International Tax · Citizenship Renunciation · LPR Abandonment
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FAQs re: Tax Expatriation: Aroeste v. United States Impact – Frequently Asked Questions
The U.S. tax law is complicated generally. It gets really complex when you renounce your United States citizenship or you cease to be a “lawful permanent resident” as that term is technically defined in the U.S. federal tax law. The comments in Tax-Expatriation.com are designed to help demystify some of this complexity.
Hence, posts addressing various FAQs – for those who have or “had” a “green card” – please see the following:
Missed FBAR Filing? Penalties, Options, and What to Do Next (2026)
A missed FBAR filing can become a serious tax problem if the IRS views the violation as willful. After Reyes, reckless conduct may be enough for the government to argue willfulness. This guide explains how to evaluate your options, respond to the IRS, and protect your position from the start.
What is an FBAR?
The Foreign Bank Account Report (FBAR), officially known as FinCEN Form 114, is an annual reporting form used to report certain foreign financial accounts to the U.S. government. If you are a U.S. citizen or a green card holder and the combined value of your accounts at banks outside the United States exceeded $10,000 at any point during the year, the law generally requires you to tell the U.S. government about those accounts every year on this form. The FBAR goes to FinCEN, a bureau of the U. The FBAR is due April 15, with an automatic extension to October 15 that you do not have to request.S. Treasury Department, and the IRS is the agency that enforces it.
Who needs to file FBAR?
The filing requirement generally applies even if:
You are a United States citizen and live outside of the United States.
The accounts are in the country where you live.
The accounts earn no income.
You are a green card holder, even those who have not lived in the United States for years — unless your green card status has been formally terminated or a tax treaty position properly applies (this guide includes a legal analysis on this topic discussed below).
What are the penalties for not reporting FBAR?
It depends on whether your failure was “non-willful” or “willful.” Before diving into the details, this chart summarizes the civil and criminal FBAR penalties:
Type of violation
Civil penalty
Criminal penalty
Non-willful An honest mistake or genuine ignorance
Up to roughly $16,500 per unfiled form. Under Bittner v. United States, this is per form, not per account.
None
Willful
The greater of roughly $165,000 or half of the account balance, per account, per year.
Fines up to $250,000 and five years in prison per violation. Prosecution is extremely rare.
Willful, combined with other crimes
As above.
More than the amounts above.
Unpaid assessments
Interest, plus a mandatory 6% late-payment charge.
—
Civil and criminal FBAR penalties. Dollar figures are inflation-adjusted and change annually.
A warning: if any part of your situation could be called “willful,” be careful who you talk to first.
If there is any chance the government could paint your situation as deliberate or careless, the order of your conversations matters before anything else does. This is because only what you tell a lawyer is protected. Anything you tell an accountant can become the government’s evidence. See more in the section “Is there an accountant-client privilege in federal court?” below.
What is a non-willful FBAR violation?
A non-willful violation – an “honest mistake or genuine ignorance”— carries a civil penalty (31 U.S.C. § 5321) of up to roughly $16,500 (inflation-adjusted) per unfiled form. The law is complex about what the courts have said is non-willful. Please see the FBAR detailed technical report. The Supreme Court held in Bittner v. United States1 that it is per form, not per account — a taxpayer victory over the government’s per-account computation, urged in the friend-of-the-court brief filed by the American College of Trust and Estate Counsel (ACTEC) and co-authored by attorney Patrick W. Martin in his role as a Fellow of ACTEC.
What is a willful FBAR violation?
A willful violation is different in kind: the civil penalty is the greater of roughly $165,000 or half of the account balance, per account, per year, and truly willful cases can be prosecuted criminally (although extremely rare), with fines up to $250,000 and five years in prison per violation (more if combined with other crimes). Interest and a mandatory 6% late-payment charge apply to unpaid assessments. Because “willful” penalties can consume an entire account — and more — the fight in most cases is over that one word as was the case of Mrs. Jones.
Is my accountant protected by privilege?
No. Conversations with an accountant, bookkeeper, enrolled agent, tax-return preparer, or financial advisor are not protected in a case like this. Accountants have only a limited privilege under IRC § 7525, which does not apply in criminal matters. For decades, courts have allowed the government to demand those advisors’ files and put them on the witness stand.
