Discover how EB-5 investors can avoid costly tax pitfalls like PFICs and global income reporting with expert advice from Navis Wealth.
Worldwide Income & PFICs: The Two Tax Traps That Blindside New U.S. Residents
For EB-5 investors, receiving a green card marks the beginning of a new chapter in life—and a new set of tax obligations. In Part 2 of our CanAm x Navis Wealth series, cross-border financial advisor Paul Fegan walks us through two of the most misunderstood tax risks for new U.S. residents: worldwide income taxation and PFICs (Passive Foreign Investment Companies).
Tax Residency Starts Sooner Than You Think
The moment you become a U.S. tax resident—either through receiving conditional permanent residency or by meeting the substantial presence test—you’re subject to U.S. tax on your worldwide income. That includes:
- Rental income from foreign properties
- Dividends and interest from offshore investments
- Capital gains realized abroad
- Foreign pensions or retirement distributions
Paul Fegan notes that many new residents are caught off guard by this:
“The U.S. doesn’t just tax your U.S. income. It taxes everything. If you’re not planning with that in mind, you’re walking into an expensive trap.”
What Is a PFIC—and Why Should EB-5 Investors Care?
One of the most punitive tax classifications in the U.S. code is the PFIC, or Passive Foreign Investment Company. Common examples include:
- Non-U.S. mutual funds
- Foreign life insurance investment products
- Overseas retirement or education savings plans
- Holding companies for passive income
If the IRS determines that your foreign investment qualifies as a PFIC, it can trigger:
- Punitive taxation of gains at the highest marginal tax rate
- Interest charges on deferred tax
- Extensive reporting requirements via Form 8621
In many cases, these taxes apply even if the investment hasn’t been sold yet.
Avoiding the PFIC Penalty
Here are a few proactive steps to take:
- Review all foreign investment accounts with a cross-border tax advisor
- Identify PFIC risks early, before becoming a U.S. tax resident
- Where possible, exit or restructure PFICs before green card activation
- If you must keep a PFIC, explore Qualified Electing Fund (QEF) or mark-to-market elections to mitigate exposure
- Ensure Form 8621 is correctly filed every year for each PFIC
“You don’t want to learn about PFICs when you’re filing your first U.S. tax return,” says Fegan. “By then, it’s often too late.”
Cross-Border Planning Checklist: Tax Residency & PFICs
Before moving to the U.S., EB-5 investors should complete the following:
- Conduct a PFIC audit of all foreign investments
- Review real estate and income-generating assets abroad
- Consult a cross-border CPA on residency start date
- Build a timeline for pre-immigration restructuring
- Understand the treaty benefits (via IRS Form 8833)
FAQ: PFICs and Global Income for EB-5 Investors
Is every foreign mutual fund a PFIC?
Often, yes. Most non-U.S. mutual funds fall under PFIC rules. Always confirm with a tax advisor.
What happens if I don’t report my PFIC?
The IRS can impose harsh penalties and back taxes—plus interest. Reporting is required annually.
Can PFICs be “fixed” after I become a resident?
Sometimes, but options are limited. It’s far more effective (and cheaper) to address them before you enter the U.S. tax system.
Conclusion: Know Before You File
EB-5 investors work hard to earn their U.S. green card—and an uninformed tax move shouldn’t jeopardize the benefits of that investment. Understanding the rules around worldwide income and PFICs is essential to protecting your wealth and avoiding unexpected tax bills.
As Paul Fegan shares in this video, cross-border planning isn’t just for the ultra-wealthy. It’s about putting yourself in the best position to thrive financially in your new life in the United States.
Coming Up Next
In Part 3, we explore real-world case studies—stories of EB-5 families who made critical mistakes and how you can avoid them.
Missed Part 1? Click here to watch and read it.
