest in 25 or more foreign financial accounts or signature authority over 25 or more foreign financial accounts during the filing year, the taxpayer only needs to report the number of accounts and certain other basic information rather than providing details for each one; however, upon request, they are required to provide detailed information.⁶⁵

The filing due date for the FBAR aligns with the individual income tax return, April 15.⁶⁶ To minimize the burden on the public and the bureau, FinCEN has granted FBAR filers failing to meet the annual April 15 due date an automatic extension of the filing deadline to Oct. 15. Taxpayers do not need to request an extension to file their FBARs.⁶⁷

Failure to timely file an FBAR may result in a civil monetary penalty of up to $10,000 (adjusted for inflation).⁶⁸ If it is deemed a willful violation, the penalty may increase to $100,000 (adjusted for inflation) or 50% of the balance in the failure–to–file accounts at the time of the violation, whichever is greater.⁶⁹ A willful violation may also result in criminal sanctions, including fines of up to $250,000, imprisonment for up to five years, or both.⁷⁰

IRS Form 8938: The Code requires any person subject to taxation under Subtitle A who holds an interest in a specified foreign financial asset to disclose this information as part of their annual tax return.⁷¹The regulations explicitly specify that resident aliens, as defined in Sec. 7701(b), must comply with this requirement.⁷² Therefore, undocumented immigrants who are required to file Form 1040 must also determine whether they need to file Form 8938 along with it.

Unlike Title 31, which sets the requirement to file an FBAR report at a $10,000 threshold, the Code applies a higher threshold for filing based on interests held in specified foreign financial assets: Their total value must exceed $50,000 on the last day of the tax year or $75,000 at any time during the tax year.⁷³ This threshold is doubled for taxpayers who are married and filing jointly.⁷⁴ In addition to the information required on Form 8938 about taxpayers’ specified foreign financial assets, taxpayers must also report any income generated or received from them.⁷⁵

Treasury regulations provide that taxpayers should file Form 8938 with their annual return,⁷⁶ so the due date for the form aligns with that of the annual return. Accordingly, any extensions granted for the annual return will also apply to Form 8938.

Similar to the FBAR, failure to file this form or disclose specified foreign financial assets can lead to a civil penalty of $10,000 (not annually adjusted for inflation).⁷⁷ However, if the taxpayer does not file a correct and complete Form 8938 within 90 days after the IRS mails the taxpayer a notice of the failure to file, the taxpayer may be subject to an additional penalty of $10,000 for each 30–day period (or part of a period) during which the failure to file Form 8938 continues after the 90–day period has expired. The maximum additional penalty for a continuing failure to file a Form 8398 is $50,000.⁷⁸ In some cases, noncompliance may also result in criminal sanctions.⁷⁹

When undocumented immigrants consider FBAR compliance, they must understand that this form applies to all U.S. persons, regardless of whether they are subject to U.S. income tax or required to file Form 1040; in contrast, Form 8938 is governed by the Code and needs to be filed only by individuals who are required to file an income tax return for the tax year and meet the specific filing thresholds.⁸⁰ In addition, the penalties for noncompliance for failure to file an FBAR and failure to file a Form 8938 differ.

Filing responsibilities

Undocumented immigrants who are residents generally are taxed in the same way as U.S. citizens. They are taxed on their worldwide income and must file annual income tax returns.⁸¹

Like other taxpayers, tax–noncompliant undocumented immigrants may face penalties for failure to file⁸² and late payments,⁸³ accuracy–related penalties,⁸⁴ and others. Possible criminal sanctions⁸⁵ can result not only in fines but possible prison sentences and deportation.⁸⁶

Finally, special care must be taken if undocumented immigrants maintain bank accounts or investments in their home countries. As previously pointed out, special reporting responsibilities extend to such accounts and investments, and failure to comply with them can result in significant monetary penalties.

Helping clients be compliant

Congress has instituted one set of rules governing responsibilities pertaining to tax and another with respect to immigration. Since the two sets of rules do not dovetail (i.e., the Code presumes that one is a legal resident, while the immigration rules provide multiple steps to achieving this status), their divergence presents unique compliance challenges.

