Abandoning a Green Card

A green card allows non-US nationals to live and work in the US as a “lawful permanent resident”. However, this freedom to travel in and out of the US comes with an ongoing US tax filing obligation. A green card holder will file tax returns annually as a resident of the US even if they are living abroad (outside of the US). This often leads to individuals looking to give up their green card to avoid the ongoing tax burden. Much like renouncing US citizenship (more here), there can be tax implications to abandoning a green card.

 

What is the process?

Abandoning a green card is relatively straightforward. The first thing to do is complete a Form I-407 to inform the US Citizenship and Immigration Services (USCIS) of the voluntary abandonment and then file Form 8854 with the taxpayer’s final Dual Status tax return to declare their worldwide income up to the date of expatriation.

Generally, the date the Form I-407 is filed will be the date of expatriation. However, an earlier date can be used where an individual is a resident of a foreign country that has a tax treaty with the US. In this instance, the terms of the tax treaty can be used to claim to be a resident of the foreign country and therefore non-resident of the US (more here). This claim is made on form 8833 filed with a non-resident tax return (Form 1040-NR). Claiming to be a non-resident under a treaty is an “expatriating act”.

 

Are there any tax considerations?

Long-term residents are open to Expatriation Tax. A long-term resident is an individual who have held a green card in at least eight of the last 15 tax years, ending on the date they cease to be treated as a lawful permanent resident.

It is important to note that even one day of a tax year is included as part of the 8-tax year period. For instance, acquiring a green card in October 2016, and relinquishing it on January 1st, 2023, would meet the eight-tax-year threshold for long-term residency. Using Form 8833 to claim to be non-resident of the US at an earlier date can help to avoid becoming a long-term resident.

Being substantially present in the US, even under another immigration visa (such as a H1-B), isn’t counted during the 8-year period. For instance, if an individual resided in the US under a work visa from 2013 to 2016 and then in 2017 acquires a green card before relinquishing it in July 2021, they wouldn’t be considered a long-term resident for the purposes of expatriation tax.

Exceptions exist for certain minors who expatriated before reaching 18½ years of age and were substantially present in the US for not more than 10 tax years before the date of expatriation.

 

What about expired green cards?

A green card needs to be renewed every 10 years and certain travel requirements need to be met in order to maintain its benefits. If not, the green card will expire and cannot be used to enter the US.

Unfortunately, an expired green card does not mean that an individual’s US tax obligations have ended. They will continue to file as a US taxpayer until the card has been formally abandoned by completing an I-407 and filing Form 8854.

Many expired green card holders outside of the US will discover later down the line that they should have been filing US return annually. Fortunately, there is a procedure available for individuals in this situation which allows them to get back into compliance without facing any penalties. See here for more information on the Foreign Offshore Streamlined Procedure.

 

For further questions, please get in touch.