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Expected Immigration Changes Under the Incoming Biden Administration (2/3)

1/26/2021

On January 20th, 2021, President Joseph Biden was inaugurated and sworn in as the 46th President of the United States, taking the mantle from former-President Donald Trump. Immediately upon taking office, President Biden issued a number of executive orders rescinding many of the policies that had been enacted by the Trump Administration. Several of these executive orders repealed Executive Order 13769, also known as the Muslim Ban, reinstate DACA, and ordered the U.S. Census Bureau to count noncitizens in the census. Construction on the border wall was also halted and several high-profile deportations were blocked. Several of these short-term changes have already been covered in Part 1 of this blog series, and Part 2 will detail several of the longer-term changes that the world can expect to see from the Biden Administration in the coming years.

One of the major long-term changes that can be expected under the Biden Administration is the revision or repeal of the Public Charge Rule, a regulation first introduced in 1882 that allows authorities to reject an immigration request if it is deemed likely that the person requesting entry to the United States will have to use public resources and programs intended for U.S. citizens, such as SNAP (Supplemental Nutrition Assistance Program) and Medicaid. This rule has been highly criticized in recent years, particularly by members of the Democratic party and its progressive wing, and revision of the rule will likely be expected among the Democratic caucuses. However, the Public Charge Rule has been enacted in its current form as an administrative regulation, and therefore will be subject to statutory rulemaking procedures in order for any change to be made. Notice and Comment Rulemaking - the most common method an executive agency uses to change administrative regulatory regimes - typically takes between one and three years before a final rule is published and enacted, so the Public Charge Rule will likely remain in effect for some time, unless rescinded by Congressional legislation.
President Biden has announced that he will be directing Congress to introduce immigration reform legislation in the coming months that specifically provides increased legal protections and a path towards citizenship for the nearly 11 million immigrants currently living in the United States, including an estimated 1.7 million undocumented immigrants. This plan has already been presented to leaders in Congress and has also already received pushback from Republican representatives and senators. Any significant changes made under this proposal will be met with resistance and will be subject to lively debate and a long floor fight in Congress, so sweeping changes should not be expected quickly.
Finally, President Biden has announced a return to pre-Trump Administration levels of refugee acceptance in the United States. This policy change was mentioned in Part 1, but it is being included in Part 2 due to the logistical hurdles that any increase in refugee acceptance will have at present. Under the Trump Administration, refugee acceptance was limited to 15,000 people per year, and President Biden has announced that he plans to increase the limits back to their previous levels of 125,000 people per year. While this can be accomplished through orders from the president to executive officers in USCIS, many refugee resettlement agencies and the infrastructure that was previously in place to support refugee resettlement has been disbanded or reduced due to the previous lack of refugees and a shutoff of federal funding to the organizations. These organizations are preparing to step up processing and increase their operations once federal funding begins to flow again, but it will take considerable time before they have rehired appropriate staff, made necessary material arrangements, and rebuilt the foundations necessary for refugee resettlement operations. As such, it is expected that any return to pre-2017 resettlement levels will take place after the end of 2021, regardless of established refugee acceptance limits.

Part 3 of this series will discuss the current political climate in Washington, D.C. and the current composition of Congress going into 2021, as well as the expected effects that those factors will have on the ability for the Biden Administration to propose and enact immigration changes. In addition, Part 3 will project the timeline for many of these potential changes to the immigration system, as well as provide a summary of any and all changes that have occurred since the beginning of the Biden Administration on January 20.

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Expected Immigration Changes Under the Incoming Biden Administration (1/3)

1/20/2021

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On January 20th, 2021, former Vice-President Joseph Biden will be inaugurated and sworn in as the 46th President of the United States, taking the mantle from President Donald Trump. As many around the world are aware, American foreign and domestic policy can undergo considerable change as the federal government transitions from one Presidential administration to the next. One of the most controversial policy matters of the last two decades has been the US immigration system; this system affects both domestic and foreign peoples looking to travel to, immigrate to, and do business in the United States. This series will outline the upcoming changes that can be expected over the next four to eight years, as well as some of the factors that may influence their implementation and effects.

President Biden has announced that immigration reform is one of the cornerstones of his tenure in office, and has so far announced numerous policy points, both long-term and short-term. Much media attention is currently being paid to the short-term policy changes, and this article will focus on those changes. It has been announced that in the first hundred days of the Biden Administration, the immigration system will see the reversal of many of the travel bans and immigration restrictions that were enacted under the Trump Presidency.

