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January 2, 2018 - Phil Hodgen

When Green Card Holding Minor Children Expatriate

How (Green Card) Kids Expatriate

Let’s talk about kids and expatriation. Specifically, let’s talk about kids who have green cards. The rules are a bit different from the expatriation rules that apply to U.S. citizen minors. The key difference:

  • A parent or guardian can terminate lawful permanent resident status for a minor green card holder.
  • A parent or guardian cannot terminate U.S. nationality for a U.S. minor passport holder.

The exit tax consequences are almost always benign for both categories of children, simply because minors usually do not have sufficient assets or income to become covered expatriates. Wealthy kids who give up green cards will, however, be covered expatriates: no exceptions exist to take them out of that status.

Parents, if you are giving up your green cards, do not forget to do the paperwork for your kids at the same time.

How to Be an Expatriate

A non-U.S. citizen regular human being becomes a expatriate by doing the following:

  • Acquire lawful permanent resident3 status;
  • Then become a long-term resident, which is accomplished if you don’t lose that status voluntarily4 or involuntarily5 for many years;6 then
  • Become an expatriate when you lose that status, voluntarily, involuntarily, or by making an election under an income tax treaty to be a nonresident of the United States for income tax purposes.7

How Kids Acquire Green Cards

Parents who are lawful permanent residents of the United States can help their minor children achieve the same visa status. The child is a lawful permanent resident. Step One to expatriate status accomplished.

How Long?

Time goes by. If the child holds the visa status of lawful permanent resident “in” 8 years out of a 15 year period, then the child is a long-term resident. The 15-year period ends with an expatriation even—in this case, we pretend that the child’s parents are relinquishing the green card visa on behalf of a minor

[T]he term “long-term resident” 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 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.8

Simple example:

A child immigrates to the United States and becomes a lawful permanent resident (green card holder) at age 2, in 2005. (Well, the parents immigrate and bring their child along, if you want to know the accurate, precise truth). The child (and parents, FWIW) remains in the United States, happily childing, doing child stuff. It’s now 2018. The child is now 15 years old.

The child has been a lawful permanent resident during a backwards-looking period of 15 years (2003 – 2018) for at least eight taxable years.

The child is a long-term resident.

And Now We Take Our Leave

The parents decide to leave the United States, and (shocking I know) take their 15-year old child with them. They return to their home country.

What happens next is critical to the future sanity and financial well-being of parents and child alike.

The right way to disentangle yourself from the U.S. government’s loving embrace — if you want to leave—is to log yourself out of the immigration system and simultaneously log yourself out of the tax system.

The usual method for terminating your visa status—as a lawful permanent resident—is to file Form I-407.

A long-term resident who files Form I-407 is abandoning lawful permanent resident status9 and thus becomes an expatriate.10

Think of The Children!

Parents, don’t forget your children! When you are filing Form I-407 for yourself, be sure you are simultaneously abandoning lawful permanent resident status for your minor children. Log them out of the U.S. immigration system, too.

Lawful permanent resident status continues in force until formally revoked (either by voluntary action, viz. filing Form I-407, or by the government starting proceedings to revoke visa status). A child can thus return to his ancestral home, living there for decades, unaware that he continues to be a U.S. lawful permanent resident, and, critically, a full-blown U.S. income taxpayer.

How (Green Card) Kid Expatriates Are Taxed

Covered Expatriate?

Expatriates of all flavors go through the same self-examination: “Am I a covered expatriate?”

  • If yes, they have some paperwork (Form 8854 and a final tax return) and probably tax to pay.
  • If the answer is no (“I am not a covered expatriate”), they have some paperwork (Form 8854 and probably a final tax return)—but no tax liability is triggered just because of the event of expatriation.

Minors face exactly the same task. Is this child a covered expatriate?

  • Net worth. Is the minor child’s net worth $2,000,000 or more?11
  • Income tax liability. Did the minor child, over the previous five years, pay on average more than the inflation-adjusted threshold for Federal income tax liability12 ($165,000 for expatriation in 2018)?13
  • Tax compliance. Did the minor child file all income tax returns and pay all tax that was required for the five years before expatriation?14

No Exceptions to the Net Worth or Income Tax Tests

Very few children will have have net worth of more than $2,000,000 or an average income tax liability of more than $165,000. Those who are in that boat, however, are stuck. A U.S. citizen who expatriates before age 18.5 will not be classified as a covered expatriate because of the net worth test or the income tax liability test.15.

This exception does not apply to minors who expatriate by ceasing to be lawful permanent residents. As a result, a wealthy child will face the consequences of covered expatriate status.

Certification Test

All expatriates—children and adults alike—must certify that their previous five years of tax behavior (as measured against Title 26 of the United States Code) is spotless. Paperwork filed, taxes paid. For children with small or no income, this is an easy requirement to meet: they did not have sufficient income to trigger a filing requirement.

Still.

My ongoing suggestion, even for children who have never worked a day in their lives, is to file income tax returns with zeros on them. Make that clock tick on the statute of limitations.

Conclusion

So there you go. Anatole France famously said “The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread.”

So, too, with immigrants who leave the United States.

Congress listened to Helen Lovejoy, and thought of the children (YouTube). In a bipartisan gesture of fairness and equality that illuminates our common heritage and belief in the principles that are at the foundation of this Great Nation, children and adults alike are entitled to suffer the consequences of the exit tax. What a country!(TM)(R)


  1. Don’t buckle under. Meditations, by Marcus Aurelius. The 2012 Gregory Hays translation. (Not an affiliate link.) 
  2. But hey, at least I will be heavily jet-lagged! It’s all good. 
  3. IRC §7701(b)(6). 
  4. IRC §7701(b)(6)(A). 
  5. IRC §7701(b)(6)(B). 
  6. IRC §877(e)(2). 
  7. IRC §877A(g)(2)(B). 
  8. IRC §877(e)(2). That last sentence (where Congress yammers on about tax treaties) won’t matter unless the child has (1) been filing U.S. income tax returns and (2) has been living outside the United States and (3) the tax return filed is a Form 1040NR, and (4) you can see a Form 8833 attached to the income tax return and (5) that Form 8833 says something about residency and non residency in the essay portion of the form. In that case, get thee hence to a tax professional for additional advice. Your case is different. 
  9. IRC §7701(b)(6)(B). 
  10. IRC §877A(g)(2)(B). 
  11. IRC §§877A(g)(1)(A), 877(a)(2)(B). 
  12. IRC §§877A(g)(1)(A), 877(a)(2)(A). 
  13. Rev. Proc. 2017-58, §3.32. 
  14. IRC §§877A(g)(1)(A), 877(a)(2)(C). 
  15. IRC §877A(g)(1)(B)(ii). 
Expatriation