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August 28, 2013 - Phil Hodgen

Green card received in 2007? Expatriate in 2013 or else

Deadline for 2007 Immigrants

If you received your green card visa in 2007 and you are thinking about terminating your permanent resident status, do it in 2013 if you want to avoid the exit tax entirely.

Why

If you hold a green card “in at least 8 of the last 15 years” the exit tax rules will apply to you. That means one day in a calendar year.

If you received your green card in 2007, you have held the permanent resident status in seven years already: 2007, 2008, 2009, 2010, 2011, 2012, and 2013.

If, on January 1, 2014, you still have that green card, then you will have hit the magic “eight years” requirement and you must jump through all of the hoops erected by the exit tax rules of Section 877A and Section 2801 of the Internal Revenue Code.

Technical Explanation

The exit tax rules are found in Internal Revenue Code Section 877A.

Section 877A(g)(2)(B) says that an “expatriate” includes:

“any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of [Internal Revenue Code] section 7701(b)(6).”

A “long-term resident” is someone who meets all of the requirements of Internal Revenue Code Section 877. See Internal Revenue Code Section 877A(g)(5). This means:

any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in subparagraph (A) or (B) of paragraph (1) occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country. [Internal Revenue Code Section 877(e)(2).]

Those words “the event described in subparagraph (A) or (B) of paragraph (1)” just means the year you terminate your green card visa.

Internal Revenue Code Section 877(e)(2) just means that if you were a “lawful permanent resident” (translation: you had that visa status, and we colloquially refer to this visa as a green card), and if you had it long enough, then you are a “long-term resident.”

Just to follow the logic thread to its conclusion, here is how we know what a “lawful permanent resident” means. For exit tax purposes, this phrase has the same meaning as given in Internal Revenue Code Section 7701(b)(6). [See Internal Revenue Code Section 877A(g)(2)(B); see also Notice 2009-85, 2009-2 C.B. 598, Section 2(A).]

The definition of lawful permanent resident at Internal Revenue Code Section 7701(b)(6) is:

(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, and

(B) such status has not been revoked (and has not been administratively or judicially determined to have been abandoned).

The only kind of person who is “lawfully accorded the privilege of residing permanently in the United States as an immigrant” is someone with a green card.

OK. You know that if you have a green card, you’re a lawful permanent resident, and so now we turn to the question of how long you have had that visa status. Too long, and you’re subject to the exit tax.

The magic concept is “in” eight of the fifteen years ending with the expatriation year. And that “in” means “a moment in time”. This concept does not mean “a continuous period of time that counts up to 8 years of duration. You don’t start on April 1, 2007 and end on March 31, 2014. That’s not how it’s done.

You count the years by determining if you were a lawful permanent resident for at least a moment in time during a calendar year. Remember that a lawful permanent resident is someone who has had the visa status [Internal Revenue Code Section 7701(b)(6)(A)] and that visa status has not been revoked [Internal Revenue Code Section 7701(b)(6)(B)]. If the United States issued you a green card on December 30, 2007, then you held the lawful permanent resident status for two days during 2007, and that is one year toward the magic eight years that will qualify you for the exit tax.

For 2007 Immigrants, 2014 is Toxic

This means that for people who immigrated to the United States and received their permanent resident visa in 2007, the calendar year 2014 is toxic. One day holding a green card in 2014 means you are subject to the exit tax rules.

You have some thinking to do. If you wait, you risk a hefty tax penalty for leaving the United States.

And if you decide you want to terminate your green card, get on it early. Don’t think you have all the time in the world and you can waltz through the paperwork sometime between Christmas and Boxing Day. Too many pennies are on the track waiting to derail the train. Or something like that.

The point is — don’t procrastinate.

Treaty Elections

I will talk about this some other time, but the other idea to entertain is the idea of getting out of the United States, going to another country to live, and making an election under an income tax treaty to be treated as a resident of that country and a nonresident of the United States. If you do this right, then that year will not count as one of the eight years needed to qualify you as a “long-term resident” subjected to the exit tax.

This is tricky though. A green card holder who makes this tax election has signaled the U.S. visa and immigration bureaucrats with a clear indication of a desire not to be a permanent resident of the United States.

Don’t make a treaty election (if you are a green card holder) without considering the tax consequences carefully (if you do this wrong, the election to be treated as a nonresident can be an expatriation event all by itself), and without talking to your favorite immigration lawyer first.

Expatriation