On the other hand, conversations with a lawyer are protected by the attorney-client privilege: the government generally cannot force your lawyer to reveal them. If your case could become serious, talking to the wrong professional first may unintentionally create evidence the government can later use against you.
Can I still use the “I didn’t know” defense?
This depends on your specific facts. In January 2026, in United States v. Reyes2, a federal appeals court in New York joined nearly every other appeals court in holding that “willful” includes reckless conduct. Applying the Supreme Court’s standard in Safeco Insurance Co. v. Burr, the question is no longer just what you actually knew; it is what a reasonable person in your shoes should have known.
What counts as reckless disregard?
The government may argue you were reckless even if you sincerely believed you had no obligation, in situations such as these:
Your tax return asked about foreign accounts and you checked “No.”
Your preparer asked and you didn’t mention the accounts.
Your foreign bank held your mail, so nothing arrived in the U.S.
Margaret J. Jones v. United States: willful penalties after a voluntary disclosure
This is not a new government tactic that arrived with Reyes. Years earlier, in Margaret J. Jones v. United States3 — a case litigated by attorney Patrick W. Martin as principal lawyer — the IRS examiner pursued more than $1.5 million in willful penalties against Mrs. Jones (plus nearly $1.9 million against a related estate) on a “willfully blind” theory. The penalty was more than $3.4 million in total, even though the account holder had come forward voluntarily and IRS colleagues had recommended allowing an amended submission.
Whether your facts look “honestly ignorant” or “reckless” is a judgment call — one you should reach with a lawyer, in private, under privilege, not by narrating everything to an accountant, financial advisor, enrolled agent or tax return preparer, whose notes the government can later legally access and read.
Does the IRS have to give me a jury trial before assessing FBAR penalties?
In September 2025, United States v. Sagoo4 threw out more than $1 million in willful FBAR penalties because the IRS investigated the taxpayer, determined she was liable, and assessed the penalties itself— acting, in the court’s words, as “prosecutor, jury, and judge”—without a jury trial. The court relied on the Supreme Court’s 2024 decision in SEC v. Jarkesy, which held that the SEC could not impose civil penalties in-house without a jury.
If that ruling holds up on appeal, the government may have to persuade a jury before finalizing large willful penalties. That is potentially good news for taxpayers, but tax payers should still be cautious. Other courts have reached the opposite conclusion, so do not count on Sagoo protecting you. It is still important to understand what a jury trial actually means in practice.
What does a jury trial actually mean in practice?
One of the first willful FBAR penalty cases fully prepared to be tried to a federal jury was Margaret J. Jones v. United States, in which attorney Patrick W. Martin, the author, served as principal lawyer. The case was litigated to the eve of the scheduled jury trial, at which point the government conceded millions of dollars in FBAR penalties it had originally assessed.
But a jury trial is not necessarily the advantage many taxpayers imagine. If your case goes to a jury, everything you told your accountant, bookkeeper, and financial advisor can be admitted as evidence at trial. Only what you told your lawyer stays out — which is why trial-ready cases are built under privilege from the first conversation. Tax litigation through a trial can become very expensive.
Does FBAR apply to green card holders?
Almost certainly yes, and it complicates the situation. Holding a green card generally makes you a “U.S. person” for FBAR purposes, even if you live abroad full-time and you no longer travel to the United States.
However, that is not always the case. If you have formally abandoned your green card by filing Form I-407 (which carries its own exit-tax considerations), or if a tax treaty’s residency tie-breaker treats you as a resident of another country, different rules may apply. Whether a treaty position applies to you is a genuine legal question, as illustrated by Patrick W. Martin’s case, Aroeste v. United States.
I’m a green card holder. Can a tax treaty protect me from FBAR filing requirements?
Yes, in some circumstances. However, this issue is highly fact-specific, and the answer is not as simple as treating all green card holders the same as U.S. citizens. Many “expat tax” services use that shortcut, which can result in unnecessary filings, missed reporting obligations, or unexpected penalties.
