There are several reasons why lawful permanent residents (LPRs) might choose to abandon their green cards. One common reason is relocation due to employment opportunities in another country, where a green card holder no longer needs to maintain permanent residence in the United States. Additionally, changes in personal circumstances, such as family commitments or lifestyle preferences, might prompt someone to move somewhere else and give up their green card, which is officially known as a Permanent Resident Card or Form I-551.
Tax considerations also play a significant role. U.S. green card holders are subject to U.S. tax obligations on their worldwide income and may also face U.S. estate, gift and generation-skipping transfer (GST) taxes, as green card holders are also frequently determined to be domiciled in the United States. In addition, once an LPR becomes a "long-term resident" (LTR) under the U.S. Internal Revenue Code's expatriation tax provisions (generally, by having had the green card for any portion of eight years within a 15-year period), the abandonment of the green card can subject the LPR to a mark-to-market capital gains tax on global assets. So surrendering the green card in a timely fashion and with the benefit of effective pre-surrender tax planning can greatly simplify a former LPR's tax situation and minimize unanticipated tax consequences.
Voluntary vs. Involuntary Abandonment of Green Card
Voluntarily surrendering the green card puts the LPR in control of the timing and logistics of the process, an element of control that is lost when the green card is taken away involuntarily. For LPRs expecting to spend a substantial and indeterminate amount of time outside of the United States, it is therefore recommended to maintain as many ties to the United States as possible and return to the United States often enough to minimize the risk of accidentally abandoning their green card status. Besides continuing to file U.S. federal income tax returns as a resident on Form 1040, maintaining a U.S. address they consider "home" when they do return to the United States, and ideally returning to the United States at least every six months, additional steps can include applying for a special travel document called a reentry permit, maintaining a bank account in the United States and filing state income tax returns.
LPRs can generally have their green card status taken away involuntarily only in a proceeding before an immigration judge who finds that they have abandoned or relinquished their lawful permanent resident status. An LPR can also be removed, excluded or deported for reasons such as a conviction of certain crimes, thereby losing green card status, and a green card can be rescinded if it is determined that the LPR was ineligible for the card when first granted. Customs and Border Protection (CBP) officers can make it very uncomfortable for LPRs returning to the United States after extended absences, but CBP officers have no authority to terminate LPR status―only an immigration judge can do so after a hearing. If a CBP officer does confiscate the physical green card, the LPR is still entitled to alternative documentation to allow for reentry to the United States as a lawful permanent resident in order to attend the hearing.
For income tax purposes, a green card holder is considered a U.S. tax resident as long as the green card is not surrendered. So even if the physical green card has expired or the green card holder has spent more than a year outside of the United States, the Internal Revenue Service still deems the green card holder to be a U.S. tax resident subject to income tax on global income until the green card has been formally surrendered (using Form I-407) or taken away by an immigration judge.
Accordingly, when an LPR is no longer able or willing to maintain sufficient ties the United States while spending extended periods outside of the country, or plans to live abroad permanently, it is recommended to consider proactively surrendering LPR status. This can help mitigate complications and delays at the U.S. port of entry when reentering the country after a lengthy absence, when it is unclear if and when the LPR will return again to the United States, and it can also allow the LPR the opportunity to engage in pre-surrender tax planning if needed.
Generally, a returning LPR can present their green card if they are returning to an "unrelinquished lawful permanent residence" in the United States after a temporary absence abroad not exceeding one year. This means that an LPR can usually show their green card upon return from travel abroad of one year or less and expect to be admitted back to the United States as an LPR. If an LPR is outside of the United States for more than one year and wants to return to resume their LPR status, the regulations require that they first obtain a returning resident visa from a U.S. consular post, although CBP officers can exercise their discretion and allow reentry after an absence of one year or more based solely on presentation of the green card (i.e., without a returning resident visa). Whether a U.S. consular officer or CBP officer will conclude that an individual has abandoned U.S. permanent residence, or is returning to an unrelinquished lawful permanent residence after a temporary absence abroad, depends on the intent of the individual, the specific facts underlying the absence and the evidence the applicant submits to support their claim.
Residence and Absence
The statutory and regulatory rules on the impact of absences from the United States on an LPR's green card status are not entirely consistent and allow individual officers great discretion is determining whether an LPR has maintained an unrelinquished residence in the United States.
