Expatriation, Green Cards & IRS Exit Tax

Expatriation, Green Cards & IRS Exit Tax

While it may not be common for individuals to relinquish their citizenship, it is very common for individuals to give up, relinquish, or voluntarily abandon their green card (Even with FATCA, the number of renouncements of citizenship is still under 7,500 per year)

While a Green-Card can be an effective method for individuals to freely visit the United States, as individuals get older and/or their priorities change – they may have no intention of remaining in the United States (or even visiting).

Moreover, once individuals with a green card get wind of how the United States’ Citizen-Based Taxation may impact them, the benefits of the green card may be outweighed by the detriments.

The most serious detriment being the hit to your wallet or pocketbook.

These are Five important factors to keep in mind before you begin the process:

Long-Term Resident

Are you a Long-Term Resident?

The Internal Revenue Service is not going to let individuals who are considered to be long-term residents get away without possibly having to pay an exit tax (a.k.a. a phantom tax on the value of the gain that would occur in the imaginary sale – that never acutally occurred – when you exit the United States).

Under most circumstances, a legal permanent resident/green card holder will be considered a long-term resident if they have resided within the United States for at least eight (8) of the last 15 years.

**This can get very dicey for individuals who may not have met the requirements for a green card (a.k.a. residing in the United States for at least 180+ days a year) but still confirmed that they did (under penalty of perjury on their application) in order to renew green cards that were not “lifetime” green cards as they were issued in the earlier days.

Covered Expatriate

Not everyone who resided in the United States (even long-term residents) will be considered a covered expatriate.

Generally, a covered expatriate falls into three (3) different categories, including:

  • A Net Worth of more than $2 million
  • Earning enough to have a very high tax liability on annual basis (averaging around 160,000+); or
  • Not having filed taxes and/or being in tax compliance for the last five years.

If you meet anyone of these categories, then you must move onto the next phase of the analysis to determine whether you may be subject to an exit tax. If you have not yet complied with filing tax returns, FBAR, FATCA, 3520, 5471, 8621, 8938, then you should be very careful before certifying on Form 8854.

Worldwide Assets

It is important to understand that it is not merely U.S. assets that may subject you to the exit tax, but also includes the values of certain accounts, such as your 401(k) and bank account.

In addition — and what ordinarily comes as a big surprise to individuals — is that it also includes worldwide assets.

In other words, if the value of your US property is only $1 million, but the value of your property, accounts, investments, or other assets around the world is $7 million net, then you will be considered to have met the $2 million benchmark.

Therefore it is important to understand what your true value and net worth is with respect to the potential exit tax before filing the form 8854.

Exceptions

Even if you meet the minimum threshold requirements for being a covered expatriate, that does not mean you are deemed a covered expatriate. In other words, certain exceptions apply — which may deem you a non-covered expatriate even know you otherwise meet the threshold requirements for being an expatriate.

For example, certain dual-citizens may be able to avoid being a covered expatriate (if they meet certain threshold requirements and can show that they have been tax compliance for the last five years — which they must certify under penalty of perjury on form 8854)

In addition, certain minors and other individuals who are no longer minors but might have met the requirements when they were minor may be exempt from being a covered expatriate.

Exemption Amount

It is also important to understand that it is not the mere value of the assets that you own, but any debt or liability in accordance with these assets must also be considered in light of your value.

For example, if you own a home worth $2 million and you have a $1.8M mortgage in the market has dropped so that the value of the home is now $1.6M — the mere fact that you have a $2 million “asset” to your “name” does not suddenly make you a covered expatriate having to pay exit tax on the phantom sale of an asset which is over-under.

Golding & Golding: About Our International Tax Law Firm

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

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
  • We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Offshore Counsel

Generally, experienced attorneys in this field will have all the following credentials/experience:

  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience
  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.


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