Become a US Citizen or Give Up Your Green Card?
Sometimes, when a Foreign National relocate to the United States, they intended on becoming a Lawful Permanent Resident status and then obtain US Citizenship. But, this is not the path that all Foreign Nationals take. Some non-residents relocate to the United States on a visa such as an H-1B, L-1, or O-1 — and for one reason or another become a Lawful Permanent Resident. Oftentimes, the motivating factor is that it is simply easier for travel purposes to have a ‘Green Card’ than to have to constantly renew a visa – especially when the US visa rules continue to change. The changing visa rules could potentially lead to the inability to freely renew a visa, which can impact employment, etc. At some point, taxpayers who are Lawful Permanent Residents may have to decide whether they want to continue on the path of becoming a US citizen, stay an LPR, or relinquish their Green Card. Here are four important facts:
Are you a Long-Term Resident?
When a person is considered A Long-Term Lawful Permanent Resident (LTR), they are considered like a US Citizen when it comes to relinquishing their green card. In other words, if a person is a Long-Term Resident and decides they want to formally relinquish their US Person status, they must go through the covered expatriate and exit tax analysis to determine whether or not they may owe money to the US government at the time of giving up their green card. Sometimes, the exit tax is just too costly it may be a better idea to continue as a permanent resident or even become a US Citizen.
Are you Approaching Long-Term Resident Status?
The term Long-Term Resident is a defined term in which the person has been a Lawful Permanent Resident in at least eight of the past 15 years and did not file Form 8833 during that time to be treated as a foreign person for US tax purposes. It does not necessarily require eight ‘full’ years, so when a taxpayer approaches the eighth-year mark, they will want to seriously consider whether they want to give up their status or become a US Citizen. Once a person becomes a Long-Term Resident, it is difficult if not impossible to unwind.
Are You Residing in a Treaty Country?
When a person lives in a treaty country, they can generally use Form 8833 to make certain Treaty Elections. Most of the time, these elections are reserved for residents and non-residents, and not US Citizens — and the Saving Clause may restrict the ability to apply the treaty elections. If the election does apply, then depending on the sources of income and country of residence, it may be worth it for the Taxpayer to remain a permanent resident but claim treaty benefits – noting the tax trap identified in the next paragraph of making a treaty election to be treated as a foreign person when you are already a Long-Term Resident.
Do You Plan on Residing in the US or Abroad?
If a person plans on residing in the United States then there will not be many treaty elections available, as they will be a US resident. But, if the person is a Lawful Permanent Resident who intends on residing abroad — and especially if all of their income is generated from abroad — they may want to consider making an election to be treated as a foreign person for tax purposes using form 8833. One very important trap to consider is that if the person is already a Long-Term Resident and they make a treaty election, it may be considered the Expatriating Act — and the exit tax could kick in.
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