People from countries all over the world apply for US permanent residency status, informally known as obtaining a “green card”. Nowadays, however, many US green card holders are questioning whether to continue holding the green card. The number of individuals who are renouncing their US citizenship or relinquishing their long term permanent resident status (this generally means holding a green card for 8 out of the past 15 years prior to relinquishment) has been on the rise.
The dramatic rise in numbers reflects the harsh reality of what holding a green card really means from a US tax point of view. Green card holders are taxed in the same manner as US citizens – that is, they are subject to US income tax on their worldwide income regardless of the source of that income or where the green card holder is living at the time it is earned. Aside from the tax dollars themselves, onerous tax filing obligations are required, including filing of so-called FBARs which can result in harsh imposition of penalties if not done properly or in a timely fashion. The cost for professional tax advice and for tax return preparation can be very high when international tax issues are involved, as is often the case with green card holders.
US Income Tax: How to Relinquish the Green Card
Even if the individual is not complying with the terms of maintaining the green card for purposes of the US immigration laws, continuing to hold the card still counts for US tax law purposes. This has been battled out in court and the law is clear. An “informal” relinquishment of one’s green card is simply not enough from a tax perspective.
Under the US income tax rules pertaining to green card holders, a foreign individual is considered a “resident alien” (thus subject to worldwide income tax) for any calendar year if the individual is a lawful permanent resident at any time during that calendar year. A lawful permanent resident is defined as an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws.
Many clients who come to see me are under the mistaken belief that simply because their green cards have “expired” they are no longer US tax subjects. This is incorrect. The tax law is very precise on this topic. Under the US tax rules, once resident status is acquired, it is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned.
A “rescission” of resident status generally occurs when there is a final administrative or judicial order of exclusion or deportation. An administrative or judicial determination of “abandonment” of resident status may be initiated by the foreign person, the US Immigration authorities or a US consular officer. In most cases, the individual initiates the abandonment of the card.
Form I-407 or Letter of Intent to Abandon Resident Status
Under the US tax rules, resident status is considered to be abandoned when the individual’s application for abandonment (INS Form I–407 “Abandonment of Lawful Permanent Resident Status”) or a letter stating the alien’s intent to abandon his or her resident status, along with the green card enclosed, is filed with the US Immigration authorities or a consular officer. Most people go to the nearest US embassy or consulate with the required documents and turn them over the US consular officer.
A stamped copy of the I-407 is given to the individual by the consular officer and must be retained as proof that the card was formally and properly abandoned. The Form can be accessed here. If filing a letter of intention to abandon US resident status, with the green card enclosed is the method chosen, it must be sent by certified mail, return receipt requested (or a foreign country’s equivalent thereof). A copy of the letter and the green card, along with proof that the letter was mailed and received, should be retained.
Frankly, I advise individuals to present themselves in person at the nearest US Embassy or Consulate to relinquish the green card so as to ensure they get a receipt as proof of having done so.
Don’t Forget –
• Persons planning to relinquish their green cards should thoroughly understand the rules regarding “expatriation” discussed in a separate blog. Holding a green card for an extended number of years can make relinquishing the card more complicated from a US tax perspective and, depending on the facts of the case, can result in imposition of so-called “Exit Tax” liability as well as other US tax consequences.
• Look carefully at the rules for tax filings that are required (for example, Form 8854 and the final income tax returns reflecting dual status tax years). These issues, as well as possible tax planning, should be discussed with a tax professional before the green card is abandoned.
• Abandoning one’s green card is irrevocable. Unless the individual holds a passport entitling him to benefits of the US 90-day visa waiver program, the individual will be required to apply for an immigrant visa in order to enter the US in the future.
Posted October 1, 2018
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