Month: June 2020
“LPR Tax Limbo” – Formal Abandonment of LPR (Form I-407) – BIG GAP with Actual Emigration of LPRs
Millions of lawful permanent residents (LPRs) who have left the U.S. and not “formally abandoned” their LPR status (by filing Form I-407, Record of Abandonment of Lawful Permanent Resident) typically remain in some kind of “LPR U.S. tax limbo.” How many individuals worldwide are in this LPR U.S. tax limbo?
Why are these numbers important for the tax-expatriation analysis? See, a recent post, Why Most LPRs Residing Overseas Haven’t a Clue about the Labyrinth of U.S. Taxation and Bank and Financial Reporting of Worldwide Income and Assets (Part I). Indeed, most individuals probably do not think they are a U.S. federal income tax resident when they leave the U.S. to reside overseas back to their home country. Why would they? There is no tax training manual provided to LPRs who leave the U.S. and no tax advisories – reflected on the card itself (unlike the last page of the U.S. passport, paragraph D). More precisely, most are probably not giving much, if any thought, to the complex U.S. federal tax residency rules and their extraterritorial application.
These individual are typically ill-informed about these rules and mistaken as to how the IRS typically has a different view of their on-going tax obligations. The IRS is increasingly pursuing LPR taxpayers residing outside the U.S. based upon my own anecdotal experience with individual clients and their IRS tax audits. For background information, see, the IRS’s own summary of “. . . Resident Aliens Abroad“. Also, see, Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card and see the IRS practice unit discussion, Determining Tax Residency Status of Lawful Permanent … – IRS.gov
The “big gap” referred to above can be identified from the the Office of Immigration Statistics (OIS) report titled: Estimates of the Lawful Permanent Resident Population in the United States and the Subpopulation Eligible to Naturalize: 2015-2019. According to the report, more than 1 million individuals become LPRs each year. Between naturalization, mortality and emigration the report shows that the LPR population, year over year, has remained stable. In 2019 the total number of LPRs per this report was 13.6 million, up from just 13.0 million in 2015.
The “gap” is the difference between the numbers of LPRs who have left-emigrated the U.S. (some 3+ million) compared to something like an annual average of 15-19 thousand who have filed Form I-407. The gap is in the millions of persons who are in LPR U.S. tax limbo.
The report is also worth reading if you want to understand the demographics of the LPR population. Mexico has about 2.5 million (which is by far the greatest number) of the total 13+ million LPR population.
Out of the total 13.6 million LPRs, there are a total of 9.13 million eligible to become naturalized citizens according to the report (see previous post Why a Naturalized Citizen cannot avoid “Covered Expatriate” status under IRC Section 877A(g)(1)(B)). Some 2.3M, 1.13M and .99M live in California, NY and Texas, respectively as the most LPR populated states.
This report provides only an estimate of “emigration” based upon the government’s research on emigration. See page 5 of the report –
Attrition due to emigration must be estimated because reliable, direct measurements of LPR emigration do not exist.
These estimates are not tied to “formal abandonment” filings of LPR status by filing USCIS Form I-407, Record of Abandonment of Lawful Permanent Resident
As the report points out there is no reliable direct measurements of LPR emigration. They do not exist. This lack of information is what drove me to file a FOIA request with the government to request information about the number USCIS Forms I-407 that are filed with the government. See, also quarterly statistics of the USCIS – Form I-407, Record of Abandonment of Lawful Permanent Resident Status (partial information for years 2016-2019).
The information I obtained in the FOIA response was surprising, since the government had records showing only 46,364 Forms I-407 were filed in the years 2013 through 2015, as follows:
This represents an average of only 15,455 individuals who formally abandoned their LPR status. Contrasted with more than 3.6 million estimated to have emigrated in 2019 per the DHS report leaves a massive gap of well over 3 million persons who held a “green card” and have left. They are now in LPR U.S. tax limbo.
What about the tax consequences? How many of these LPRs who left the U.S. know, understand or have any idea whatsoever of the federal tax filing obligations regarding their status?
What is the takeaway from the DHS report and LPR – I-407 information provided to me by the FOIA response? There is a discrepancy in the millions of people. Millions of individuals who actually leave or have left the U.S. to reside somewhere else around the world; compared to only some tens of thousands of individuals who have formally filed Form I-407, Record of Abandonment of Lawful Permanent Resident.
What can these individuals do to get out of the LPR U.S. tax limbo?
16th Annual University of San Diego School of Law – Procopio International Tax Institute – Corona-virus Postponement
The USD-PITI has been held for 15 years on the campus of the University of San Diego School of Law in the beautiful Peace & Justice Center.
The 16th annual conference was originally scheduled for October 28th through the 30th to be held off-campus due to major on-campus construction. The conference has been rescheduled to October 2021 due to the corona-virus.
A special thanks goes out to Dean of the law school, Stephen C. Ferruolo, who has served the law school for nine academic years and nine USD-PITIs. He has been an exceptional dean and wraps up his deanship tenure this month.
I, Patrick W. Martin, have had the good fortune of being involved and working closely with the law school as the original founder of the USD-PITI that first started in 2005 during the tenure of then dean Daniel B. Rodriguez. It has been successful because of the thousands of individuals around the world who have actively participated in these many years of international tax conferences. Review prior conference agendas and speakers here, going back to 2005.
As the chair of the advisory committee for the USD-PITI, I look forward to inviting you and seeing you in person at the 16th Annual USD-PITI Conference to be held October 28th and 29th, 2021.
Due to on-going campus construction the conference will be held at the beautiful Hilton San Diego Bayfront.
USD-PITI international tax webinar courses are expected for the Fall of 2020. Prior participants in USD-PITIs are eligible to obtain access to the prior years CLE video conferences of courses held in prior years.
Stay tuned . . .
Part III: Passport Revocation – Department of State Says its “Hands are Tied” – go Resolve with the Taxman/IRS
Continued . . .
For previous posts discussing this issue, see July 2018 post: The Time has Come: Revocation or Denial of U.S. Passports as IRS Begins Issuing Notices to U.S. citizens
See, also a September 2018 post: Part II: Example of United States Department of State – Letter Denying Passport Renewal – The Time has Really Come: Revocation or Denial of U.S. Passports as IRS Begins Issuing Notices to U.S. citizens « Tax-Expatriation
The DOS asserts that it has to receive a new certification from the Internal Revenue Service (IRS) that the United States Citizen (USC) has “satisfied the seriously delinquent tax debt” before it can process the passport application or renewal. This sample letter from a specific case, provides the USC with 90 days to resolve the issue with the IRS in order for his name to be removed from the certified list.
The IRS website has two important notifications, including from March 26, 2020 titled Understanding Your CP508C Notice | Internal Revenue Service .
The U.S. Department of State generally will not renew your passport or issue a new passport to you after receiving this certification from the IRS, and they may revoke or place limitations on your current passport.
The last FAQ set forth in this summary is as follows:
I’m a U.S. citizen living overseas and have plans to return to the U.S. Will I be able to return?
Yes. Under Internal Revenue Code Section 2714(e)(2)(B), if the U.S. Department of State decides to revoke your passport, they may either limit your passport only for return travel to the U.S., or issue you a limited passport that only permits return travel.
Finally, see IRS updated website as of March 10, 2020, Revocation or Denial of Passport in Case of Certain Unpaid Taxes