I have previously written (pre-Aroeste v. United States) about the thorny issues that LPRs face when spending substantial time outside the United States.  See an earlier post titled:

Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?

Posted on August 19, 2014

I highlighted some key concepts about why it matters if you become a “long-term” resident as that term is defined in the tax law and now the case law in Aroeste makes these risks clear as confirmed in the landmark case.

• A LPR can reside for substantially shorter periods in the U.S. (shorter than the apparent 7 or 8 years identified in the statute), and still be a “long-term resident” per IRC Section 877 (e)(2) depending upon the facts of any particular case.

• There are far more LPRs who abandon their status (formally) than U.S.  citizens who formally take the oath of renunciation.  See the table above reflecting those who have formally renounced U.S. citizenship versus those who have formally abandoned their LPR status.

• Plenty of LPRs informally abandon their LPR status for immigration purposes by moving and living permanently outside the U.S.

• An individual who has/had LPR status, has no control over the timing of when their status ends; if it is determined to have been legally abandoned by a federal immigration judge.  See,  The dangers of becoming a “covered expatriate” by not complying with Section 877(a)(2)(C).

• There are plenty of timing issues for LPRs surrounding how and when they have “abandoned” their LPR status for purposes of IRC Section 877 (e)(2).  See –

Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card, Posted on August 15, 2015

* More Green Card Holders Abandon Status Than Citizens Renounce Citizenship

A frequently overlooked fact is that:

Formal Abandonment of LPR Status Is More Common Than Citizenship Renunciation

• Each year, substantially more lawful permanent residents formally abandon their green cards than U.S. citizens formally renounce citizenship.  The focus in the press and media is typically U.S. citizens who formally renounce.  Here is my most recently compiled graph,  the  total  number  of  U.S.  citizens  renouncing  is  typically  in  the  thousands  (few)  each  year.  It has trended downward post-COVID.
• However, with LPRs, formal recognition of abandonment by filing Form I-407 (not including informal abandonments which are multiple times greater)  is multiple times greater.
• The graph I created several years ago, shows that formal LPR abandonments are mlutiple times greater than citizenship renunciation.  I made 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).
• I have made a new FOIA request for more recent records, since this data is no longer public after the year 2019 year.
• The statistics reflected above demonstrate that:
  • Formal green card abandonment significantly exceeds formal citizenship renunciations.
  • The population potentially affected by the expatriation rules is therefore much larger than many individuals around the world appreciate.

Lack of Control Over the Timing of Termination

One of the greatest risks for green card holders is that they often do not control the legal date on which their LPR status terminates, especially if they reside in a tax treaty country, per the analysis in the landmark case:

• Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023)

Why This Matters

If abandonment is later determined by tax treaty law, effectively an CPB officer, the Executive Office for Immigration Review (EOIR) immigration court, the Board of Immigration Appeals (BIA)or a even a Federal District Court:

• The taxpayer may not control the effective date of termination – “expatriation”.
• If they are a “covered expatriate” or not.
• The tax consequences may arise unexpectedly.
• The timing can directly impact whether the tax expatriation rules apply and all of the potential consequences.

There are important unintended tax consequences that can befall individuals here:  see, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware! International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9).

• • Topsnik – Why Should I Care?

These timing issues become important when the IRS challenges tax positions taken on tax returns filed (or filed late) as was the case in Topsnik v. Commissioner (143 T.C. 240 (2014) – “Topsnik I”) and the subsequent case of Topsnik v. Commissioner (146 T.C. No. 1, 2016) – “Topsnik II”).  In Topsnik II, Judge Kerrigan agreed with the IRS and ” . . . determined  that P [taxpayer] was a “covered expatriate” who expatriated in 2010 and must recognize gain on the deemed sale of his installment obligation on the day before his expatriation under I.R.C. sec. 877A.”  The U.S. Tax Court cited IRS Notice 2009-85 and explained it was not legally binding as follows:

We are not bound by Notice 2009-85, supra, see Compaq Computer Corp. v. Commissioner, 113 T.C. 363, 372 (1999), but it is an official statement of the Commissioner’s position and we may let it persuade us, see Nationalist Movement v. Commissioner, 102 T.C. 558, 583 (1994), aff’d, 37 F.3d 216 (5th Cir.1994).

