On this page:
- Can you keep your green card and still “expatriate” for US tax purposes?
- What is IRC Section 7701(b)(6)?
- What are the three tests for losing LPR status under Section 7701(b)(6)?
- Can filing Form 1040NR end your green card status for tax purposes?
- What happens once you stop being a lawful permanent resident under the tax law?
- How does a green card holder formally abandon LPR status?
Can you keep your green card and still “expatriate” for US tax purposes?
Yes. Many lawful permanent residents (LPRs, or green card holders) assume they have not “expatriated” for US tax purposes as long as they have not handed their green card back to US Citizenship and Immigration Services (USCIS). That assumption can lead to a rude awakening. Under IRC Section 7701(b)(6), a green card holder can cease to be treated as a lawful permanent resident for federal tax purposes without ever formally abandoning the card with USCIS.
What is IRC Section 7701(b)(6)?
IRC Section 7701(b)(6) is a provision Congress added in 2008 that says when a green card holder stops being treated as a lawful permanent resident for federal tax purposes. The relevant part provides that an individual shall cease to be treated as a lawful permanent resident if the individual commences to be treated as a resident of a foreign country under a tax treaty between the United States and that country, does not waive the benefits of the treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment.
What are the three tests for losing LPR status under Section 7701(b)(6)?
The statutory language sets out three tests. A green card holder is no longer an LPR for federal tax purposes when all three are met:
- The individual is treated as a resident of a foreign country under the provisions of a tax treaty;
- The individual does not waive the benefits of that treaty; and
- The individual notifies the Secretary of the commencement of such treatment.
Can filing Form 1040NR end your green card status for tax purposes?
It can. Each of the three tests under Section 7701(b)(6) appears to be satisfied by a green card holder who files IRS Form 1040NR as a non-resident while living in a country that has a US income tax treaty. In that situation the individual may be treated as having ceased to be a lawful permanent resident for federal tax purposes, even though the green card itself was never returned to USCIS.
What happens once you stop being a lawful permanent resident under the tax law?
There can be a host of unintended consequences for an individual who ceases to be a lawful permanent resident under the federal tax law. The expatriation provisions of Section 877A and Section 2801, among others, can be implicated, along with many other provisions of the law. For background, see “Accidental Americans” – Rush to Renounce U.S. Citizenship to Avoid the Ugly U.S. Tax Web,” International Tax Journal, CCH Wolters Kluwer, Nov./Dec. 2012, Vol. 38 Issue 6, p45.
How does a green card holder formally abandon LPR status?
For those who wish to formally abandon their lawful permanent resident status, there is a specific DHS/USCIS form used for that purpose: Form I-407. Filing this form is the route to formally relinquishing the green card with the immigration authorities, which is separate from the tax-law treatment described above under Section 7701(b)(6).