Menu

Blog

October 2, 2013 - Phil Hodgen

Green card received in 2007? Give it up in 2013

TL;DR

If you received your green card in 2007, you have until December 31, 2013 to give it up without an overdose of tax pain in the form of the exit tax. Wait until 2014 and you have complex paperwork ahead of you (at least) and a tax liability (maybe).

The risk

You do not want to be an “expatriate” as that word is defined for U.S. tax law.

If you are an “expatriate” you will have unpleasantries facing you when you give up your green card:

  • A complicated U.S. income tax return for the year you relinquish your visa; and
  • Possibly a massive tax bill to pay the United States for the privilege of giving up that visa.

It is better to avoid the status of being an “expatriate” altogether. Then your exit from the United States will be smooth and simple.

You are an expatriate if . . .

You, as a green card holder, will be an “expatriate” if you held that visa status “in” at least eight of the last 15 years (including this year).

Count it back from 2013. This means that if your green card was issued in 2006 you have held a green card “in” eight years already. It is too late for you.

But if you received your green card in 2007, you have only held the green card “in” seven years (so far).

Example

Your green card was issued to you on December 30, 2007. You held the green card “in” 2007. Your visa status has remained in good standing ever since. From and including 2007 until and including 2013, you have seven calendar years in which you have held a green card.

If you received your green card in 2007 and you still have your green card on January 1, 2014, you will have held the visa “in” eight years.

If your plan is to give up the green card anyway, 2013 would be an excellent time to do it. You will avoid having to file Form 8854, and you will not have to worry about whether you are a “covered” expatriate who might owe a lot of income tax for the privilege of relinquishing the green card.

Example

Your green card was issued to you on December 30, 2007. You held the green card “in” 2007. Your visa status has remained in good standing ever since. From and including 2007 until and including 2013, you have seven calendar years in which you have held a green card.

You relinquish your green card on January 2, 2014.

You have held a green card “in” eight years out of the last 15. You must file Form 8854 along with your 2014 income tax return. If you meet one of the tests, you will be a “covered expatriate” and will be treated as if you sold all of your assets on the day before you gave up your green card. You might owe a lot of income tax to the United States.

Who should do this?

I talk to a lot of green card holders who are living overseas and have no intention of returning to live in the United States. You should think about the timing of giving up the green card and if you can do so with no tax bite, you should do it.

If you are living in the United States as a green card holder, consider if it makes sense to give up the green card and go through the paperwork of re-entering the United States under a new visa, like the L-1. You will then be protected from the exit tax rules because you will not be an expatriate. And living in the United States under the L-1 visa status–in fact any visa except the green card–is a great lifestyle, free of the exit tax risk.

Wrinkle

Remember I kept saying “in” with the world “in” in quotation marks? (That’s a clumsy sentence). There is one way you can halt the clock. If you are a green card holder living outside the United States in a country that has an income tax treaty with the USA, you can make an election–using the treaty–to be treated as a nonresident of the United States for income tax purposes, and a resident of the country you are living in.

That year does not count toward the “eight of the last 15 years”.

Example

Your green card was issued to you on December 30, 2007. You held the green card “in” 2007. Your visa status has remained in good standing ever since. From and including 2007 until and including 2013, you have seven calendar years in which you have held a green card.

But in 2013, you moved to the United Kingdom, where you are living right now. When you prepare your 2013 U.S. income tax return, you attach Form 8833 and elect (under Article 4 of the income tax treaty) to be treated as a resident of the U.K. and a nonresident of the United States for income tax purposes.

2013 will NOT count as one of the years for “eight of the last 15 years”. You will have held a green card “in” 2007 through 2012–only six years.

Complicated, so be careful

Making the treaty election–to be treated as a nonresident of the United States–is complex. Do not do it willy-nilly. Be sure you know the tax implications before you do it.

Also know the immigration status implications. Our beloved Overlords of Immigration take such an election as an indication that you do not intend to make the United States your permanent residence. And they might think it appropriate to cancel your green card.

Proceed with caution.

Expatriation