The Tax Court went on to conclude these facts caused the court to conclude and uphold the IRS assessment of the “exit tax” on the German citizen Mr. Topsnik as a “covered expatriate” quoted as follows:

Notice 2009-85, sec. 8, 2009-45 I.R.B. at 611, explains that for purposes of certifying tax compliance for the five years before expatriation pursuant to section 877(a)(2)(C):

All U.S. citizens who relinquish their U.S. citizenship and all long-term residents who cease to be lawful permanent residents of the United States (within the meaning of section 7701(b)(6)) must file Form 8854 in order to certify, under penalties of perjury, that they have been in compliance with all federal tax laws during the five years preceding the year of expatriation. Individuals who fail to make such certification will be treated as covered expatriates within the meaning of section 877A(g) * * *

For the year of his expatriation petitioner failed to complete and file a Form 8854 certifying under penalties of perjury that he has complied with all of his U.S. Federal tax obligations for the five taxable years preceding the taxable year that includes his expatriation date. Respondent [IRS] has provided evidence that petitioner did not file all of his U.S. income tax returns before expatriatingand was not in payment compliance for taxes owed for the five years before expatriation in taxable year 2010. Thus petitioner could not have certified under penalties of perjury on a Form 8854 that he had been in tax compliance for the five years before expatriation. Consequently, because petitioner failed to certify tax compliance for the five years before expatriation, he is a “covered expatriate” as defined by section 877A(g)(1)(A).

Importantly, the court in Aroeste concluded IRS Form 8854 was not required to be filed (even though the DOJ attorney argued it was required – as set forth in the instructions to the form) as explained below:

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.

Both the Green Valley Investors LLC case and Mann Construction were 2022 cases, some 6 years after Topsnik II.

My law firm, Chamberlain Hrdlicka, successfully represented the taxpayers in Green Valley and of course in Aroeste.

We ended the last post (I of VI) on this topic by referencing a crucial article I authored and published more than a decade ago in the International Tax Journal– titled Oops.. .Did I Expatriate and Never Know It – (2014)

• Key Background on LPRs and “Oops . . . Did I Expatriate”?

Please first read Part I of this series:  Most important Questions for “Green Card” Holders (“lawful permanent residents”): Part I of VI, which outlines some of the foundational questions every green card holder should consider before addressing the additional issues questions below.

Many individuals have no idea that, under the legal principles confirmed in the federal district court case I litigated — Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023) – they may already be treated as “covered expatriates” as a matter of law.

• Along Comes Section 2801 – and 2025 Final Regulations – The “Forever Taint” to Family and Friends (Paying the Taxman) 

Please read an earlier post from yours truly (About the Author:  Patrick W. Martin), more than a decade ago –“Covered Expatriate” Status is a “Scarlet Letter”— which discusses the severe and often misunderstood consequences of covered expatriate status.

In addition, see another earlier post I authored explaining why covered expatriate status matters even for individuals with modest or limited assets: Why “covered expat” (“covered expatriate”) status matters, even if you have no assets! The “Forever Taint”!

• Aroeste  – Landmark Decision Confirms the Law – Tax Treaty Law Applies – Taxpayers Do Not Waive Benefits per Gov’t

These writings all addressed the same underlying legal and policy expectations that courts would eventually be required to confront — issues now directly addressed in Aroeste. The Aroeste decision is also consistent with positions I successfully advanced in three separate U.S. Tax Court cases involving green card holders, none of which resulted in published opinions because the government ultimately conceded to my arguments and my clients prevailed prior to trial.

This case law has great impact on green card holders who are living principally outside of the U.S.  There are 3.88 million individuals who are living outside the U.S. – per the 2024 report by the U.S. federal government.  Many of them live in a treaty country.  Many of these individuals might be considering their immigration law consequences (particularly after the latest announcement from the USCIS – impact these immigration consequences:  U.S. Citizenship and Immigration Services Will Grant ‘Adjustment of Status’ Only in Extraordinary Circumstances (May 2026) Few have considered the tax law implications.