Footnotes

¹See, e.g., Davis, Guzman, and Sifre, “Tax Payments by Undocumented Immigrants,” Institute on Taxation and Economic Policy (2024), estimating that “[u]ndocumented immigrants paid $96.7 billion in federal, state, and local taxes in 2022.” However, other studies have pointed to a net fiscal cost. See, e.g., Federation for American Immigration Reform, The Fiscal Burden of Illegal Immigration on United States Taxpayers/2023 Cost Study (2023) (“At the start of 2023, the net cost of illegal immigration for the United States — at the federal, state, and local levels — was at least $150.7 billion.”).

²Regs. Sec. 1.1-1(b) (“In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States”).

³Secs. 871(a) and (b) and Sec. 881(a).

⁴Sec. 7701(b)(1)(A)(i).

⁵Sec. 7701(b)(1)(A)(ii).

⁶Sec. 7701(b)(1)(A)(iii).

⁷Sec. 7701(b)(1)(B).

⁸>Sec. 7701(b)(3).

⁹Sec. 7701(b)(5) (defining exempt individuals to include “(i) a foreign government-related individual, (ii) a teacher or trainee, (iii) a student, or (iv) a professional athlete who is temporarily in the United States to compete in a sports event”).

¹⁰8 U.S.C. §1227(a)(1).

¹¹The Immigration Reform and Control Act of 1986 makes it illegal for an employer “to hire, or to recruit or refer for a fee, for employment in the United States an alien knowing the alien is an unauthorized alien.” See Chamber of Commerce of U.S. v. Whiting,

¹²8 U.S.C. §1324a(f)(1).

¹³>8 C.F.R. §§274a.12(a)(1)—(20). The candidate must file a Form I-765, Application for Employment Authorization.

¹⁴20 C.F.R. §656.17.

¹⁵8 U.S.C. §1324a(h)(3).

¹⁶20 C.F.R. §422.104.

¹⁷Regs. Sec. 301.6109-1(d)(3)(ii). See Taxpayer Advocate Service, Most Taxpayers Needing a New ITIN Are Prohibited From Filing Electronically, Causing Unnecessary Refund Delays (2021) (“In tax year 2019, the IRS received over two million returns with the primary taxpayer using an ITIN, with total tax computed after credits of approximately $2.8 billion. For the same tax year, the IRS received about 544,000 returns filed by primary taxpayers with an SSN and a secondary taxpayer with an ITIN. These returns reported over $3 billion in tax after credits were applied.”).

¹⁸IRS News Release IR-96-28 (May 23, 1996).

¹⁹Sec. 6109(i)(1).

²⁰Sec. 6109(i)(1)(A).

²¹Sec. 6109(i)(1)(B).

²²Sec. 6109(i)(2).

²³Id.

²⁴Regs. Sec. 301.6109-1(d)(3)(iii).

²⁵Sec. 6109(i)(3)(A).

²⁶Sec. 6103(a).

²⁷Secs. 3101(a) and 3111(a).

²⁸Secs. 3101(b) and 3111(b). If an employee earns in excess of certain wage thresholds (i.e., $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately, and $200,000 for all others), there is an additional 0.9% Medicare tax imposed on the employee on such excess (Sec. 3101(b)(2)).

²⁹Sec. 3301.

³⁰Sec. 3121(a).

³¹Secs. 3101(a), 3101(b), 3111(a), 3111(b), and 3301.

³²Secs. 3101(a), 3101(b), 3111(a), and 3111(b).

³³Sec. 3301.

³⁴Sec. 3121(a).

³⁵Sec. 3306(b)(1).

³⁶Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, §13207(a)(2).

³⁷IRS webpages, “Foreign Student Liability for Social Security and Medicare” and “Aliens Employed in the U.S. — FUTA.”

³⁸Sec. 3102(a).

³⁹Secs. 1401(a) and (b).

⁴⁰Sec. 1402(b).

⁴¹Sec. 164(f). No deduction is permitted, however, for the additional 0.9% Medicare self-employment tax (if applicable).

⁴²Sec. 6654.

⁴³Rev. Procs. 2023-34 and 2024-40.

⁴⁴Sec. 32(c)(1)(D).

⁴⁵Secs. 32(c)(1)(E) and 32(m).

⁴⁶Rev. Procs. 2023-34 and 2024-40.

⁴⁷Secs. 24(e)(1) and (h)(7); instructions for Form 8812, Credits for Qualifying Children and Other Dependents, page 1. If the individual applies for an ITIN on or before the due date of the tax return (including extensions) and the IRS issues the ITIN as a result of the application, the IRS will consider the ITIN as issued on or before the due date of the tax return.

