U.S. expatriation tax understood by the attorney who litigated its landmark case
Patrick W. Martin has written and maintained this site since 2013. Over 32 years he has advised multinational families, global investors, privately held companies, and international investors and entertainers — from pre-immigration and pre-expatriation planning through IRS audits, administrative appeals, and litigation before the U.S. Tax Court, Court of Federal Claims and Federal District Courts.
Tax lawyers and CPAs worldwide bookmark and regularly cite it as the most current and comprehensive resource on U.S. expatriation tax.
Recognized by
Find your situation
Before you give up your citizenship or green card, the most important question is whether the IRS (more importantly how the law applies and) will classify you as a “covered expatriate.” If you are, you’ll owe tax as if you sold every asset you own around the world on the day before you left — that’s the §877A exit tax. Three tests determine your status: your net worth, your average annual US Federal tax bill over five years, and whether your returns were filed correctly and are current for those same years — while certifying under penalty of perjury and properly notifying the government of your compliance with the law.
If you have a green card but live mostly outside the U.S., your obligations depend on how long you’ve held it. Hold it for seven or more years (of the last 15 years) and you become a “long-term resident” — subject to the same exit tax as a U.S. citizen when you give it up. But the landmark Aroeste federal court decision changed the calculation for green card holders who live in one of the more than 60 countries that has an income tax treaty with the United States. Your filing history matters.
You’ve already renounced or formally given up your green card, but the IRS obligations don’t end there. Form 8854 must be filed, your §877A exit tax calculated, and your covered expatriate status confirmed. If you’re also facing FBAR penalties, an audit, or IRS notices that still treat you as a U.S. person, those issues compound quickly. This track is for people who need to untangle what they still owe.
Renouncing doesn’t end every U.S. connection. If you give money or leave assets to U.S. family members, they may owe a 40% tax on what they receive — that’s the §2801 forever taint, and it has no expiration date. You may also have questions about Social Security, travel restrictions under the Reed Amendment, or IRS notices that still treat you as a U.S. person years after you renounced.
Annual event
The University of San Diego School of Law - Chamberlain International Tax Institute
For more than 20 years, Patrick W. Martin has co-organized one of the leading annual gatherings in U.S.-Mexico international tax, alongside USD School of Law and Chamberlain Hrdlicka. Past speakers include former IRS Commissioner Chuck Rettig and former Banco de México Governor Agustín Carstens.
Full details and registration →Landmark case
Patrick W. Martin served as lead counsel in Aroeste v. United States, the case that changed what green card holders living abroad actually owe.
The IRS assumed that any green card holder who gave up their card after years abroad owed the exit tax, no exceptions. Patrick W. Martin brought this case to challenge that directly. The district court ruled for the taxpayer. The government appealed to the 9th Circuit and then conceded.
Legal details
Holding
A long-term permanent resident who filed W-8BEN forms and elected non-resident treatment under a U.S. tax treaty is not automatically a covered expatriate subject to the §877A exit tax. The IRS conceded the point on appeal to the 9th Circuit.
He brought the Aroeste case to challenge that position directly. The district court ruled for the taxpayer. The government appealed to the 9th Circuit and then conceded. If you have been filing W-8 forms and living outside the U.S., this ruling may directly affect your situation.
How other practitioners covered it
Here’s how other practitioners in the field covered Aroeste v. United States, the case Patrick W. Martin litigated.
“Opens the possibility that U.S. green card holders living in other countries that have income tax treaties with the United States could also invoke this treaty benefit so as not to be required to file FBARs.”
“A very significant taxpayer-win” with “far reaching implications concerning IRS Notice 2009-85” for expatriation matters and treaty-based FBAR exemptions.
“Dual residents who are treated as residents of a treaty country under the tie-breaker rules…may not be obligated to file FBARs.”
“Filing a 1040 instead of a 1040NR will NOT convert a treaty nonresident into a U.S. resident for tax purposes.”
“The court applied the United States-Mexico Income Tax Treaty using tie-breaker rules to determine Aroeste’s residency — finding he was a tax resident of Mexico and not required to file FBARs for his Mexican financial accounts.”
“The U.S. made a motion to dismiss their appeal, with prejudice” — a full concession from the government on the treaty position it had defended at trial.
