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April 24, 2018 - Debra Rudd

Do Non-Green Card Years Count Toward the 8-Year Long-Term Resident Test?

This week’s question addresses a common situation:

Do years that someone spends in the US on a non-green card visa count towards the long-term resident test?

For purposes of answering this question, I will use the following example:

A taxpayer lives in the US on an H1-B visa for 7 years, then gets his green card. He stays in the US on the green card 2 more years, then moves back to his home country. The year he leaves the US, he turns in his green card with Form I-407.

The question I will answer is: Did this person become a long-term resident, and is he an expatriate when he turns in his green card?

The short answer: He will not be a long-term resident for tax purposes, meaning he will not be an expatriate when he terminates his green card.

Let us take a look at why that is the case.

Expatriates are former citizens and “long-term residents”

The word “expatriate” has a special meaning for tax purposes.

In common use, it generally means someone who lives outside his native country, and typically it is assumed that he retains his native citizenship and is simply living abroad for some time.

Under US tax law, the term has a different meaning. An expatriate is:

any United States citizen who relinquishes his citizenship, and
any long-term resident who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).1

This is the meaning of “expatriate” that I will be discussing here.

For today’s topic, I will ignore former citizens and focus on what the IRS calls “long-term residents”. Note that this term sounds very similar to “lawful permanent resident”, which is also mentioned in the definition of an expatriate.

I will discuss the meaning of both terms, because it is important to understand both to answer today’s question.

Who are lawful permanent residents?

Long-term residents are a subset of lawful permanent residents.2

To understand what a long-term resident is, let us start with understanding what a lawful permanent resident is.

“Lawful permanent resident” defined under tax law

According to the Internal Revenue Code, a lawful permanent resident is defined as:

An individual is a lawful permanent resident of the United States at any time if—

(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).3

The important point here is that the person is allowed to live permanently in the US as an immigrant.

This definition is found in the tax laws, but it points us to the immigration laws. If a person has been given permanent resident status under immigration law, and that status has not been revoked, then that person is a lawful permanent resident for tax purposes.

“Lawful permanent resident” defined under immigration law

I will take the easy way out of this and avoid delving into immigration law in favor of taking a description from the IRS website:

An alien who has been granted the right by the USCIS to reside permanently in the United States and to work without restrictions in the United States. Such an individual is also known known as a Lawful Permanent Resident (LPR). All immigrants are eventually issued a “green card” (USCIS Form I-551), which is the evidence of the alien’s LPR status. LPR’s who are awaiting the issuance of their green cards may bear an I-551 stamp in their foreign passports.

Types of visas other than green cards are non-immigrant visas. That is why you will see the terms “green card holder” and “lawful permanent resident” and “immigrant visa” used to mean the same thing: a green card holder is a lawful permanent resident, and his green card is proof of his immigrant visa status.

“Long-term resident” defined

Only former citizens and long-term residents can be expatriates.4 Long-term residents are a subset of green card holders, meaning that for an expatriation event to occur for a green card holder, he must be a long-term resident.

The term “long-term resident” is defined as:

an individual 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 that includes the expatriation date.5

We know already what a lawful permanent resident is. The term “long-term resident” takes that term and adds a time criterion to it.

You know that you are a long-term resident if, in the last 15 years including the current year, you had a green card at any point in time during 8 of those years.

For today’s topic, I will not go into detail on how this “in at least 8 of the last 15 years” rule works; Phil previously wrote a detailed explanation of how to do that math, complete with a helpful example, if you would like to learn more about how that works.

Finally, I answer the question

As a reminder, here is the scenario we are working with today:

A taxpayer lives in the US on an H1-B visa for 7 years, then gets his green card. He stays in the US on the green card 2 more years, then moves back to his home country. The year he leaves the US, he turns in his green card with Form I-407.

In this situation, our hypothetical person spends 7 years living in the US on a non-immigrant visa. He then gets a green card and keeps it for 2 years. For those 2 years, he has the status of lawful permanent resident. That status ends when he turns in his green card and files Form I-407.6

Someone is a long-term resident if they are a lawful permanent resident in at least 8 of the last 15 years. This person has only been a lawful permanent resident in 2 of the last 15 years. This person is not a long-term resident, even though he has lived in the US for 9 of the last 15 years.

Only citizens and long-term residents can expatriate. Because the person in our example is not a long-term resident, he is not an expatriate as defined under US tax law and he cannot be subject to the exit tax.

Some planning stuff

If you are planning to move to the United States, I would encourage you to look at non-immigrant visas (visas other than green card) as a serious option. It is possible to live in the US for many years on a number of different visas.

It is only the green card that, if you keep it long enough, will trigger you to be an expatriate if and when you decide to relinquish it. If you would like to stay in the US permanently, then getting a green card is the natural path to citizenship. But if you think that you might want to leave someday, consider looking at alternate visa strategies.

For people who already have green cards, you may have to make a tough decision to leave the United States soon if avoiding the exit tax is important to you.

Don’t listen to me

This is where I say thanks for reading and remind you that this article is not legal advice. Hire an immigration lawyer to help you with visa decisions. Hire a tax professional to help you figure out the tax issues.

Debra


  1. IRC §877A(g)(2) 
  2. IRC §877(e)(2) 
  3. IRC §7701(b)(6) 
  4. IRC §877A(g)(2) 
  5. IRC §877A(g)(5) 
  6. Reg. §301.7701(b)-1(b)(3) 
Expatriation