- 1 Exit Tax Considerations
- 2 How Long Have You Had Your Green Card?
- 3 Have You Filed a Form I-407?
- 4 Have You Been Tax Compliant For the Past Five Years?
- 5 What is Your Net Worth and Average Net Income Tax Liability?
- 6 Will You Be Considered a Covered Expatriate?
- 7 Assessing Exit Tax Strategies Before Filing
- 8 Golding & Golding: About our International Tax Law Firm
Exit Tax Considerations
When a Permanent Resident wants to exit the United States and no longer be treated as a U.S. Person, the formal process is referred to as expatriation. The exit tax process can range from relatively simple to extremely complex, depending on whether or not the Taxpayer is considered to be a covered expatriate — and if so will they have an exit tax. Depending on whether the Taxpayer is a covered expatriate or not and the different categories of assets that a person has will determine if they owe an exit tax – and for some taxpayers, the calculations can be very complicated. Unfortunately, the IRS does not sufficiently publicize these requirements. Thus, it is not uncommon for a Taxpayer to exit the United States and live abroad for several years before coming to the realization that they did not formally abandon their green card and they are still considered to be a U.S. Person. In order to try to avoid this outcome — which can inadvertently lead a taxpayer who may not have been a covered expatriate at the time they thought they had officially left the United States to now be considered a covered expatriate – there are steps the Taxpayer can take. Let’s review five steps of taxpayers should take before exiting the United States.
How Long Have You Had Your Green Card?
The first and most essential question for Green Card Holders seeking to exit the United States is how long have they had their Green Card. Taxpayers who have been Lawful Permanent Residents for at least eight of the past 15 years, may become subject to the covered expatriate rules since they fall into the category of Long-Term Lawful Permanent Resident or LTR. Taxpayers who are considered Long-Term Lawful Permanent Residents will want to determine if any exceptions or limitations may apply. If the Permanent Resident is not a Long-Term Resident, then the exit tax rules do not apply to them.
Have You Filed a Form I-407?
If you are a Long-Term Lawful Permanent Resident, it is important to be careful before filing your Form I-407. Form I-407 is used to formally give up or ‘abandon’ the green card. For Taxpayers who are considered Long-Term Lawful Permanent Residents, the filing of Form I-407 is considered to be the date of expatriation, presuming that the application is accepted and processed by USCIS. Taxpayers should be sure to get their ducks in a row before submitting Form I-407.
Have You Been Tax Compliant For the Past Five Years?
If a person is considered a Long-Term Lawful Permanent Resident, then they must determine whether or not they would be a covered expatriate. Even if the taxpayer is not considered high net worth for the exit tax rules or meet the high-income earner requirements, if they cannot certify to the IRS under penalty of perjury that they have been tax compliant for the past five years, they will also be considered a covered expatriate. For taxpayers who have not been compliant for the past five years, they may want to consider one of the offshore amnesty programs such as the streamlined procedures in order to get into compliance to avoid being covered expatriates, if it was only because they were not tax compliant that made them become covered expatriates in the first place.
What is Your Net Worth and Average Net Income Tax Liability?
Even if a person has been tax compliant for the past five years, if they are considered a long-term lawful permanent resident, then they may become a covered expatriate if they meet either the net worth test or the net income tax liability test. It is important to note, that the taxpayer does not have to meet both tests, only one. We have additional information to assist you with understanding the net worth test and average net income tax liability test.
Will You Be Considered a Covered Expatriate?
If you are considered a covered expatriate, then you may have to pay an exit tax at the time you formally exit the United States. They are different types of income categories for the exit tax and while the mark-to-market is the most common type of exit tax there is also exit tax for specified tax-deferred accounts, and eligible/ineligible deferred compensation.
Assessing Exit Tax Strategies Before Filing
Taxpayers should be sure to carefully assess their assets and income before filing Form I-407 if they believe they may become subject to the exit tax. While filing Form I-407 is relatively straightforward, for Permanent Residents who are considered Long-Term Lawful Permanent Residents and possibly considered Covered Expatriates the exit tax process as a whole can become more detailed and complicated when it comes to the tax implications and filing requirements.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and compliance, including taxes for expats.
Contact our firm today for assistance.