Green Card Abandonment & Living Abroad Expatriate Status Problem

Green Card Abandonment & Living Abroad

Green Card Abandonment & Living Abroad Expatriate Status Problem: One of the most unfair aspects about being a Lawful Permanent Resident who has retained their LPR status for several years, is that they may become a Long-Term Lawful Permanent Resident — and then become subject to the exit tax — if they are covered expatriate. One of the most incorrect assumptions inexperienced tax professional make is that just because a Lawful Permanent Resident resides outside of the United States and does not meet the presence requirement under the Green Card Rules — that this qualifies as a Foreign Resident. Even if the LPR resides outside of the United States in a treaty country — they will almost always have to take proactive steps and file the Form 8833 each year they claim foreign resident status. If they do not take proactive steps, the IRS can claim it that in and of itself, it is not sufficient to be considered a nonresident under the eight-year (8) Long-Term Resident Rule. The key document for LTRs and U.S. Citizens is Internal Revenue Service Form 8854. Let’s work through the specifics of who is a Lawful Long-Term Lawful Permanent Resident — and required to complete Form 8854.

Lawful Permanent Resident Definition

We will reproduce the paragraph provided in the instructions — along with a breakdown summary in layman’s terms

• • • You are a lawful permanent resident of the United States if you have been given the privilege, according to U.S. immigration laws, of residing permanently in the United States as an immigrant.

    • You generally have this status if you have been issued an alien registration card, also known as a “green card,” and your green card hasn’t been revoked or judicially or administratively determined to have been abandoned, and you haven’t

      • • 1) commenced to be treated as a resident of a foreign country under the provisions of a tax treaty ,

        • 2) waived the benefits of such treaty, and

        • 3) notified the IRS of such a position on a Form 8833 attached to an income tax return.

    • If you were already an LTR at the time you cease to be treated as a lawful permanent resident, then you will be treated as having expatriated as of that date.

Let’s go through each element:

Green Card Status

You have been given the privilege, according to U.S. immigration laws, Residing permanently in the United States as an immigrant.

As provided by the IRS, you generally have this status if you have been issued an alien registration card, also known as a “green card,”

What does this Mean

It means that for all intents and purposes, a person is considered a Lawful Permanent Resident when they have been given the privilege of residing in the United states with a Green Card. Notice, it does not require the taxpayer to actually reside in the United States  — but rather just being granted the privilege to do so.

Revoked or Abandoned

Your green card hasn’t been revoked or judicially or administratively determined to have been abandoned, and

A person is still considered to have the privilege of residing in the United States permanently until their Green Card has been revoked or judicially or administratively abandoned.

Important, merely having the green card expire is not sufficient.

Why?

Just because the Green Card expires does not prevent the Taxpayer from going back and trying to re-up the Green Card after it expired. In other words, to prove abandonment a person has to take an affirmative act — and the path of least resistance is normally filing Form I-407.

Foreign Treaty Benefits

• • • 1) commenced to be treated as a resident of a foreign country under the provisions of a tax treaty

    • 2) waived the benefits of such treaty, and

    • 3) notified the IRS of such a position on a Form 8833 attached to an income tax return.

These three elements, when taken together, provide that as long as the Taxpayer still has the Green Card and it has not been judicially or otherwise properly revoked or abandoned, then they will still be considered to be a Lawful Permanent Resident — with those years counting toward Long-Term Resident status — unless they proactively:

• commence to be treated as a foreign resident
• under a tax treaty
• Waived benefits of the treaty; AND
• Notified the IRS on Form 8833

8833 Tax Trap

• • • “If you were already an LTR at the time you cease to be treated as a lawful permanent resident, then you will be treated as having expatriated as of that date.”

This is very important language because it warns the taxpayer that if they already meet the eight out of 15 years and then they go ahead and file the form 8833 then that will be considered the expatriating act , which cannot be unwound and does not leave the taxpayer with any ability to plan for the exit tax before performing the expatriating act.

Can I Just Reside in a Treaty Country?

No. Just residing in a treaty country is not sufficient to avoid green card status under the IRS requirements. In other words, in order for the Taxpayer to avoid being treated as a US person in any one of the eight (8) of the last 15 years , they can’t just live in a Treaty Country. Instead, they would take the position under the Treaty that they are a Foreign Resident and file form 8833 — which the IRS requires to be submitted to show reliance on the treaty.

Can Residing In A Treaty Country be Sufficient

If a taxpayer has resided overseas for many years, their Green Card expired — and they have not ever returned to the United States or have any communications, investments, etc with the United States, then they can try to take the position that they are by default a non-resident. Presumably, the taxpayer will be in for a long and costly dogfight with the IRS —  along with having to carefully evaluate the 8854, signed under Penalty of Perjury, Thus, it is better to try to plan from the outset to avoid these unnecessary costs.

Otherwise, it will put the taxpayer into a precarious tax position – which could result in hundreds of thousands and even millions of dollars of exit tax.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

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