Voluntary Abandonment of Lawful Permanent Residence

Voluntary Abandonment of Lawful Permanent Residence (Cessation Rules)

Voluntary Abandonment of Lawful Permanent Residence

Once upon a time, expatriation was limited to US Citizens. Then about 20 years ago the US Government expanded the definition to include Long-Term Lawful Permanent Residents (which generally means a person held their permanent residence status for at least eight of the past 15 years). Unlike U.S. citizens – that have to go through a much more detailed process to renounce their US citizenship – Lawful Permanent Residents have an easier time giving up their US status. Let’s take a brief look at the law summarized under Notice 2009-85.

26 USC 7701(b)(6) – Lawful Permanent Resident (LPR)

• • • For purposes of this subsection, an individual is a lawful permanent resident of the United States at any time if—

    • such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, and

    • such status has not been revoked (and has not been administratively or judicially determined to have been abandoned). An individual shall cease to be treated as a lawful permanent resident of the United States if such individual

    • commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country,

    • does not waive the benefits of such treaty applicable to residents of the foreign country, and

    • notifies the Secretary of the commencement of such treatment.

This code section refers to the general rule of what the definition of a lawful permanent resident is. This definition is important because, with respect to the relinquishment of long-term lawful permanent resident status, it relates back to the definition of a lawful permanent resident to explain why the person would no longer be treated as a lawful permanent resident.

2009-85 Cessation by Administrative or Judicial Determined

Focusing on part 1 of the statute

• • • “Under section 7701(b)(6), as amended by the Act, a long-term resident ceases to be a lawful permanent resident if

      • (A) the individual’s status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with immigration laws has been revoked or has been administratively or judicially determined to have been abandoned, or if…

What does this Mean?

It means that if someone was permitted to become a lawful permanent resident, they will no longer be considered a lawful permanent resident if the status has been revoked or administratively or judicially determined to have been abandoned.

What About Expired LPR Status?

An important aspect of this definition is that it does not list the mere expiration of the green card as a form of ceasing to be a lawful permanent resident. In an all too common situation, a taxpayer became a lawful permanent resident with a 10-year green card, let that 10-year green card expire, and then presume that they were no longer considered a US person for tax purposes, but that is incorrect. In order to cease being a permanent resident the green card must have been revoked or administratively or judicially abandoned; expiration of the green card is not sufficient to relinquish PR status.

 Tax Treaty and Form 8833 Instructions

One important fact to keep in mind is that while generally, a taxpayer will relinquish their green card by submitting a Form I-407 along with the green card itself, there are other ways that a taxpayer can intentionally or inadvertently give up the permanent resident status.

As Further Provided by statute, a long-term resident will cease to be an LPR if

• • • (B) the individual

      • (1) commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country,

      • (2) does not waive the benefits of the treaty applicable to residents of the foreign country, and

      • (3) notifies the Secretary of such treatment on Forms 8833 and 8854.

Form 8833

As provided by the instructions to Form 8833:

• • • Termination of U.S. Residency

      • If you are a dual-resident taxpayer and a long-term resident (LTR) and you are filing this form to be treated as a resident of a foreign country for purposes of claiming benefits under an applicable U.S. income tax treaty, you will be deemed to have terminated your U.S. residency status for federal income tax purposes. Because you are terminating your U.S. residency status, you may be subject to tax under section 877A and you must file Form 8854, Initial and Annual Expatriation Statement.

What does this Mean?

In accordance with Form 8833 — which is used to make a treaty election — if the taxpayer makes a treaty election and does not disclaim the benefits afforded to them the treaty, the IRS can take the position that this filing of Form 8833 is the expatriating act — and now the taxpayer must file the Form 8854. For taxpayers who could be considered covered expatriates and who did not properly plan for expatriation, this may result in a significant and unintended exit tax consequence.

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