Pre-Immigration Tax Planning Checklist

Sell and repurchase appreciated foreign assets before becoming a US tax resident to step up the cost basis to fair market value. Once you are a US person, all subsequent appreciation is subject to US capital gains tax. A pre-immigration sale and repurchase resets the basis at the current market price - eliminating US tax on pre-immigration appreciation. This is one of the highest-impact planning steps available.

Foreign mutual funds, ETFs, and most foreign investment funds are Passive Foreign Investment Companies (PFICs) under IRC §1291-1298. Once you become a US person holding PFICs, the tax treatment is punitive: gains are allocated back to each year the fund was held and taxed at the highest ordinary income rate plus an interest charge. Options before entry: (1) Sell the funds entirely before becoming a US resident - no PFIC issue. (2) Make a QEF or mark-to-market election on the first day of US residency (requires the fund to provide PFIC Annual Information Statements, which many foreign funds will not do). (3) Restructure holdings into non-PFIC vehicles. Foreign funds held through tax-deferred accounts may have different treatment depending on treaty position.

Foreign corporations owned by incoming US persons may become Controlled Foreign Corporations (CFCs) subject to Subpart F income, NCTI (IRC §951A, renamed from GILTI by OBBBA effective tax years beginning after 12/31/2025), and annual Form 5471 reporting. Before immigration: evaluate whether the foreign entity should be restructured, sold, or reorganized. Consider whether a check-the-box election (treating the foreign entity as a disregarded entity or partnership) would be advantageous. Timing matters - certain reorganizations must occur before the taxpayer becomes a US person.

From the first day of US residency, FBAR (FinCEN 114) filing is required for any foreign financial accounts with aggregate value exceeding $10,000 at any point during the year. Form 8938 (FATCA) requires reporting of specified foreign financial assets above applicable thresholds. Create a complete inventory of all foreign bank accounts, brokerage accounts, pension accounts, life insurance policies with cash value, and interests in foreign entities before entry. Understand which will require annual reporting and compliance.

Foreign pension plans present significant complexity for incoming US residents. The key distinction is between purely governmental defined benefit pensions (where the individual has no personal account and no control over assets) and plans with an individual savings or investment component. Plans with a savings component - including employer-sponsored savings plans (e.g., Israeli Keren Hishtalmut, German Riester-Rente, Canadian RRSP) - are generally reportable on FBAR and Form 8938. Contributions to foreign pension plans after becoming a US person may not be deductible. Distributions from foreign pension plans are generally taxable in the US unless a treaty exemption applies. Treaty analysis is required for each specific plan and country.

Foreign trusts become subject to complex US reporting requirements once a US person becomes a grantor or beneficiary. A foreign grantor trust with a US grantor triggers Form 3520 and Form 3520-A reporting annually. Before immigration, consider whether existing foreign trusts should be restructured, whether the trust should be decanted or terminated, or whether assets should be distributed to the beneficiary before US residency begins. New foreign grantor trusts created after becoming a US person are generally treated as US grantor trusts for income tax purposes.

In the year of immigration, the taxpayer is a nonresident alien for part of the year and a resident alien for the remainder. This is the "dual-status" year. The dual-status return (Form 1040 with a Form 1040-NR attachment) taxes US-source income for the nonresident period and worldwide income for the resident period. Significant planning opportunities exist in timing income recognition - for example, recognizing foreign income before the residency start date to avoid US tax on it. The dual-status rules and limitations are found in Treas. Reg. §1.6012-1(b)(2).

The state in which you establish residence matters significantly. California and New York impose income tax on worldwide income with no credit for taxes paid to foreign countries in some situations. States without income tax (Florida, Texas, Nevada, Wyoming, etc.) are worth considering for initial establishment of US domicile. Once you establish domicile in a high-tax state, changing it requires careful documentation and is subject to audit. Choosing your initial US state of residence is a one-time opportunity that should not be left to chance.

US tax returns require either a Social Security Number (available once work-authorized) or an Individual Taxpayer Identification Number (ITIN) obtained via Form W-7. The dual-status year return cannot be filed without one. Apply for an ITIN before the first US tax filing deadline if you do not yet have an SSN. Processing times for ITINs can be 7-11 weeks.