U.S. Tax Implications of Giving Up Your Green Card

US Tax Implications of Abandoning Your Green Card

When a U.S. taxpayer is a Lawful Permanent Resident/Green Card Holder (LPR), they are typically taxed just as if they were a U.S. citizen (worldwide income). This means they are taxed on their worldwide income and are required to report their foreign accounts, assets, investments, trusts, and entities to the IRS on various international information reporting forms, such as Form 8938 and Form 3520. Not all green card holders intend on remaining in the United States indefinitely — or becoming U.S. citizens. Ultimately, the LPR will relinquish their LPR status, thereby ceasing to be considered a US person for tax purposes. This has both tax and immigration implications and opportunities going forward. Let’s take a brief look at the tax component of abandoning your green card.

Abandon Your Green Card or Let it Expire?

The first important fact about giving up a green card is that there is a distinction between abandoning the green card and having your green card expire. When you give up your green card (for example, by filing a Form I-407), you have proactively taken the step of no longer being a US person for tax purposes under that green card. Conversely, if you just let the green card expire, that is not sufficient for abandoning the green card, and you will still be considered a US Person for tax purposes. Moreover, these subsequent years will still accrue towards you potentially becoming a long-term resident — and even a covered expatriate.

Re-entry Permit or Abandonment?

For some taxpayers who are unsure whether they want to completely abandon their green card, they may consider applying for a reentry permit, which allows them to remain outside of the United States for more than six months out of the year without having an issue returning to the United States (within the time afforded under the reentry permit, which is usually two-years). There are some complexities to qualifying for the reentry permit, and generally, the taxpayer must be in the United States to apply for it, so for taxpayers who have been out of the United States longer than six months, it may pose a bit of a problem.

How Long Have You Had Your Green Card?

When a taxpayer has had their green card for more than eight of the past 15 years and has not made any treaty elections to be treated as a non-resident during the compliance period, they may be considered a long-term resident for tax purposes (LTR). For taxpayers who are long-term residents, there are additional tax requirements after sending in their green card.

Are you a Long-Term Resident?

If a taxpayer is considered a long-term resident, then they have to file a Form 8854 with their final tax return. This will typically be a dual-status final return and the 8854 is the initial expatriation statement. If the taxpayer is considered a covered expatriate and/or maintains certain US investments/retirement, then there may be additional post-expatriation requirements as well.

Are you ‘Covered’?

If a taxpayer is a covered expatriate, it means they meet either the net worth test, the net income average tax liability test, or the five-year tax compliance test. To be considered covered, the taxpayer must only meet one of these three tests, and if so, then they may be subject to an exit tax at the time that they formally expatriate– even though they’re not a U.S. citizen.

Are You Tax-Compliant BEFORE Giving Up the Green Card?

For taxpayers who are not compliant when they want to give up their LPR status, they should be careful before they formally expatriate. That is because the expatriating act is the filing of a Form I-407 or a similar green card termination procedure. And if taxpayers are not tax compliant at the time they terminate their LPR status, they may be considered a covered expatriate. For taxpayers who fall into this problem, before submitting the green card abandonment forms, they may consider offshore disclosure to get into compliance (especially since taxpayers have to certify under penalty of perjury when submitting Form 8854).

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.