⁴⁸Id.

⁴⁹Sec. 24(h)(4)(C). If the individual applies for an ITIN or ATIN for the dependent on or before the due date of the tax return (including extensions) and the IRS issues the ITIN or ATIN as a result of the application, the IRS will consider the ITIN or ATIN as issued on or before the due date of the tax return.

⁵⁰Sec. 21(c).

⁵¹ec. 21(e)(9); Publication 503, Child and Dependent Care Expenses, page 9.

⁵²Sec. 21(e)(10).

⁵³IRS webpage, “The Premium Tax Credit — The Basics.”

⁵⁴Instructions for Form 8962, Premium Tax Credit (PTC), page 3.

⁵⁵Sec. 25A(b).

⁵⁶Secs. 25A(g)(1)(A) and (B), IRS webpage, “American Opportunity Tax Credit.”

⁵⁷Sec. 25A(g)(1); Instructions for Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), page 2.

⁵⁸The Financial Crimes Enforcement Network is a bureau within the U.S. Department of the Treasury, established under C.F.R. Title 31, Subtitle B, Chapter X.

⁵⁹The term “United States” is defined by 31 C.F.R. §1010.100(hhh) rather than Regs. Sec. 301.7701(b)-1(c)(2)(ii). Both definitions include the continental United States.

⁶⁰31 C.F.R. §1010.350(b).

⁶¹6131 C.F.R. §1010.350(b)(2).

⁶²31 C.F.R. §1010.306(c).

⁶³31 C.F.R. §1010.350(c); Publication 5569, Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide.

⁶⁴Publication 5569, Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide. A limited exception applies in the case of spouses.

⁶⁵31 C.F.R. §§1010.350(g)(1) and (2).

⁶⁶Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, §2006(b)(11).

⁶⁷FinCEN webpage, “Report of Foreign Bank and Financial Accounts (FBAR) Due Date“; IRS Webpage, “Report of Foreign Bank and Financial Accounts (FBAR).”

⁶⁸31 U.S.C. §5321(a)(5)(B) and 31 C.F.R. §1010.821(b).

⁶⁹31 U.S.C. §§5321(a)(5)(C) and (D) and 31 C.F.R. §1010.821(b).

⁷⁰31 U.S.C. §5322(a). In certain circumstances, the penalty increases to up to $500,000 or 10 years or both. 31 U.S.C. §5322(b); 31 C.F.R. §1010.840(c); Publication 5569, Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide.

⁷¹Sec. 6038D(a).

⁷²Regs. Sec. 1.6038D-1(a)(3).

⁷³Regs. Sec. 1.6038D-2(a)(1).

⁷⁴Regs. Sec. 1.6038D-2(a)(2).

^{75</supRegs. Sec. 1.6038D-4(a)(8).}

⁷⁶Regs. Sec. 1.6038D-2(a)(1).

⁷⁷Sec. 6038D(d)(1).

⁷⁸Sec. 6038D(d)(2).

⁷⁹Regs. Sec. 1.6038D-8(f)(2).

⁸⁰Regs. Sec. 1.6038D-2(a)(7)(i).

⁸¹Publication 519, U.S. Tax Guide for Aliens.

⁸²Sec. 6651(a)(1).

⁸³Sec. 6651(a)(2).

⁸⁴Sec. 6662.

⁸⁵See Sec. 7202. (“Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution”).

⁸⁶8 U.S.C. §1227(a)(2).

Contributors

Jay Soled, J.D., LL.M., is a professor of taxation, and Ann Marie Callahan, CPA, M.S. Tax, MBA, is an assistant professor of professional practice, both at Rutgers Business School in New Jersey. Mengchen Chiang, E.A., M.S. Tax, is a tax consultant at Taka Investment Management LLC. For more information about this article, contact thetaxadviser@aicpa.org.

AICPA & CIMA MEMBER RESOURCES

Articles

Garcia and Qian, “Tax Planning for a Nonresident Entering the U.S. Tax System,” 48-4 The Tax Adviser 249 (April 2017)

Garcia, “Tax Planning for High-Net-Worth Individuals Immigrating to the United States,” 47-4 The Tax Adviser 258 (April 2016)

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