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Tax Court Confirms It — “Informal” Relinquishment of Green Card NOT Enough!

Many individuals from countries throughout the world apply for US permanent residency status, informally known as obtaining a “green card”.  For some, obtaining the green card is a dream come true.  The Department of Homeland Security has published a Yearbook of Immigration Statistics which is a compendium of tables providing data on foreign nationals who, during a fiscal year, were granted lawful permanent residence (i.e., admitted as immigrants or became legal permanent residents). Table One provides information on the numbers of individuals obtaining lawful permanent resident status in each of  the fiscal years from 1820 (8,385 persons) to 2013 (990,553 persons).

Currently, however, many US green card holders are questioning whether to continue holding the green card and we are seeing an increase in relinquishments of green cards. This trend reflects the harsh reality of what holding a green card really means from a US tax standpoint.  Green card holders are taxed in the same manner as US citizens – that is, they are subject to US income tax on their worldwide income regardless of the source of that income and regardless of where the green card holder is living at the time it is earned.  Aside from the tax dollars themselves, onerous tax filing obligations are required, including filing of so-called FBARs which can result in harsh imposition of penalties if not done properly or in a timely fashion.  The cost for professional tax advice and for tax return preparation can be very high when international tax issues are involved, as is often the case with green card holders.

The Department of Homeland Security has provided statistics pursuant to a Freedom of Information Act (FOIA) request regarding the number of green cards surrendered each year since 2000 as evidenced by submissions of Form I-407 (discussed below).  I provide here the numbers of green card relinquishments since 2010, when FATCA was enacted:

2010: 19,545 

2011: 17,267

2012: 17,775 

2013: 11,185 * 

These statistics would presumably not reflect the number of green cards relinquished by mailing of the card along with a letter of relinquishment to the nearest US consulate or to the United States Citizenship and Immigration Services (which carries out many of the functions of the former Immigration and Naturalization Service (INS)).  Surely, the statistics don’t reflect the thousands of “informally” abandoned green cards – the pesky little problem discussed in this post. 

*  Finally, the 2013 statistic provided reflects the information available in the Department of Homeland Security system at the date of the FOIA request — June 20, 2013.  Thus, extrapolating data with respect to 2013 is tricky since many of the I-407 forms from June (and perhaps earlier) may not yet have been reflected in the data; and I-407 forms arriving after the June 20 query are not reflected. 

US Income Tax Law and US Immigration Laws are Separate and Distinct 

Under the US income tax rules pertaining to green card holders, a foreign individual is considered a “resident alien” (thus subject to worldwide income tax) for any calendar year if the individual is a lawful permanent resident at any time during that calendar year. A lawful permanent resident is defined as an individual who has been lawfully granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws.

Even if the individual is not complying with the terms of maintaining the green card for purposes of the US immigration laws, continuing to hold the card still counts for US tax law purposes. Many clients who come to see me are under the mistaken belief that simply because their green cards have “expired” they are no longer US tax subjects. This is incorrect. The tax law is very precise on this topic. Under the US tax rules, once “resident” status is acquired, it is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned. 

The United States Tax Court very recently acknowledged this in Topsnik v. Commissioner, in a September 2014 holding.  In Topsnik, the Tax Court determined that a German national who held a green card was subject to tax on his worldwide income, even though he had sold his US residence, and made very infrequent visits to the United States during the tax years in question.  The court determined that for US tax law purposes, as distinguished from US Immigration law purposes, the taxpayer could not “informally” abandon his tax status as a lawful permanent resident.  He was required to follow the appropriate procedures under the tax laws in order for his US resident status to be treated as terminated for purposes of the US income tax rules.  Since the taxpayer had not done this, he was taxed as a US resident for the years in question – meaning he was taxed on his income from all over the world, which in this case included rental income from an inn in Germany, income from a winery in Thailand and installment sale gain on certain stock.

