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US taxation of Chinese nationals

by: Anthony Parent   2015-04-01


美國国际律师税务公司

Q & A with Julia Zhai 

I remember the day our firm interviewed Julia Zhai for an open position as a senior tax preparer. Our tax compliance director, Vlad Golubovskyi, was so excited about her answers to the rather tricky test we give prospective tax preparers; he was smiling from ear-to-ear and said, "wow, we have to hire this Julia, she is off the charts!"

 

Now that she has been at our firm a while, Vlad's instincts have been proven correct.  Julia brings an incredible technical talent and also an incredible global perspective that helps our firm better understand our worldwide clientele.



Julia Zhai, Enrolled Agent and Senior Tax Preparer

 

Julia is great at answering questions, so for this article, we thought a Question and Answer format would work best for Julia to lend her insight to the US taxation of Chinese nationals.

 

Please tell me about your background, Julia.

I was raised in China by a loving family. My parents always worked very hard themselves and expected the best from us. They showed us great work ethics. So I was always a good student, I mean a top student among my peers. In 1977, China opened doors and we had the opportunities really to focus on educations. In that year, we were told that there would be special middle schools for gifted students if we passed the special standard tests. I was the only one from my year in my school that passed the state-wide standard test. There we go; I enrolled in a prestigious middle school, with all the students from different districts. That was a highly selective school, I was the only one made in from my elementary school. Since then I started my boarding experience. And I was on a right track to a successful future; I was admitted to a prestigious high school, then to a prestigious college. Looking back, I am so grateful that I was given the opportunities, and I had a wonderful education.

 

Can you tell me about growing up in China? How important was it to go to college? How did one get into college?

I grew up in Shanghai, the heart of the financial hub. I had a lot more opportunities than people of my age in other parts of China, especially those in rural area. At that time, getting in college was thought the only way for a successful career. In order to get in a college, you need to pass a nationwide standard test, almost like SAT in US. The college you can go would wholly base on your test score.

 

Is that where you met your husband?

Yes, I met my husband at college when he came to Shanghai for education.

 

Why and when did you come to America?

I gave up on my graduate school opportunity while my husband continued his graduate school. I started my career as a research scientist. At that time, we were highly compensated according to the standard then. We wanted to start a family. However, owning an apartment in Shanghai was very difficult. We had to wait for our turn to get an apartment. My company would give me an apartment, but I had to wait for 3-5 years. We were lucky that my parents gave us an apartment, but it was far from my work. So my husband and I started to look for an opportunity to study abroad. We took TOFEL and GRE exams, and applied for graduate schools here in US. But it took my husband two years to get his Chinese passport. In 1992, I landed in New York, and went to Brown University for my PhD in Biochemistry.

 

Why did you leave Biochemistry and want move into tax?

I loved my science career, I am so grateful that I had so many years of rigorous training. When I was in biomedical field, I had always worked on mechanism of actions. I would investigate how the molecules modulate certain biological functions. So I always want to know how things worked, why these things worked, and what I can do to improve to have it work better. From that sense, I guess tax planning really is my thing. It is something that I have always had an interest in.

 

What have you learned since you started working here at IRSMedic?

This is an eye-opening experience for me. As a Chinese, our culture is very conservative, we were taught it is good not to get into trouble. However, when you look at the IRS international tax law, it is so complex. It is almost impossible in these days not to get into some type trouble with the IRS if you have foreign income or accounts.

 

To Chinese, it is so common to give money to the children; we never realize there is an existence of a gift tax law, or inheritance tax. We also think it is our responsibility to help our parents financially when they are in need, again, never realized the gift tax.

 

In China, the government takes the payroll taxes automatically from your paycheck without even showing the taxes being taken. These tax concepts are so foreign to us. By working here, I realize how cumbersome of the IRS reporting requirements are, how it is almost impossible for an ordinary citizens without the help of an extraordinary tax firm to be in full compliance with the IRS when they have foreign inheritance, foreign income, foreign life insurance, foreign pensions and foreign housing with mortgage. However, these are the tax laws, and we, as citizens, have the obligations to follow the law.

 

How many of your Chinese friends and business associates do you think are in compliance 100% with the IRS?

This is a question I will probably never have an answer for. I would say most of my friends and associates are trying very hard to be in full compliance with the IRS. However, in reality, it might paint a different picture. If I have to give it a guess, I would say about 30-40% in full compliance.

 

Why do you think this number is so low?

There are a number of reasons, I think. But as I mentioned before, because the tax laws are so complex, a lot of laws are not known to the ordinary citizens. There are also cultural differences. Again this Gift tax is one of them. Also, with the development of global economy, we are far more connected with foreign entities, financial institutes. One important contributor is the economic growth of China. So its not just ethnic Chinese that get into trouble. Many Americans, not just Chinese-Americans work, live, marry and invest in China, and receive monetary gifts or inheritance from family members in China, and all these events trigger tax consequences and/or reporting requirements in the United States. People just do not know that.

 

So we've established many ethnic Chinese who are US persons are not in compliance. Why do you think they are so afraid to make a disclosure or use of the amnesty programs available?

People do not know what the consequences would be if they make a disclosure to the IRS, they are afraid the disclosure will lead to a disruption to their normal life. They are afraid that the IRS would want to know more about their financial situation. But what's worse is just ignoring the issue. I've learned it's better to fix it now than wait until the IRS finds out.


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