Relinquishing a Green Card & Expatriation
Relinquishing a Green Card & Expatriation: When a Green Card Holder wants to expatriate, they have to relinquish their Permanent Resident status. When relinquishing a green card, there are many tax and offshore reporting issues to consider. And, once a U.S. person realizes the IRS tax liabilities associated with being Green Card Holder – along with the potential future exit tax — they no longer want to have U.S. tax status.
As a result, the green card holder wants to abandon their green card status and give up their U.S. Person status.
Whether or not the person resides in the United States or abroad (even if living overseas with no intention of returning to the United States), giving up a green card can have a significant impact on a person’s tax liability.
Before going to the consulate and/or relinquishing a Green Card for Expatriation by filing a Form I-407, keep the following tips in mind:
Did you Voluntarily Relinquish the Green Card?
Letting a Green Card expire is not the same as Voluntarily Relinquishing a Green Card & Expatriation.
In other words, in order to give up U.S. person tax status, a person must file a form I-407, or submit to an alternative abandonment process.
If the US person let’s their green card expire, while it may impact their ability to remain in the United States legally – it does not relinquish their US tax status.
What if I Live Abroad?
Living abroad is not determinative of U.S. Tax Status.
A very common misconception is that just because a person resides outside the United States and their green card has expired, that this is a form of expatriation.
It is not, and until a voluntary abandonment takes place, the person is still subject to US tax on their worldwide income and foreign asset reporting.
Are You a Long-Term Resident?
A long-term resident may be subject to exit tax when they relinquish a Green Card & Expatriate from the U.S.
The tax code does not require a U.S. person Green Card Holder to be a permanent resident for eight full years.
Rather, the way the code is written presumes that as long as the person has had their permanent resident status in eight of the last 15 years (not for 8 of the last 15 years) they are considered to be a long-term resident and possibly a covered exposure.
Therefore, it Is important to properly plan before you reach your 8th year.
Beware of the Form 8833 Tax Trap
Form 8833 is used to take a tax treaty position.
If a person files a form 8833 to take a tax treaty position to be treated as a foreign resident, it may be considered an act of expatriation.
Thus, if a permanent resident was unaware of the fact that they were considered a Long-Term Resident, filing Form 8833 may be considered an act of expatriation.
But, since it was done inadvertently, the person would not have had an opportunity to properly plan.
Therefore, be sure to speak with an experienced offshore attorney before taking an 8833 position if you are unsure of your Long-Term Resident status.
Tax Compliance for Prior 5-Years
In order to not be a covered expatriate, it is important that you are in compliance for the last five years with all of your tax filings.
Even if you do not meet the net worth or net income tax liability test, you will still be considered a covered expatriate if you cannot show that you’re five years compliant with your previous tax filings.
It is important to be in compliance before filing form 8854.
Interested in Expatriation from the U.S.?
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- 20-years experience as a practicing attorney
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