Absence of One Year or More
If an LPR remains outside the United States for one year or more, the green card is not considered a valid travel document under 8 CFR § 211.1(a)(2). Similarly, for purposes of qualifying for naturalization to U.S. citizenship, an absence of more than one year automatically disrupts the required continuity of residence, thereby delaying eligibility for U.S. citizenship. The U.S. State Department, which runs our consular posts and is responsible for issuing returning resident visas, requires in its guidance, the Foreign Affairs Manual (9 FAM 502.7-2(B)), evidence that the LPR departed the United States with the intention of returning to an unrelinquished residence and that the LPR's extended stay abroad was for reasons beyond the LPR's control and for which they were not responsible. Anecdotally, returning resident visas are rarely issued. However, CBP has published no similar guidance―on the contrary, in 2021, CBP issued a "reminder of current policy" to airline carriers that LPRs with an unexpired green card "may be boarded without any additional documentation." And there is ample anecdotal evidence that CBP officers have routinely allowed LPRs to return to the United States after absences of one year or more without requiring a formal waiver application for lack of valid documents.
Absence of More Than Six Months and Less Than One Year
The Immigration and Nationality Act (Title 8 of the U.S. Code), in its definition of "admission," provides that an LPR "shall not be regarded as seeking an admission into the United States for purposes of the immigration laws unless" the LPR has done certain things, one of which is having been "absent from the United States for a continuous period in excess of 180 days" (8 USC § 1101(a)(13)(C)(ii)). The admission process involves "inspection and authorization by an immigration officer." While LPRs returning to the United States even after a short time abroad are also inspected and authorized by an immigration officer, the longer an LPR has been outside of the United States, the more likely the officer will ask tougher questions about the absences. For this reason, it is recommended that LPRs spending a lengthy or indeterminate period outside of the United States return at least every five months or so, in particular if their work and family are both outside of the United States.
Absence of Six Months (180 Days) or Less
Even if the absence is less than 180 days, residence may be deemed abandoned if the LPR has lived and worked abroad for an extended period and only occasionally returns to the United States. Another reason that LPRs fall under the definition of "admission" is if they have "abandoned or relinquished that [permanent resident] status" (8 USC § 1101(a)(13)(C)(i)). So if returning LPRs say something like they are "visiting" the United States or they are "living overseas," the CBP officer could take that as an indication that they have abandoned or relinquished their green card status.
This illustrates that both maintenance and abandonment of green card status involve a very fact-specific analysis. LPRs who are reentering the United States after an extended absence would be well served to carry with them evidence of their ongoing ties to the United States and of the temporary nature of their time outside the United States. Even better, those who expect to be absent due to an intended business assignment, educational program or other reason, who do not want to face an immigration officer claiming that they have inadvertently abandoned their LPR status, should plan accordingly in advance of their departure.
Steps to Surrender a Green Card
Surrendering the green card involves adhering to a specific legal process, primarily centered around the submission of Form I-407, Record of Abandonment of Lawful Permanent Resident Status.
Filing Form I-407
Form I-407 can be filed from outside the United States, but it can also be submitted while present within the country in a temporary (nonimmigrant) visa status or in parole status. (Some prefer not to surrender the actual green card until they have obtained a nonimmigrant visa and successfully entered the United States on that visa.) Although previously accepted at international field offices or consulates, the Form I-407 is now generally filed by mailing it to the USCIS, currently to its Eastern Forms Center in Vermont. In certain instances, a port of entry may accept Form I-407, and the CBP officer may allow the person to enter the United States as a visitor by issuing a waiver under INA §212(d)(4)―but it is more predictable to mail in the I-407 and obtain an appropriate visa or ESTA in advance before traveling to the United States.
Impact on Reentry to the United States and Potential Restrictions
Surrendering or abandoning the Permanent Resident Card and status does not prevent an application for a temporary (nonimmigrant) visa or preclude a future application to immigrate to the United States (i.e., become once again a lawful permanent resident). These individuals will need to start the process anew and go through the standard application procedures.
Potential Restrictions and Considerations
Formal Notification
Signing and submitting Form I-407, along with physically returning the green card to the government agency, is a formal notification to U.S. immigration authorities that there is, at the time of submission, no current intention to reside permanently in the United States. Forming an intention to do so in the future is not precluded.
Loss of Rights and Benefits
When LPRs relinquish their green card, they also forfeit the associated privileges and benefits. If they later decide to live, work, or study in the United States, they will need to obtain the appropriate visa for the intended purpose. Should they wish to return as a permanent resident, they will have to reapply for a new immigrant visa.
Irrevocability
The abandonment of lawful permanent resident status is irrevocable. Once LPRs relinquish this status, they must meet the qualifications and go through the application process again to regain it.