Most notably, President Biden plans to rescind the Executive Order 13769, which banned nationals from numerous Muslim-majority countries around the world from entering the United States. It is likely that this Executive Order will be repealed in the first days of the Biden Administration. In that light, it should also be expected that the Biden Administration will reverse any additional Executive Orders that were enacted during the Trump Presidency and will begin issuing its own orders in the initial stages of the Presidency pertaining to immigration restrictions and policy. However, it should be noted that some analysts and experts do not expect these reversals to be implemented immediately, as winding down previous immigration policy will take time. President Trump also imposed several additional restrictions on visa issuance during the beginning of the United States’ COVID-19 lockdown, such as restrictions on Non-immigrant L-1 and H-1 visas, which can be expected to be lifted as well.

The next focus of immediate change will likely be centered around the Deferred Action for Childhood Arrivals (DACA) program, which prevents the deportation of approximately 645,000 people who migrated to the United States as children, typically with their parents. Several Executive Orders relating to the immediate reinstatement of this program can be expected in the first hundred days of the Biden Administration, although substantial changes and expansions to the program will also likely require Congressional support and legislative change, a process that will take time. Among the immediate changes to expect is the expansion of Temporary Protected Status (TPS), which allows migrants displaced by natural disaster or conflict to be granted temporary green cards. President Biden previously also stated that he planned to extend automatic green cards to all members of the DACA program and people with TPS from Venezuela currently in the United States upon inauguration.

The final short-term immigration policy change that is expected in the early days of the Biden Administration is the reversal of several Trump-era refugee and asylum policies, in particular the policy that heavily throttled the number of refugees and asylees that are granted entry to the United States each year.

At current levels, the United States allows only 15,000 applicants for refugee status to be accepted per year; however, this number is expected to be increased dramatically by the Biden Administration in the initial days of the new term to 125,000 per year, although it remains to be seen how this will be accomplished logistically. However, the Biden Administration has not announced that it will lift immigration restrictions enacted by the CDC that prevent all potential migrants from entering the United States. These CDC restrictions expel any immigrants or asylum seekers after they reach the border and require them to wait in border towns before receiving hearings before immigration judges. Due to the high number of infections and deaths due to COVID-19, it is possible that this policy will remain in place for the present, if only to reduce the number of potentially infected individuals entering the United States.

Part 2 of this series will cover the projected long-term policy changes that the Biden Administration can be expected to pursue, and Part 3 will explain the factors that may expedite or slow the implementation of these changes and will include a list of all programs that could potentially see changes in the coming years.

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Small Businesses Rejoice as IRS Releases Guidance Concerning the Deductibility of Eligible PPP Loan Expenses

1/8/2021

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Under the Paycheck Protection Program (“PPP”), which was enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, Public Law 116-136, Congress authorized the provision of loans to certain businesses suffering from COVID-19 related consequences. Under the CARES Act, the PPP related sections made it quite clear that (a) eligible businesses could have some or all of their loan forgiven if loan proceeds were used for certain qualified business expenses, and (b) loan proceeds forgiven would not be included in borrowers gross income.

Unfortunately, and on the minds of many businesses until today, Congress did not initially address whether business expenses, if used in a qualifying manner that would allow for loan proceeds to be partially or wholly forgiven, could be deductible. Subsequently, which compounded business owner’s concerns further, the Internal Revenue Service (“IRS”) issued guidance advising applicable businesses that, under the Internal Revenue Code, no deduction would be allowed for the payment of expenses in a manner that results in PPP loan forgiveness; the IRS theorized that since the income associated with such loan forgiveness is excluded from the taxpayer’s gross income, the associated expenses should not be deductible expenses utilized to offset income (Notice 2020-32; Revenue Ruling 2020-27).

Thankfully, on January 7, 2021, the IRS issued new guidance to reflect the Tax Relief Act of 2020, passed by Congress on December 21st by way of inclusion in the Consolidated Appropriations Act, 2021, Public Law 116-260, which among other things amended certain portions of the CARES Act. This new IRS Guidance, promulgated in Revenue Ruling 2021-02 available at https://www.irs.gov/pub/irs-drop/rr-21-02.pdf, made clear that Notice 2020-32 and Rev. Rul. 2020-27 are now, in effect, no longer accurate and henceforth obsolete. Accordingly, the Tax Relief Act of 2020, in conjunction with Revenue Ruling 2021-02, specifically provides that no deduction shall be denied, no tax attribute reduced, and no basis increase shall be denied, as a result of the exclusion - from an eligible taxpayer’s gross income - of PPP loan forgiveness proceeds. This amendment, of course, applies only to taxable years ending after March 27, 2020, the initial date of enactment of the CARES Act (CARES Act § 276(a)(2)).

