US. Expatriation Tax Provisions Apply Whenever A Green Card Is Surrendered or Revoked

US. Expatriation Tax Provisions Apply Whenever A Green Card Is Surrendered or Revoked – The Income Tax Is Triggered By The Involuntary Loss Or Surrender Of Green Card Status – Think Twice and Pay Attention To Your Travel!

If the Green Card holder is out of the country for more than 180 days then be prepared with all the documentary evidence to present at the border to prove that the US remains your “permanent residence.” Avoid involuntary surrender of the Green Card through thoughtless neglect.

The visa remains an “invitation” to enter the US but not a “right” to enter the US regardless of the years held, or the nature of the LPR status. Any officer at the POE can “turn you away” so be alert to the circumstances at all times.

Loss or Surrender of the Green Card has significant penalties for a financially secure person. The United States imposes income tax on the worldwide income of Lawful Permanent Residents (“LPR”) (U.S. green card holders). In order to avoid the tax a LPR may wish to consider “surrendering” his or her green card. But, if the LPR waits eight or more years to do so (as calculated as total days within a 15 year time block), then be ready for the “expatriation tax penalty” on your global assets. IRC §877A. There are certain assets which are exempt from the tax (IRC §877A(d)-(f), there is an ability to defer some tax (with interest) on certain assets, there are some assets for which a 30% withholding is required in the alternative, and there is a $866,000 income exemption (2024) for those assets subject to the expatriation tax penalty. The tax analysis also takes into consideration assets held before the LPR status vested and provides for “stepped up basis” to the fair market value (“FMA”) of that property at the time the LPR status began. All of the taxation effort is focused on a presumption that the worldwide assets were sold at FMV on the date of the surrender of the green card (a “deemed sale”). Imagine that the LPR sold all of his/her global assets on the day the green card is surrendered and paid income tax at the appropriate (capital gains and ordinary income) rates. Who would want to surrender a green card with this penalty tax lurking in the bushes? You would be surprised how this issue arises.

The tax is triggered by the loss or surrender of green card status. There are LPRs who fail to pay attention to the US residency requirements and find that the LPR status is either effectively surrendered or suspended or at least under question when they arrive at the border. In sum, if an LPR spends more than 180 days of any 12 month period outside the US, then there arises an effective presumption of green card surrender. That presumption is possible to overcome, and the green card may only be “taken” if (1) voluntarily surrendered by the LPR or (2) ordered surrendered by an immigration law judge. Don’t be fooled into voluntary “surrender” in which a Form I-407 is presented to the LPR with all sorts of encouragements (threats) to sign and “be on your way.” Every LPR is entitled to a day in court if the CBP wants to wrestle away that green card.

The USCIS has issued clear guidance to the airlines that an unexpired LPR is sufficient to allow travel to the US. You can get on the plane! If the LPR is out of the country for more than 180 days then be prepared (in addition to the careful conversations) with all the documentary evidence to present at the border to prove that the US remains your “permanent residence.” At the port of entry (“POE”) the CBP officers may well elect to question the LPR in a manner that gives rise to a secondary inspection. The POE is where “casual answers” to an officer’s questions most often result in further inspections or refusal of entry. Statements by the LPR which imply a diminished intent to reside in the US will guarantee an inspection. Nothing the CBP officer asks is “casual” and the LPR must treat all interactions seriously. The visa remains an “invitation” to enter the US but not a “right” to enter the US regardless of the years held, or the nature of the LPR status. Any officer at the POE can “turn you away” so be alert to the circumstances at all times.

Alternatively, an LPR may obtain tax residence in a ZERO tax haven, and in doing so decide that the US no longer is a beneficial tax jurisdiction. Surrender of the LPR status can make tax sense under certain circumstances and under the assumption that the LPR no longer needs to “work” inside the US. The circumstance arises with entrepreneurs in particular whose income and assets are “portable.”

The critical issues in surrendering the green card to avoid taxation on worldwide assets by the US, though discussed here, are not intended as tax advice as per Circular 230.