Tax Considerations
U.S. tax implications of green card surrender are complex and fact-specific. Effective tax planning as to any decision to surrender requires thorough consideration of the relevant circumstances and timing.
Overview of U.S. Tax Obligations for Green Card Holders
The United States imposes income tax on the worldwide income of U.S. green card holders irrespective of where the taxpayer resides. Additionally, U.S. domiciled persons are subject to U.S. gift and estate transfer taxes on lifetime and testamentary transfers of worldwide assets.
As "U.S. persons" for U.S. income tax purposes, green card holders are required to file annual U.S. tax returns. Additionally, U.S. persons are subject to foreign financial asset reporting obligations under applicable Foreign Bank Account Report (FBAR) and Foreign Account Tax Compliance Act (FATCA) requirements as well as the various anti-deferral provisions of Internal Revenue Code—with the possibility of onerous penalties for noncompliance.
The Exit Tax: Applicability and Impact
Section 877A of the U.S. Internal Revenue Code sets forth reporting and taxation rules with respect to U.S. expatriations completed on or after June 17, 2008.
With respect to certain specified expatriates ("covered expatriates," further defined below), IRC §877A applies an "exit tax" based, generally, on net unrealized gain in the expatriate's worldwide assets on the day before the expatriation.
Who Is Subject to the IRC §877A Exit Tax Regime?
- Expatriate: For purposes of IRC §877A, an
"expatriate" is either:
- A U.S. citizen who renounces U.S. citizenship; or
- A "long-term resident" (LTR) who relinquishes the green card or otherwise ceases to be an LPR (the topic of this Alert).
- Long-term resident: For purposes of IRC
§877A, an LTR is an individual who:
- Has been a U.S. green card holder for any portion of at least eight of the last 15 tax years (which could be as little as six years and two days for someone who obtains the green card on December 31 of Year 1 and surrenders the green card on January 1 of Year 8); and
- For purposes of the eight-year requirement, did not invoke a tax treaty in any such year for treatment as a resident of a foreign country without waiving the treaty benefits applicable to foreign residents. In other words, any tax year with respect to which a green card holder claims treaty benefits as a resident of a foreign country does not count toward the required eight years.
Green card surrender by a green card holder who is not an LTR does not subject the green card holder to IRC §877A expatriation treatment, triggers no IRS Form 8854 filing requirement and will not be subject to a potential exit tax liability. So the easiest way for a green card holder concerned about the exit tax to avoid potential exposure is not to become an LTR, either by surrendering the green card with Form I-407 or by making a timely treaty election for treatment (via filing of a Form 1040NR for the tax year in question, with an attached Form 8833 affirmatively claiming treaty benefits) before accruing the required eight years.
It should be noted that such election—if made after the green card holder becomes an LTR—is itself sufficient to constitute an expatriating act triggering potential exit tax liability, even without formal green card surrender.
- Covered Expatriate: For purposes of IRC
§877A, any expatriate who meets at least one of the following
criteria is deemed a "covered expatriate" and is subject
to the exit tax:
- Net worth test. On the date of expatriation, the individual's net worth is at least $2 million.
- Net income tax test. The individual's five-year average annual U.S. income tax liability of at least $201,000 (as to 2024, indexed for inflation).
- Certification test. The individual fails to certify, under penalty of perjury, that he or she complied with all applicable U.S. tax obligations for the five years preceding expatriation—or the individual fails to furnish evidence of such compliance (i.e., failure to file a complete and accurate Form 8854).
Calculating the Exit Tax
Assets Subject to "Deemed Sale" Under IRC §877A(a)
Generally, under IRC §877A(a), a relinquishing green card holder that is a covered expatriate will be treated as having sold all worldwide property in a "deemed sale" for fair market value, the day before expatriation—and will be subject to a mark-to-market capital gains tax on the net unrealized gain as of such date.
The deemed sale rules apply a corresponding basis adjustment to all property subject to the deemed sale (forestalling double taxation of gain upon a future actual sale). For purposes of the deemed sale calculation, pre-U.S. residency assets, as held by the taxpayer as of the date the taxpayer first became a U.S. resident, are eligible for a basis "step-up" reflecting fair market value of such property as of such residency start date.
The first $866,000 of such gains (for expatriations in 2024, indexed for inflation) is exempt from tax, meaning that only gains above this threshold are subject to the exit tax.
