Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part II)
U.S. federal immigration law (Title 8) sometimes has very important federal tax (Title 26) consequences. See an earlier post, Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?
Back in 2020, as the Corona-virus pandemic was hitting, I wrote a post titled Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part I) It’s now time to post Part II.
- The Number of LPRs Declined in the Corona-virus Pandemic
Not surprisingly, the number of new LPRs into the U.S. dropped substantially in correlation with the Corona-virus pandemic. See, the Office of Immigration Statistics, 28 Sept. 2021: Fiscal Year 2021 U.S. Lawful Permanent Residents Annual Flow Report. The Figure 1 (highlighted by me) and that report notes:
Just over 700 thousand persons became LPRs in 2020, as reduced international travel during the
COVID-19 pandemic and policy changes brought new LPR admissions in 2020 to their lowest
level since 2003. The majority of these LPRs (62 percent) were already present in the United
States when they were granted lawful permanent residence. A little under two-thirds (63 percent)
were granted LPR status based on a family relationship with a U.S. citizen or current LPR. The
leading countries of birth of new LPRs were Mexico, India, and People’s Republic of China
(China). In 2020, there was a 31 percent reduction in U.S. grants of LPR status compared to
Largely due to the COVID-19 pandemic, LPR flows in 2020 were not representative of typical
trends (Figure 1). Travel restrictions and processing slowdowns generally resulted in fewer
inflows, while foreign-born residents within the United States also confronted immigration
status-specific COVID-19 vulnerabilities.5
The key tax question for LPRs who no longer live in the U.S. (or who are planning to leave the U.S. to live in another country) is: Are they (or will they become) a so-called “long-term resident” as defined in the federal “expatriation” tax law?
IRC Section 877(e)(1) and (2) define a “long-term resident” and these paragraphs are included below in their entirety:
(1) In general
Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.
(2) Long-term resident
For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in paragraph (1) occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country.
You will note this definition of “long-term resident” was added in 1996 to the original statute (Added Pub. L. 89–809, title I, § 103(f)(1), Nov. 13, 1966, 80 Stat. 1551) creating this concept of taxation to former U.S. citizens pursuant to the The Foreign Investors Tax Act of 1966 (“FITA”). See an earlier post I made in 2014/2015 titled: The Foreign Investors Tax Act of 1966 (“FITA”) – The Origin of U.S. Tax Expatriation Law.
Notably, the “mark to market” taxation concept was only added in 2008 pursuant to a new code section 877A which cross references back to Section 877(e) for reference to the definition of a “long-term resident”. See, a prior post titled: The “Phantom” Gain Exclusion from the “Mark to Market” Tax – Increases to US$690,000 for the Year 2015.
The Next Post on this topic will break down the elements of –
(1) who will necessarily be a “long-term resident”?
(2) who may be “long-term resident”?
(3) what steps can be taken to necessarily avoid “long-term resident” status?
Finally, a discussion will be had in the last post in this series of some of the potential adverse tax consequences to “long-term residents” depending upon different factual scenarios.