See, the Homeland Security, Office of Immigration Statistics –  Estimates of the Lawful Permanent Resident Population in the United States and the Subpopulation Eligible to Naturalize: 2024, and Revised 2023;  see Table 1 in the report.

In order to understand what issues anyone with a green card has (especially when living outside the U.S.), some key questions should be asked:

• Gifts and inheritances after I leave (what U.S. taxes)

• • If I become a covered expatriate, can I still give money to my children who live in the U.S. without U.S. taxes?
  • 
  • When do I or my family members need to File IRS Form 708, United States Return of Tax for Gifts and Bequests Received From Covered Expatriates

• Worldwide income while I still have the green card

• • Does the U.S. tax the salary I earn in my home country?

• • What is the foreign earned income exclusion, and do I qualify?
  • Must I file an IRS Form 8854, Initial and Annual Expatriation Statement
    (and what are the legal implications of such filings)?
  • What if I do not file IRS Form 8854, Initial and Annual Expatriation Statement?

• Am I still a U.S. taxpayer?

• • If I never told USCIS I left, does the IRS still consider me a U.S. tax resident?

• • Can I be a U.S. tax resident and a tax resident of my home country at the same time?

• • What is a “tax treaty tie-breaker” and how does it help or hurt me?

• Aroeste v. United States — what does it mean for me? –
  • Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023)

• • If I use the treaty to be a non-resident, am I giving up my green card automatically?

• • Can I be a non-resident for income tax under the treaty but still be considered a “U.S. person” for other rules like FBAR?
  • Do all forms I file with the U.S. federal government (IRS, USCIS, ICE and others) subject me to claims of signing under penalty of perjury?

Stay tuned . . . . . . . . . for III of VI

Those individuals who have green cards and live in and outside of the United States, should understand the tax and legal implications to them.

There are millions of individuals in this category. i.e., those who have “emigrated” with an “e” from the United States.  There are 3.88 million of these green card holders, as of 2024 according to the U.S. federal government’s latest report.  The statistics are striking – that so many individuals reside outside the U.S.

See, the Homeland Security, Office of Immigration Statistics –  Estimates of the Lawful Permanent Resident Population in the United States and the Subpopulation Eligible to Naturalize: 2024, and Revised 2023;  see Table 1 in the report. 

These nearly 4 million individuals who do not reside principally in the U.S. are similar to the fact pattern of Mr. Aroeste residing in Mexico City.  See the case where yours truly, Patrick W. Martin, was lead counsel in that landmark case – and the analysis of the District Court in Aroeste v. United States.  The government lost.

See an early related post titled –How Many LPRs are Living in Tax Treaty Countries like Aroeste (Now including Chile)? What are the Legal-Tax Consequences? (Part I of II)

Today’s post is a series of simple and key questions for those with green cards, to help them better hone in on the legal issues and U.S. tax risks that may be applicable to them:

• Am I still a U.S. taxpayer?

• • What does it mean to be a U.S. taxpayer, when there are technical tax terms such as “United States person” and an individual who is a “lawful permanent resident” (not defined in the immigration law)?

• • I have a green card but I’ve lived outside the U.S. for years — do I still have to file U.S. tax returns?

• • The date on my physical green card has expired – does that mean I am no longer a a “lawful permanent resident” for tax purposes?

• • Does it matter whether my green card is expired, taken back at the airport, or just sitting in a drawer overseas?

• • Is there a difference between “giving up” my green card and just letting it lapse?

• Aroeste v. United States — what does it mean for me? –
  • Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023)

• • What was the Aroeste case actually about?

• • Why is Aroeste important if I’m a green card holder living abroad?

• • Why did the U.S. federal government fight so hard against Mr. Aroeste and appeal/litigate the case to the 9th Circuit, (and ultimately give up)?

• FBAR and foreign account reporting

• • What is an FBAR, and why do I have to tell the U.S. about a bank account in my own country?