Pursuant to IRC §877A(b), a covered expatriate may elect to defer payment of the tax that would otherwise be imposed on any property deemed sold by reason of IRC §877A(a)—resulting in deferral of payment until the election property is actually sold (or gifted) or the covered expatriate dies. Such election is irrevocable, and during the election period, interest accrues with respect to the deferred gain at the statutory underpayment rate established under IRC §6621 (currently 8 percent) from the unextended due date of the return for the tax year that includes the day before the expatriation date and compounded daily in accordance with IRC §6622 until the date the tax is paid. In order to make such election, the covered expatriate is required to (i) provide adequate security as collateral for this obligation, (ii) irrevocably waive any treaty benefits that would preclude assessment or collection of the deferred tax, (iii) execute a tax deferral agreement with the IRS and (iv) appoint a U.S. agent.
Deferral election under IRC §877A(b) relates solely to assets deemed sold under the mark-to-market tax rules; the election is not applicable with respect to the asset classes not subject to the mark-to-market tax, described below.
Non-Mark-to-Market Tax Regime Asset Classes Under IRC §877A(d)-(f)
In addition to assets deemed sold under the exit tax, certain asset classes are excluded from the mark-to-market exit tax regime and are subject to other, particularized rules under the exit tax.
Specified Tax-Deferred Accounts
In the case of traditional IRAs and similar specified tax-deferred accounts, the covered expatriate is deemed to receive a distribution of the entire interest in such account on the day before the expiration date. (Early withdrawal penalties do not apply to deemed distributions; they are ordinary income, taxed at applicable tax rates and brackets.)
Eligible Deferred Compensation Plans
For eligible plans with a U.S. payer and otherwise in applicable compliance, the covered expatriate avoids any deemed distribution on the day before expatriation. Rather, future distributions after expatriation are subject to a 30% withholding tax obligation.
Ineligible Deferred Compensation Plans
For all other deferred compensation plans, on the day before expatriation, the covered expatriate is deemed to receive a lump-sum distribution of the present value of benefit as then accrued. Applicable valuation methodologies for these plans may be particularly complex. (In the case of a foreign pension, if portions of the pension arise in connection to non-U.S. source employment income earned before the individual became a U.S. tax resident, these may be excluded from the deemed distribution.)
Interests in Nongrantor Trusts
Beneficial interests in nongrantor trusts are not subject to immediate deemed distribution treatment and instead are subject (like eligible deferred compensation plans above) to a 30 percent withholding obligation—here, on the applicable taxable portion of any post-expatriation distribution.
The $866,000 exemption does not apply to taxation of these non-mark-to-market tax regime assets under the alternative IRC §877A tax regimes.
Reporting Obligations and Possible Penalties
Form 8854 (Initial and Annual Expatriation Statement)
An expatriate must file Form 8854 in the year of expatriation to certify compliance with U.S. tax obligations and report details of their expatriation. With respect to certain retained U.S. assets such as certain deferred compensation plans and interests in nongrantor trusts, the expatriate may have ongoing annual filing obligations on Form 8854.
Form 1040NR
In the year of expatriation, a covered expatriate may be required to file a dual status return if the expatriate was an LTR for only part of the taxable year.
Form W-8CE
For income items duly excluded from mark-to-market treatment, this form is filed by earlier of the first distribution after expatriation or 30 days from the expatriation date.
Triggering the certification test is sufficient to create exit tax liability even where the expatriate does not otherwise meet the wealth or income thresholds. Failure to comply with U.S. tax obligations may result in onerous penalties, including potential increased withholding and loss of treaty benefits. For certain LTRs with a potential history of nonwillful noncompliance, IRS remediation procedures may provide an opportunity to become U.S. tax compliant in connection with expatriation.
Additional Ongoing Tax Obligations After Expatriation
Estate and Gift Tax Expatriation Provisions
In addition to the exit tax, after expatriation, Section 2801 of the Internal Revenue Code provides that a covered expatriate loses all lifetime U.S. federal estate, gift and GST tax exemptions. Under IRC §2801, any receipt by any noncharitable U.S. person in excess of the annual exclusion amount ($18,000 in 2024, indexed annually for inflation) of a gift or bequest from a covered expatriate donor or decedent is subject to U.S. federal gift, estate and/or GST tax at the highest statutory marginal rates.
Continuing Prior Tax Year Audit Exposure
Prior-year tax returns of expatiate taxpayers that are within the statutory time limit remain subject to IRS audit. Even after expatriation, the taxpayer remains subject to examination, and if the IRS determines that taxes or penalties are owed, the IRS may pursue remedies against both U.S.-based assets and foreign assets subject to FATCA cooperation arrangements.
For More Information
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