For more information about this, the COVID-related Tax Relief Act of 2020, or any other related or unrelated questions, please feel free to reach out to a member of our team.

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International individual tax matters: frequently asked questions

1/6/2021

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As a significant number of our clients are international individuals, families, and entities, we frequently receive client communications, beginning mid-January, concerning how the U.S. tax system treats international individuals and/or entities living, working, or doing business in the United States. This year, we’ve decided to compile some of our clients’ most frequently asked questions into an informational question and answer series. Accordingly, we’ll focus today on international individuals either living or working in the United States. Typically, clients have a number of questions applicable to their children who are currently studying in the States; some of the more common questions are highlighted below.

Please remember that, unless we note otherwise, the answers below depict the general rules applicable to each corresponding question. Often, however, U.S. federal and/or state income taxes can be reduced, or even eliminated altogether, with proper planning by a U.S. tax professional.

If you have additional questions, seek clarification of a certain Q&A, or would like to know how simple or complex planning may alter any of the scenarios described below, please contact Attorney Portman at jportman@bjkanglaw.com.

Q: How do I know if I’m treated, for U.S. income tax purposes, as a Resident Alien or a Nonresident Alien (“NRA”)?
A: Under the Internal Revenue Code (“Code”), a non-United States citizen is generally treated as an NRA unless such individual meets either (1) the Green Card test, or (2) the Substantial Presence test.

“Green Card test” is met when an individual, at any time during the tax year in question, resides in the U.S. as a lawful immigrant in accordance with U.S. immigration laws.

“Substantial Presence test” is met when an individual is physically present in the U.S. on at least (a) 31 days during the tax year in question, and (b) 183 days during a three-year period that includes the current tax year and the two preceding years. The latter portion of this test (found in (b) above) requires the individual in question to count the days as follows when determining if the 183 day requirement is met: (i) all days such individual was present in the current tax year are counted, (ii) 1/3rd of the days such individual was present, in the first year before the current year, are counted, and (iii) 1/6th of the days such individual was present, in the second year before the current year, are counted.

Q: If I am considered a resident alien under either the Green Card test or Substantial Presence test, which of my sources/streams of income are subject to U.S. federal and/or state taxes?
A: Individuals considered resident aliens are subject to essentially the same tax rules and regulations applicable to U.S. citizens. As the United States taxes its citizens on their worldwide income, resident aliens must report and pay U.S. federal income tax and, to a lesser but substantial degree, state income tax on all of their income without regard to where the income is earned or generated.

Q: If I meet the definition of a nonresident alien, which of my sources/streams of income are subject to U.S. federal and/or state taxes?
A: NRAs are typically subject to U.S. income tax on two distinct categories of income: (1) income that is Effectively Connected with a U.S. trade or business (“ECI”), and (2) Fixed, Determinable, Annual, or Periodical income that is derived from U.S. sources (“FDAP”).

“ECI” is typically income generated by a foreign person in connection with the foreign person’s active conduct of a trade or business in the United States.

“FDAP” is typically passive investment income, including dividends, interest, rents, royalties, and the like, but specifically excludes (a) gains from the sale of real or personal property, and (b) certain items of income generally excluded from any individual’s U.S. gross income, such as tax-exempt municipal bond interest or qualified scholarship income.

Q: I am currently residing in the United States with a visa that is a non-immigrant student visa; does that mean I am considered a resident alien under the Substantial Presence test who owes U.S. federal income tax?
A: For purposes of the Substantial Presence test, certain individuals are considered “exempt” and, if so considered, these individuals do not have to count days spent in the U.S. pursuant to a non-immigrant visa for purposes of the Substantial Presence test for a period of up to two-to-five years. The following individuals present in the U.S. are considered exempt individuals for this purpose if they substantially comply with the requirements of their particular non-immigrant visa: (1) students with a F, J, M, or Q visa; (2) teachers or trainees with a J or Q visa; (3) foreign government related persons with a A or G visa; and (4) certain professional athletes who are competing in charitable sporting events.