• • What is FATCA, and why is my local bank asking if I’m “American” – or if I ever had a green card?

• • What is Form 8938, and how is it different from FBAR?

• • What about accounts I only sign on, like my parents’ or my employer’s?

• The exit tax / expatriation rules

• • What is the “exit tax” I keep hearing about?

• • Am I a “long-term resident” — and why does that label matter so much?

• • What is a “covered expatriate,” and how do I know if I am one?

• • What did the Court in Aroeste rule about the “exit tax” and IRS Form 8854 – Initial and Annual Expatriation Statement?

Why are all of the above questions so important to me – since I previously obtained a “green card”?

Subsequent posts will address additional key questions that can have a significant legal consequence to individuals who had or have a green card and spend substantial time outside of the United States.   For a preview, look at Oops.. .Did I Expatriate and Never Know It – International Tax Journal 2014

Stay tuned . . . . . . . . .

The United States has respected citizenship for those born on U.S. soil, since the U.S. Supreme Court ruled on the issue back in 1898 in United States v. Wong Kim Ark.  We know that notwithstanding stare decisis, SCOTUS sometimes overturns its prior precedent.  See,  Loper Bright Enterprises v. Raimondo (2024) overturning  Chevron U.S.A. Inc. v. Natural Resources Defense Council (1984);  Dobbs v. Jackson Women’s Health Organization (2022), overturing Roe v. Wade (1973); and Brown v. Board of Education (1954) overturning  Plessy v. Ferguson (1896).  

• President’s Executive Order 14160: Titled, Protecting the Meaning and Value of American Citizenship

It provides in relevant part:

Sec. 2. Policy. (a) It is the policy of the United States that no department or agency of the United States government shall issue documents recognizing United States citizenship, or accept documents issued by State, local, or other governments or authorities purporting to recognize United States citizenship, to persons: (1) when that person’s mother was unlawfully present in the United States and the person’s father was not a United States citizen or lawful permanent resident at the time of said person’s birth, or (2) when that person’s mother’s presence in the United States was lawful but temporary, and the person’s father was not a United States citizen or lawful permanent resident at the time of said person’s birth.

(b) Subsection (a) of this section shall apply only to persons who are born within the United States after 30 days from the date of this order.

• SCOTUS Announced it Will Hear Arguments on May 15, 2025

See, SCOTUS order  – here, and reported here: Birthright citizenship cases to be heard at the Supreme Court in May

The Congressional Research Service has an excellent summary article it prepared in 2018, titled – The Citizenship Clause and “Birthright Citizenship”: A Brief Legal Overview (1 Nov. 2018).   This report was drafted when President Trump during his first term questioned the validity of “birthright citizenship”.  Below is an excerpt from that 2018 article, relevant to the:

Under federal law, nearly all people born in the United States become citizens at birth. This rule is known as “birthright citizenship,” and it derives from both the Constitution and complementary statutes and regulations. The Citizenship Clause of the Fourteenth Amendment states that “[a]ll persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.” The Immigration and Nationality Act (INA), in turn, declares certain persons to be U.S. citizens and nationals at birth. INA § 301(a) more or less tracks the Citizenship Clause in stating that “a person born in the United States, and subject to the jurisdiction thereof” is a “national[] and citizen[] of the United States at birth.” (The INA also extends citizenship at birth to various persons not protected by the Citizenship Clause, such as those born abroad to some U.S. citizen parents.) Federal regulations—including those that govern the issuance of passports and access to certain benefits—implement the INA by providing that a person is a U.S. citizen if he or she was born in the United States, so long as the parent was not a “foreign diplomatic officer” at the time of the birth.

