For the webinar coming up on November 19, I invited people to email me their hardest questions ahead of time so I could answer them. Here’s one that came in and I figured it would make a good blog post.

I’ve heard some people say that long-term green-card holders (i.e., those who’ve had their green card for 8 of the last 15 years and are therefore subject to the exit tax) can “inadvertently” expatriate and trigger the exit tax if their green card expires or if they stayed out of the U.S. long enough to be considered to have abandoned their green card. However, I thought that a green-card holder didn’t officially become an NRA again until they took an intentional action to relinquish their green card—thus, the obligation to file U.S. tax returns continues, and the exit tax is not triggered, until that “official relinquishment date.” What’s the correct position? I haven’t had this particular fact scenario come up on my practice yet, and I’d like to be ready for it when it does!

This happens a lot. People have green cards. They leave the country and stay out of the United States so much that they might be considered to have abandoned their permanent immigrant status. Or the green card expires.

Neither of these events have any meaning for exit tax purposes. The only thing that matters is the fat lady singing–the United States government has to tell you, the green card holder, that yes, your permanent resident status is kaput.

In order for the exit tax to apply, the taxpayer must be an expatriate. A green card holder is an expatriate when he or she “ceases to be a lawful permanent resident of the United States (within the meaning of [Internal Revenue Code] Section 7701(b)(6)).” ((Internal Revenue Code Section 877A(g)(2)(B).))

The way a person becomes a lawful permanent resident is:

  • You have the correct visa status under the immigration laws, ((Internal Revenue Code Section 7701(b)(6)(A).)) and
  • That immigration status has not been revoked and has not been determined to have been abandoned (by administrative or court action). ((Internal Revenue Code Section 7701(b)(6)(B).))

In the example given (a green card holder leaves the United States and never returns, or the green card expires), that second requirement has not been satisfied. The immigration status has not been revoked (that would require some sort of official action by the U.S. government). And the immigration status has not been abandoned. All of the facts exist to show that the individual abandoned the intention to live in the United States, but the government (via administrative action or court proceedings) has not said “Yes, you have abandoned the green card.”

Let’s look first at the “revoked” language in Code Section 7701(b)(6)(B). The Treasury Regulations don’t use the word “revoke” because why bother with consistency? The word used in the Regulations is “rescission” or “rescind”. ((T. Regs. § 301.7701(b)-1(b)(1).)) Let’s agree that “revoke” == “rescind”. We’re all friends, right?

Resident status (as evidenced by your green card) is considered to be rescinded:

if a final administrative or judicial order of exclusion or deportation is issued regarding the alien individual. For purposes of this paragraph, the term “final judicial order” means an order that is no longer subject to appeal to a higher court of competent jurisdiction.” (( T. Regs § 301.7701(b)-1(b)(2).))

In other words, in order to have green card status “revoked” the fat lady must sing–there is an official order kicking you out of the country, and you cannot appeal that order to any court. Just sitting quietly in another country is not enough to revoke (or “rescind” as the Regulations call it) your green card.

Resident status is deemed “abandoned” when it is “administratively or judicially determined to have been abandoned.” ((T. Regs. § 301.7701(b)-1(b)(1).)) The Regulations tell us how this is done.

First, the Regulations say that either the individual or the government can start the process of abandonment. ((T. Regs. § 301.7701(b)-1(b)(3).)) On the government’s side, a consular official or the USCIS can start the process. (T. Regs. § 301.7701(b)-1(b)(3).))

If the USCIS or a consular official launches the procedures for abandonment of green card status, then the date that resident status ceases is when there is a final administrative order of abandonment. The individual can appeal that to a court, and if that happens, then the date is when there is a final court order that can no longer be appealed. ((T. Regs. § 301.7701(b)-1(b)(3).))

Again, the fat lady must sing–the government must issue a piece of paper saying that your green card status is finished.

If the individual initiates the abandonment proceedings, it is done in one of two ways:

  1. File Form I-407; or
  2. Send a letter stating the intent to abandon status and enclose your green card. ((T. Regs. § 301.7701(b)-1(b)(3).))

Merely sitting quietly in another country will not cause an abandonment of green card status. You, the individual, must file some piece of paper with the government. The effective date of abandonment is the date you filed the paperwork. ((T. Regs. § 301.7701(b)-1(b)(3).))

OK. On to the final point. What if the green card expires and you do not renew it? Surely this means you abandoned your permanent resident status. Nope. Remember that the Regulations say the government must issue an order–administrative or judicial. ((T. Regs. § 301.7701(b)-1(b)(3).)) Something simply hitting its expiration date is not an order issued to you.

What This Means

I regularly talk to people who had green cards and moved abroad 10 or 15 years ago. They stopped filing U.S. tax returns under the assumption that they were no longer U.S. residents.

Wrong.

You are still a lawful permanent resident in the eyes of the U.S. government and should be filing income tax returns.

For someone who is sitting outside the United States and wants to make a clean break with the IRS, this will mean going through the expatriation process. It will mean filing the paperwork required to formally abandon the green card status (usually Form I-407). It will also mean preparing income tax returns going back in time to fix the failure to file problem. How far back will be determined on a case by case basis. Not doing so will make you a covered expatriate.