This is an area where careful legal analysis matters. Patrick W. Martin litigated Aroeste v. United States5 , the leading case on this issue, and provides an in-depth analysis of its implications for green card holders here. For the broader set of issues facing green card holders abroad, see his series on the most important questions for lawful permanent residents.
Should I use a tax attorney or a CPA for an FBAR problem?
It depends on how your facts look:
If your facts are clean: you reported all your income, you simply never heard of the form, nothing looks like concealment, and you acted in good faith— an accountant can often handle a straightforward catch-up filing.
If there is any realistic possibility your facts could be portrayed as willful: a “No” on Schedule B, unreported income, accounts you never mentioned to your preparer, hold-mail service, large balances — see a licensed tax attorney before discussing details with any non-lawyer.
There are two reasons. First, only the attorney conversation is privileged.
Second, if accounting work is needed, your attorney can hire the accountant under what is called a Kovel arrangement (sometimes called a Kovel letter), which brings the accountant’s work inside the attorney’s privilege. Be wary if a lawyer tells you that you do not need a Kovel arrangement and he or she will prepare the tax returns and forms themselves to submit to the IRS. That protection only works going forward, as no lawyer can retroactively protect what you already told your CPA or bookkeeper, or financial advisor or enrolled agent, which is exactly why the order of conversations matters.
Which FBAR compliance procedure applies to me?
Three main paths exist today:
Path
When it applies
Delinquent FBAR Submission Procedures
If you reported all your income and only missed the forms, the Delinquent FBAR Submission Procedures let you file late FBARs with an explanation, typically with no penalty.
Streamlined Filing Compliance Procedures
If you also missed income but your conduct was non-willful, the Streamlined Filing Compliance Procedures let you file three years of returns and six years of FBARs with reduced or no penalties. You must certify on Form 14653, under penalty of perjury, that you were non-willful (see section “Why does my non-willfulness certification matter?” below).
IRS Voluntary Disclosure Practice
If your conduct may have been willful, the IRS Voluntary Disclosure Practice is designed for taxpayers who need to disclose that conduct and seek protection from criminal prosecution.
Why does my non-willfulness certification matter?
The Streamlined Filing Compliance Procedures are available only to taxpayers whose failure to report foreign financial assets or income was non-willful. The IRS describes these procedures as applying to taxpayers who “mistakenly failed to report foreign financial assets or pay taxes on those assets.”6 To use the program, you must certify under penalty of perjury that your conduct was non-willful. That certification is not just a filing requirement—it is a legal judgment about your knowledge, intent, and the facts surrounding your reporting failures. If the IRS later disagrees, the consequences can be significant.
What if the IRS disagrees with my non-willfulness certification?
If the IRS determines that your conduct was actually willful, it can challenge your eligibility for streamlined treatment and pursue willful FBAR penalties. This happened in Margaret J. Jones v. United States — litigated by attorney Patrick W. Martin as her principal lawyer.
After Mrs. Jones made a Streamlined disclosure, the IRS argued that she had been “willfully blind” and assessed more than $3.4 million in willful penalties against her and a related estate. The IRS took that position despite internal recommendations supporting an amended submission and a dispute over whether the estate could use Streamlined procedures in the first place.
The case was litigated to the eve of a federal jury trial before the government conceded millions of dollars of the assessed penalties—showing why these cases often require experienced legal advocacy, not just tax preparation. The IRS has also discussed modifying or ending the Streamlined program, so the options available today may not last forever.
Is doing nothing ever the right option?
This depends upon all of your facts and the applicable law, but sometimes your best option may be to do nothing! For example, a good faith failure to report gifts or inheritances from nonresidents must generally be reported on IRS Form 3520. However, the failure to do so (with good facts) might simply be an administrative problem that ultimately resolves itself with the running of the statute of limitations period against the IRS.
A late filing can create new problems
Compare that to what happened to Mr. Krzysztof Wrzesinski7 . Mr. Wrzesinski relied on an advisor who told him he did not need to report a gift from his Polish mother, who had won a Polish lottery. After a second advisor later recommended filing a late Form 3520, the IRS pursued penalties and the case continued until the eve of trial over the penalty amount.
What if the IRS has already contacted me?