Q: I know that my daughter technically meets the resident alien requirements as a result of the Substantial Presence test; however, I seem to remember that there are exceptions that can be used to treat her as a NRA… Is this true?
A: Yes; the Code provides two exceptions, specifically to the substantial presence test, which can be used by resident aliens seeking to maintain their NRA status: (1) the Closer Connection exception that is applicable to all resident aliens, and (2) the Closer Connection exception that is applicable to certain foreign students. In order to qualify for either of these exceptions, an applicant must file Form 8840, Closer Connection Exception Statement for Aliens, or Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition, respectively.
Q: My son is currently studying in the U.S. in pursuit of a bachelor’s degree. A friend told me that my son is subject to U.S. income tax on capital gains that are not FDAP, and not ECI, even if he is considered exempt under the Substantial Presence test, because he physically spent 183 days or more in the U.S. last year; is this somehow true?
A: Yes; this is true. Individuals residing in the U.S., those in substantial compliance with non-immigrant visa requirements, are exempt from the Substantial Presence test in determining whether they’re a resident alien or NRA. However, a separate Code provision, specifically found in § 871(a)(2), requires the application of a flat 30% U.S. income tax on U.S. sourced capital gains of NRAs if such NRAs were physically present in the U.S. for 183 days or more in the particular year in question. For purposes of this 183-day requirement, the exempt rule discussed in this paragraph and the preceding Q&A section is not applicable as the 183-day requirement is distinct from the 183-day requirement used to classify an individual as a resident alien or NRA under Code §§ 7701(b)(3) and (b)(5). Note, however, that if your child is a citizen or resident of a country with which the U.S. has a tax convention, the rate of capital gains will likely be reduced to a lower rate set by the particular tax convention. Furthermore, this lower rate is often 0% but requires the citizen or resident of a foreign country to properly disclose the treaty position they seek to rely on by way of a timely filed Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).

Q: I am scheduled to visit the U.S., where I will receive an honorarium payment from a U.S. university, but the university is requesting my social security number (“SSN”) or individual taxpayer identification number (“ITIN”); do I really need a SSN or an ITIN to receive a one-time honorarium?
A: No, not necessarily. Technically, all foreign individuals visiting the U.S., if scheduled to receive any sort of pay for their services regardless of the amount received, must have and present a SSN or an ITIN as such persons will be considered to be engaged in a U.S. trade or business requiring the eventual filing of Form 1040-NR, U.S. Nonresident Alien Income Tax Return, and the filer’s SSN or an ITIN. Even though individuals in this position should apply for, after entering the U.S., a SSN or an ITIN via Form W-7, Application for IRS Individual Taxpayer Identification Number, vis-a-vis the Internal Revenue Service (“IRS”) or a reputable Acceptance Agent, nonimmigrant persons with a B-1, B-2, WT or WB visa status are not generally eligible for a SSN or an ITIN.

Generally, unless international visitors secure a job in the U.S. or previously filed U.S. tax returns, it would be almost impossible for an international visitor to get a SSN or an ITIN before receiving an honorarium payment. Regardless if you have applied for and received a SSN or an ITIN, however, an honorarium will be viewed as compensation in exchange for services and, accordingly, the honorarium will be subject to certain withholding requirements that generally amount to a flat 30% withholding tax rate applied to the honorarium payment and withheld at the source by the payor. While international visitors may request an exemption from this withholding requirement by filing Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, only individuals with a SSN or an ITIN can properly file the form and be afforded the exemption.

Q: My wife is travelling to the U.S. as a visiting scholar in a few months; is it illegal for her incidental or per diem expenses to be reimbursed by the University she is scheduled to visit if she doesn't apply for and obtain a SSN or an ITIN?
A: No, the reimbursement of incidental expenses and per diem expenses, under these circumstances is legal, and not subject to U.S. tax, withholding, or reporting requirements, so long as the reimbursements are made pursuant to, for example, IRS accountable plan rules, which are found in Treasury Regulation § 1.62-2, or other IRS rules found in Treasury Regulation § 1.132-1(b)(2). However, if certain applicable Code and/or Treasury Regulation requirements are not met, withholding will be made by the payor/reimbursor in an amount of up to 30% of the reimbursement.

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Expected Immigration Changes Under the Incoming Biden Administration (2/3)

Expected Immigration Changes Under the Incoming Biden Administration (1/3)

Small Businesses Rejoice as IRS Releases Guidance Concerning the Deductibility of Eligible PPP Loan Expenses

International individual tax matters: frequently asked questions

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