How to Relinquish the Green Card

As mentioned, for US income tax purposes, once lawful permanent resident status is acquired, it is deemed under the tax laws to continue until such status is either rescinded or administratively or judicially determined to have been abandoned. A “rescission” of resident status generally occurs when there is a final administrative or judicial order of exclusion or deportation of the individual.   An administrative or judicial determination of “abandonment” of resident status may be initiated by the foreign person, the US Immigration authorities or a US consular officer. In most cases, the individual initiates the abandonment of the card, usually by filing INS Form I-407.   Most people go to the nearest US Consulate or Embassy with the required documents and turn them over to the US consular officer. A stamped copy of the I-407 is given to the individual by the consular officer and must be retained as proof that the card was formally and properly abandoned.

The relevant Treasury Regulations are found in Section 301.7701(b)-1(b)(3), and set forth the requirements for an administrative or judicial determination of an alien’s abandonment of U.S. resident status as follows:

 “If the alien initiates this determination, resident status is considered to be abandoned when the individual’s application for abandonment (INS Form I-407) or a letter stating the alien’s intent to abandon his or her resident status, with the Alien Registration Receipt Card (INS Form I-151 or Form I-551) enclosed, is filed with the INS or a consular officer. If INS replaces any of the form numbers referred to in this paragraph or § 301.7701(b)-2(f), refer to the comparable INS replacement form number. For purposes of this paragraph, an alien individual shall be considered to have filed a letter stating the intent to abandon resident status with the INS or a consular office if such letter is sent by certified mail, return receipt requested (or a foreign country’s equivalent thereof). A copy of the letter, along with proof that the letter was mailed and received, should be retained by the alien individual. If the INS or a consular officer initiates this determination, resident status will be considered to be abandoned upon the issuance of a final administrative order of abandonment. If an individual is granted an appeal to a federal court of competent jurisdiction, a final judicial order is required.”

How Long Have You Held the Green Card?

Individuals who plan to relinquish their green cards must have a complete understanding of the laws regarding “expatriation”. These rules are discussed in a separate blog posting Holding a green card for an extended number of tax years (generally 8 tax years out of the past 15 tax years) will make relinquishing the card more complicated from a US tax perspective.  Under these rules, having the green card for even one day during the calendar year will cause that entire year to be counted for purposes of computing the 8 year period. Depending on the facts of the case, the relinquishment can result in imposition of a so-called “Exit Tax” as well as other US tax consequences.  The individual must carefully examine the rules for tax filings that are required (for example, Form 8854 and the final income tax returns reflecting dual status tax years). These issues, as well as possible tax planning, should be discussed with a tax professional before the green card is abandoned.

 

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12 thoughts on “Tax Court Confirms It — “Informal” Relinquishment of Green Card NOT Enough!

  1. Please make an asterisk upon the 2013 figures and note from the FOIA that the 2013 data reflects their query at date June 20, 2013.

    Extrapolating 2013 would not be straightforward, as the I-407 forms dated in June may not arrive in the database until September and I-407 forms arriving in December 2013 may not land in the database until January or even June of 2014. Who knows.

    One could rightfully assume that the 2013 data represents less than half of what 2013 actually is.

    1. Dear Concerned – Your points are well noted and the blog post has been updated to reflect your “concern”. THANK YOU!

    1. Frankly, the law in Sec 6039G states per below that the name of each individual “losing United States citizenship (within the meaning of section 877 (a) or 877A)” should be published in the Federal Register. First, it is not clear to me that United States citizenship is the same as holding a green card! Second if one refers to the referenced Code sections of Section 877(a) and 877A – these refer to those persons who are deemed to have a tax avoidance motive / fail to make the tax certification and either lose US citizenship or long term lawful permanent resident status (i.e., after having such status for 8 tax years out of the preceding 15 tax years). As such, certainly not all green card holders should be listed in the Fed Reg. and further, I wonder if ANY should be listed at all given the wording in 6039G, to wit — “losing United States citizenship”.

      http://www.law.cornell.edu/uscode/text/26/6039G

      d) Information to be provided to Secretary
      Notwithstanding any other provision of law—

      (1) any Federal agency or court which collects (or is required to collect) the statement under subsection (a) shall provide to the Secretary—
      (A) a copy of any such statement, and

      (B) the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a),

      (2) the Secretary of State shall provide to the Secretary a copy of each certificate as to the loss of American nationality under section 358 of the Immigration and Nationality Act which is approved by the Secretary of State, and

      (3) the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.

      Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877 (a) or 877A) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

  2. Cooking the Books at the Federal Register: What Has the Executive Branch Been Feeding You?

    Hmmm. What’s up here? Does 2+2 = 32? Why are the US Federal Register published statistics off by a factor of 8? Is this “truth”? Is this “competence”? Is this “leadership”? Is this “‘information’ for ‘formulating an opinion’?” What kind of opinion is meant to be formulated with this kind of “information”?

    http://bit.ly/1sLV5mJ

    1. Dear Banc – We appreciate your blog post and copy the below from your posting. Having said that, I still do not think the law is clear in mandating the former long term LPRs be included in the Fed Reg. listing. They want to “name and shame”… and thus, it could be that this is the reason they have included the names of such LPRs.

      Isaac Brock Society, Q1 2013 Federal Register list of ex-citizens published; numerous names missing , Posted on May 7, 2013 • by Eric, http://isaacbrocksociety.ca/2013/05/07/q1-201-federal-register-list-of-ex-citizens-published-numerous-names-missing/

      Isaac Brock Society, Confirmed case of former long-term green card holder not appearing in Federal Register, Posted on June 23, 2013 • by Eric, http://isaacbrocksociety.ca/2013/06/23/confirmed-case-of-former-long-term-green-card-holder-not-appearing-in-federal-register/

      https://en.wikipedia.org/wiki/Quarterly_Publication_of_Individuals_Who_Have_Chosen_to_Expatriate

      explains that “…..Inclusion of non-citizen former permanent residents: The Quarterly Publication is required to include the names not just of former U.S. citizens but of certain former permanent residents as well. Under 26 U.S.C. § 6039G(d)(3), “the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.” The Quarterly Publication includes a statement that “for purposes of this listing, long-term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United States who lost citizenship”…..

    1. Thank you for repeating what the Federal Register IRS Notice states. The IRS Notice, however, is not a law. What I would like to know is the legal authority for the statement, when the 6039G language uses the word “citizenship”: “Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877 (a) or 877A) with respect to whom the Secretary receives information under the preceding sentence during such quarter.”

      ADDENDUM: I believe now I have found the relevant law; it is to be found in IRC Sec 877(e), copied below.

      (e) Comparable treatment of lawful permanent residents who cease to be taxed as residents
      (1) In general
      Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.

  3. Good research. Another blogger who researches this had once written “In 2012, the Federal Register lists began to claim that “[f]or purposes of this listing, long-term residents, as defined in section 877(e)(2), are treated as if they were citizens of the United States who lost citizenship”. However, I have not actually been able to verify any case of a person giving up a green card and then appearing in the list.”

  4. The law, as many other laws, states the minimum requirements. The maximums of what is reported are not defined. By inserting that text into the Federal Register in 2012, a new opportunity opens up to list the names of persons who have given up their visas. This is an additional opportunity at that site.

  5. Apparently, section E was amended by something. Wikipedia expatriation tax gives a number of locales where the law has changed since 1996. Perhaps it was the HEART act in 2008 or the 2004 Jobs creation act

    http://www.law.cornell.edu/uscode/text/26/877#e_2

    26 U.S. Code § 877 – Expatriation to avoid tax

    (e) Comparable treatment of lawful permanent residents who cease to be taxed as residents
    (1) In general
    Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.

  6. in 2000, the Government Accountability Office complained that: ”
    INS provides annually to IRS a computer disc identifying individuals who gave up their residency permits (green cards). However, IRS does not use the data to track expatriates because the data do not distinguish former long-term residents from other former green card holders and generally do not include tax identification numbers.”

    http://www.gao.gov/assets/100/90271.pdf

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