That changes the stakes significantly. You may no longer qualify for the Streamlined program, and statements you make to the IRS or to non-attorney advisors (CPA, tax return preparer, enrolled agent, financial advisor, family member, etc.) may later be used against you. If you have potentially problematic facts, do not “explain things” to the IRS revenue agent or debrief your tax return preparer before speaking with a tax attorney.
What happens if I file a false or incomplete form?
Never file a false or incomplete form in the hope that it will make the problem go away. The opposite can happen. A return that omits foreign income, a perjured non-willfulness certification, or an FBAR that deliberately omits accounts can turn a civil penalty issue into potential criminal liability.
Why FBAR problems often require a tax attorney early
The law is moving in both directions at once:
Reyes made it easier for the government to call you willful.
Sagoo may eventually make it harder for the government to collect (although hiring a lawyer to defend you in a judicial proceeding can get expensive quickly).
The compliance programs that reduce or eliminate penalties that are currently available should be seriously considered depending upon your facts.
“I didn’t know” as a legal position can typically be harder to sustain.
You should consider coming forward before the government finds you, if it is in your best interest.
You should make that decision about how to come forward (or not) with a licensed attorney.
Treat the attorney-client privilege as what it is in these cases: not a formality, but the difference between analyzing your worst facts in private versus handing these facts and documents over to the other side (the government) in the event of an audit or further dispute.
Sources
Bittner v. United States, 598 U.S. 85 (2023). Amicus brief filed by the American College of Trust and Estate Counsel (ACTEC), co-authored by Patrick W. Martin as a Fellow of ACTEC. ↩︎
Jones v. United States (C.D. Cal. May 11, 2020). Willful penalties of $751,685 (2011) and $770,255 (2012) were assessed against Mrs. Jones, and $1,890,074 against a related estate. Patrick W. Martin served as principal lawyer. ↩︎
United States v. Sagoo (N.D. Tex. Sept. 19, 2025). The IRS had assessed $1,020,922.50 in willful FBAR penalties. The court relied on SEC v. Jarkesy, 603 U.S. 109 (2024). ↩︎
US Exit Tax (Expatriation Tax): The Basic 2026 Guide
What is the U.S. “exit tax”?
The U.S. has a special federal tax you may owe if you renounce U.S. citizenship or end your status as a “long-term resident”. The rules for “green card” holders are particularly complex and nuanced, especially considering the federal district court case of Aroeste vs. the United States. This expatriation tax generally applies if you are considered a covered expatriate under the law, which is a technical category for specific taxpayers. Meeting any one of three tests typically puts you in that category. The next section further explains the three tests.
The law uses a deemed sale (a worldwide fictional sale for tax law purposes) rule to calculate the tax. This rule treats your global property as if you sold it for its market value the day before you cease to be a ‘United States person”. As a covered expatriate, you are typically required to pay income tax on the gain from the deemed sale. This is what the law calls the mark-to-market tax. For 2026, $910,000 of the gain is excluded from tax.
You are typically required to pay the U.S. exit tax as a covered expatriate when you renounce U.S. citizenship or end your status as a long-term resident if you hold a green card. Here is where it gets complicated under the law for green card holders. Meeting any one of three specific financial and compliance tests classifies you as a covered expatriate.
The three tests are:
Net worth test — your total net assets are worth $2 million or more on the day before you become a covered expatriate.
Tax liability test — your average annual net income tax liability for the five tax years ending before your exit date was more than $211,000. This amount is adjusted annually for inflation, and its calculation can be complicated.
Certification test — you fail to certify under penalty of perjury that you have complied with all federal tax laws for the preceding five years. This is typically the most important requirement, and often individuals fail this test when complying with the first two.
Green card holders face many legal questions tied to their immigration status, which can affect their tax residency status. Understand more by referencing the following articles:
The amount you may owe depends on the total taxable gain of your worldwide assets deemed sold, the day before you become a covered expatriate. This expatriation tax uses a deemed sale rule to figure out how much the exit tax is for your specific situation. You treat your property as if you sold it for its current market value, even though you keep the assets.
If you are a covered expatriate (see who has to pay, above), then you are required to pay the tax on these calculated gains. For 2026, you can reduce your total taxable gains by a $910,000 exclusion amount.
