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:
A U.S. Immigration Officer Stops You at at the Airport – @ the Point of Entry (Demands your Green Card be Turned Over))
Being stopped, searched, interrogated or simply questioned by U.S. federal government agents can be intimidating. Especially, if you do not know your legal rights.
It can be more intimidating on your arrival to the U.S. airport, if the CBP officer (U.S. Customs and Border Protection) demands that you physically “return voluntarily” your green card. The consequences they tell you will be immediate deportation from the U.S.
Removal from the U.S. – is it voluntary or not, under these circumstances?
What are the U.S. federal tax consequences if you “return voluntarily” your green card?
What if the CBP officer pulls out Forms W-8s you previously signed with your foreign financial institution and presents them to you in the airport and asks the following questions:
Why did you certify “under penalty of perjury” you were not a United States person on your foreign bank produced documents (you received in France, Germany, the U.K., Canada, Mexico, Japan, Indonesia, Australia — or any other foreign country)?
The officer then asks for all of the envelopes and papers in your luggage and opens the letters and files in your possession – See, the U.S. Supreme Court decision United States v. Ramsey, 431 U.S. 606 (1977).
Tax Problems that Turn Serious – can Cause a Green Card Holder to become a “Covered Expatriate”
In Kawashima v. Holder (565 U.S. 478 (2012), the United States Supreme Court held that certain tax offenses committed by lawful permanent residents constitute crimes involving “fraud or deceit” for purposes of the Immigration and Nationality Act (“INA”). Specifically, the Court concluded that lawful permanent residents (a husband and wife from Japan) who were convicted of filing false tax returns resulting in a tax loss exceeding $10,000 had been convicted of an “aggravated felony” within the meaning of the INA.
As a consequence, a conviction for such an aggravated felony renders a lawful permanent resident removable (deportable) from the United States under the immigration laws. Importantly, however, the criminal conviction itself does not automatically terminate lawful permanent resident status. Rather, it provides the legal basis for the Department of Homeland Security to initiate removal proceedings, after which an Immigration Judge may enter a final order of removal.
Once a final order of removal becomes effective, the individual’s lawful permanent resident status is considered to have been revoked. For U.S. federal income tax purposes, this generally results in the termination of lawful permanent resident status under 26 U.S.C. § 7701(b)(6)(B), which provides that an individual ceases to be a lawful permanent resident when “such status has been revoked or has been administratively or judicially determined to have been abandoned.” Accordingly, following a final order of removal, the individual is no longer treated as a lawful permanent resident for purposes of the tax law as summarized below:
Stage
Legal Effect
1. Criminal conviction (including guilty plea)
If the offense qualifies as an “aggravated felony” under INA §101(a)(43), the individual becomes deportable under 8 U.S.C. §1227(a)(2)(A)(iii). A guilty plea counts as a conviction for immigration purposes if the statutory definition of “conviction” is satisfied.
2. DHS initiates removal proceedings
DHS serves a Notice to Appear (NTA) charging removability before an Immigration Judge under 8 U.S.C. §1229a.
3. Immigration Judge determines removability
DHS bears the burden of proving deportability by clear and convincing evidence, typically through the certified judgment of conviction.
4. Final order of removal
If removability is sustained and no relief is available, the Immigration Judge orders removal. After appeals are exhausted (or waived), the removal order becomes final, and the person’s LPR status ends.
The 2012 case involved Akio and Fusako Kawashima, Japanese citizens who had been lawful permanent residents since 1984. Mr. Kawashima pleaded guilty to willfully filing a false tax return under 26 U.S.C. § 7206(1), while Mrs. Kawashima pleaded guilty to aiding and assisting in the preparation of a false tax return under 26 U.S.C. § 7206(2). The immigration judge issued the order of removal. The Board of Immigration Appeals affirmed. Holding that convictions under 26 U. S. C. §§7206(1) and (2) in which the Government’s revenue loss exceeds $10,000 constituted aggravated felonies, the Ninth Circuit affirmed and ultimately so too did the SCOTUS in this decision.
The Supreme Court concluded that these tax offenses necessarily involve fraud or deceit and, because the tax loss exceeded the statutory $10,000 threshold, they constituted aggravated felonies under immigration law. The Supreme Court of the U.S. therefore upheld the government’s order (which had been upheld through the Ninth Circuit Court of Appeals) removing the Kawashimas to Japan.
This of course is important for U.S. “expatriation tax” purposes, since the “lawful permanent resident” status for tax purposes will necessarily terminate upon the final order of removal. Not before. Once LPR status terminates, the individuals will become covered expatriates, if they meet the time period under the statute to become “long term residents” as was the case for Mr. and Mrs. Kawashima and meet either of the three tests: the tax liability, net asset and certifications of compliance with the federal tax laws. See, Why a “long-term” LPR can NEVER avoid “Covered Expatriate” status under IRC Section 877A(g)(1)(B) if Asset or Tax Liability Test is Satisfied!
What Questions Need to be Asked if You Live (with a “green card”) in one of the 67 Countries – with a U.S. Income Tax Treaty?
Depending upon the factual circumstances of each individual, they may be able to benefit from the international tax treaty law articulated by the U.S. Federal District Court in Aroeste v United States – Order (Nov 2023). Future posts will explore the legal relevance of some of the following questions to consider:
Has the individual filed any U.S. federal income tax returns since leaving the United States?
Was a professional tax return preparer hired or consulted about the filing of a federal income tax return (e.g., a certified public accountant, an enrolled agent, a full time tax return preparer, ta tax attorney, etc.)?
Has the individual been filing IRS Form 1040 Resident Tax Returns in the same way Mr. Aroeste was filing – based upon the advice (that turned out to be erroneous -although given in good faith) from their U.S. tax return preparer?
What steps if any have been taken to notify the U.S. federal government (irrespective of the agency) regarding their physical residency outside the United States?
This information is intended to provide general information about tax expatriation legal concepts under U.S. law to help readers better understand often very complex issues within the U.S. international tax field for citizens and lawful permanent residents. General legal information is not the same as legal advice, that is, the concrete application of law to a specific case with unique and particular facts.
Legal advice also should include strategic planning and advice to a particular case. A legal adviser should be able to assist an individual in taking important decisions and steps, related to the specific goals of the individual, while understanding the legal and tax consequences of each step. There are a range of consequences that the “U.S. tax expatriation” laws impose upon different types of transactions, transfers, reorganization of assets, etc. None of these items are discussed in this Tax-Expatriation.com This is not legal advice.
ar case. A legal adviser should be able to assist an individual in taking important decisions and steps, related to the specific goals of the individual, while understanding the legal and tax consequences of each step. There are a range of consequences that the “U.S. tax expatriation” laws impose upon different types of transactions, transfers, reorganization of assets, etc. None of these items are discussed in this