Does Giving Up Permanent Residency Stop US Taxation & FBAR?

Does Giving Up Permanent Residency Stop US Taxation & FBAR?

How Lawful Permanent Residence Abandonment Impacts Tax

When a person wants to become a Permanent Resident of the United States, there are various loopholes they must jump through and requirements they must meet. Sometimes, after receiving the Green Card (issued to permanent residents), the Taxpayer no longer wants to remain a US person. Therefore, they move out of the United States – but unfortunately, the mere act of relocating out of the United States is not sufficient to avoid US taxation —  unless the person has had their status taken away or they have formally abandoned their Lawful Permanent Residence status. Until a person takes the formal steps toward abandonment, they are still considered a US person for tax purposes. Let’s take a brief look into the requirements to give up Lawful Permanent Residence and US tax status:

As provided by the IRS:

Green Card Test

      • You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during calendar year 2021. (However, see Dual-Status Aliens, later.) This is known as the green card test. You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant.
      • You generally have this status if the U.S. Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, also known as a green card. You continue to have resident status under this test unless the status is taken away from you or is administratively or judicially determined to have been abandoned.

Resident Status Taken Away

      • Resident status is considered to have been taken away from you if the U.S. Government issues you a final administrative or judicial order of exclusion or deportation. A final judicial order is an order that you may no longer appeal to a higher court of competent jurisdiction.

Resident Status Abandoned

      • An administrative or judicial determination of abandonment of resident status may be initiated by you, the USCIS, or a U.S. consular officer. If you initiate the determination, your resident status is considered to be abandoned when you file either of the following documents with your USCIS Alien Registration Receipt Card (green card) attached with the USCIS or a U.S. consular officer.
        • USCIS.gov/Form I-407 (Record of Abandonment of Lawful Permanent Resident Status).
        • A letter stating your intent to abandon your resident status. When filing by mail, you must send by certified mail, return receipt requested (or the foreign equivalent), and keep a copy and proof that it was mailed and received. Until you have proof your letter was received, you remain a resident alien for tax purposes even if the USCIS would not recognize the validity of your green card because it is more than 10 years old or because you have been absent from the United States for a period of time.
        • If the USCIS or U.S. consular officer initiates this determination, your resident status will be considered to be abandoned when the final CAUTION ! administrative order of abandonment is issued. If you are granted an appeal to a federal court of competent jurisdiction, a final judicial order is required. Under U.S. immigration law, a lawful permanent resident who is required to file a tax return as a resident and fails to do so may be regarded as having abandoned status and may lose permanent resident status.

What Does This Mean?

It means that the IRS is drawing the distinction between the IRS tax authorities (Internal Revenue Service) and USCIS (United States Citizenship and Immigration Service) for immigration purposes. Even if a permanent resident fails to meet the necessary requirements to continue as a permanent resident for immigration purposes, they are still considered a US person for tax purposes until they have taken formal action (such as filing an I-407) or formal action has been taken against them (Resident Status taken away). This could lead to major issues involving missed tax filing penalties; FBAR and FATCA penalties; lien and seizures.

Taxpayers out of compliance should speak with a Board-Certified Tax Law Specialist to assess the different international tax amnesty programs in order to safely get back into compliance.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS Offshore Compliance and Voluntary Disclosure.

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