Suppose you own stocks worth $2,000,000 that originally cost you $500,000:
Your total unrealized gain on the deemed sale is $1,500,000.
The worst part of the tax regime for most people is not the exit tax; it’s the “forever taint” 40% tax on the asset values.
By merely being a covered expatriate, your family and friends who are U.S. citizens or residents will have to pay a 40% tax on property they receive from the covered expatriate in the form of a gift or inheritance. Using the example above of the exit tax on 590,000 dollars, if the covered expatriate now gifts $1,000,000 after the stock sale to his U.S. dual national daughter, she will be required to pay $400,000 of the forever taint tax.
How can you avoid the exit tax?
Certain dual citizens and minors may be exempt when they renounce U.S. citizenship. The law gets complicated here as well.
Yes, you are subject to the expatriation tax as a green card holder if you are a covered expatriate. You generally fall into this category by not formally abandoning your status (e.g., filing USCIS Form I-407) within the required time period permitted in the tax law. The law becomes extremely complicated for green card holders, especially for those residing within countries with an income tax treaty with the United States. See Aroeste vs. the United States.
What happens to your pension plans (e.g. IRA and 401(k))?
There are special rules that apply to your pension plans. You should review the details of your specific retirement plan with a legal professional.
💡 Tip: There are special tax treaty rules regarding pension plans that can be to your benefit. Some treaties have special tax expatriation rules incorporated; others do not, which can benefit the taxpayer.
One basic example is if you have a $400,000 IRA and are a covered expatriate. You may be required to report the full $400,000 as income on your tax return for the year you become a covered expatriate. You generally cannot use the $910,000 exclusion to lower the tax on this retirement account; however, special tax treaty rules may produce a particular beneficial outcome.
Here is a diagram to help determine whether you are a covered expatriate:
The two-step covered expatriate test, with 2026 dollar amounts. General information, not legal advice.
The “forever taint” 40% tax on gifts or bequests to your U.S. beneficiaries (Section 2801)
As already explained above, your covered expatriate status also triggers a lasting 40% tax forever into the future on any gifts or inheritances you leave to U.S. citizens or U.S. residents under Section 2801. This tax generally applies to the person receiving the gift, not the person giving it. For example, if you give a $1,019,000 gift to a U.S. person, you first subtract the $19,000 annual exclusion. Your heir will then owe a 40% tax on the remaining $1,000,000, which equals a $400,000 tax bill.
The U.S. beneficiary who receives the gift or inheritance from a covered expatriate is required to file new IRS Form 708 and pay the tax.
A green card holder may be able to end their U.S. residency by application of a tax treaty with another country. The law gets particularly complex depending on the facts of each circumstance, and Patrick W. Martin, the author, represented the green card holder in the landmark case Aroeste vs. the United States. This may trigger the same tax consequences as giving up your citizenship if you have held your green card for certain periods
What is Form 8854?
Form 8854 is the official form created by the IRS, which was found to be legally invalid in the case of Aroeste vs. the United States. See below the excerpt from the case:
C. Whether Aroeste Was Required to File Form 8854. The Government next argues that even if the IRS had accepted Aroeste’s amended returns, neither amended return would have properly notified the IRS of a commencement of treaty benefits because both failed to attach Form 8854, as required by IRS Notice 2009- 85. (Doc. No. 76-1 at 4–5.) The Government concedes Aroeste attached Form 8833 to both amended forms. (Id.) Aroeste responds that Notice 2009-85 is not binding authority as it fails to comply with the Administrative Procedures Act (“APA”). (Doc. No. 78-1 at 8 (citing Green Valley Investors, LLC v. Comm’r of Internal Revenue, 159 T.C. No. 5, at *4 (Nov. 9, 2022)) (under the APA, agencies must follow a three-step procedure for “notice-and-comment” rulemaking, but this requirement does not apply to “interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice.”).) The Court agrees. In Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022), the court found that Notice 2007-83 failed to comply with the APA’s notice-and-comment procedure. Similarly here, because Notice 2009-85 has not been subject to a notice-and-comment procedure, it does not comply with the APA and thus is not binding. As such, Aroeste was not required to file Form 8854 with his amended returns. [emphasis added]