The report goes on to explain –

The weight of current legal authority suggests that these executive and legislative proposals to restrict birthright citizenship would contravene the Citizenship Clause. At least since the Supreme Court’s decision in the 1898 case United States v. Wong Kim Ark, the prevailing view has been that all persons born in the United States are constitutionally guaranteed citizenship at birth unless their parents are us born individuals foreign diplomats, members of occupying foreign forces, or members of Indian tribes. In Wong Kim Ark, the Court held that a man born in the United States in 1873 to parents who were Chinese nationals acquired citizenship at birth under the Fourteenth Amendment. The parents were ineligible to naturalize under the law of the time, but they had established “permanent domicile and residence in the United States.” The Court reasoned that the Citizenship Clause should be “interpret[ed] in light of the common law” and grounded its holding in the common law principle of jus soli or “right of the soil.” Pursuant to that principle, “every child born in England of alien parents was a natural-born subject, unless the child of an ambassador or other diplomatic agent of a foreign state, or of an alien enemy in hostile occupation of the place where the child was born.”

• Tax Expatriation Consequences –

As to “tax expatriation” – of these individuals?  I suspect these babies (i.e., those born after 30 days from the executive order; on or after February 19, 2025) will have bigger issues to worry about other than their U.S. tax issues if SCOTUS rules against them.

Did USCs Born in the U.S. (not to USC Parents) – Accidentally “Expatriate” for U.S. Tax Purposes? – per  President Trump issued Executive Order (EO) 14160

Will the “gold card” sell to ultra high net worth investors around the world who want U.S. citizenship (“USC”)?  What are the tax costs of USC?  * About the Author:  Patrick W. Martin

President Trump again announced on April 3, aboard Air Force One his plan:

See, the New York Post –  Trump unveils $5 million ‘gold card’ for rich migrants emblazoned with his image

Whether the U.S. adopts a new “Gold Card” “For $5 million [that] we will allow the most successful job-creating people from all over the world to buy a path to U.S. citizenship,” is up to the U.S. government.

* Congressional Powers:   Article I, Section 1, and Article I, Section 8 of the U.S. Constitution. 

Congress can amend Title 8 and include a new “Gold Card” option.

Current law provides the EB-5 visa as one path towards a “green card” that ultimately can lead to U.S. citizenship through naturalization.

President Trump presented at his March 4th speech to a joint session of Congress, explaining the concept:   “It’s like the green card, but better and more sophisticated. And these people will have to pay tax in our country.”

* Reducing the Deficit:  $1.31 trillion more than Gov’t has collected in fiscal year (FY) 2025

Sounds like a panacea to help the U.S. federal deficit problem?  If 100,000 of these “Gold Cards” were sold for $5M each, and these funds were paid directly over to the federal government, that would raise $500 billion dollars.  If 1 million were sold, that would be $5 trillion dollars to use to pay down the deficit (running annually at far greater than $1 trillion dollars since 2019).   

To put that into perspective, the EB-5 visa that also leads to a “green card” that can further lead to U.S. citizenship through naturalization has an annual visa limit of about 10,000.  See, USCIS’s article – (16 Aug 2024) – Annual Limit Reached in the EB-5 Unreserved Category  There have been multiple years where the annual visa limit was not met. Prior to 2015, the 10,000 visa limit was never met and in several years there were less than 500 EB-5 visas issued annually.

• EB-5 visa – Leading to a Green Card

There have been less than 150,000 EB-5 visas issued over the last 35 years since its adoption in 1990.   Is it realistic to be able to “sell” even ten thousand $5M gold visas annually, when the “green EB-5 visa” costs $800,000 and has had less than 150,000 issued in nearly 35 years?

Plus, see the U.S. Department of State’s Immigrant Visa Statistics, including the – Annual Numerical Limits for Fiscal Year 2025  for more details about the EB-5 visa program statistics.

• • Equity Investment for EB-5 visa – $800,000 (Does NOT go to the Government)  

The total required equity investment amount for an EB-5 visa in the qualifying project, is only $800,000 (if in a “TEA”).  See, EB-5 Immigrant Investor Program, as published by the U.S. Citizenship and Immigration Services (USCIS).  See, USCIS’s Chapter 2 – Immigrant Petition Eligibility Requirements.  It used to be only $500,000 (1/10th of $5M).  A TEA is a  targeted employment area (“TEA”) that meets specific requirements under the law.  If the capital investment is not in a TEA, the required minimal capital investment amount is $1,050,000 that increases in January 1, 2027 and each 5 years thereafter.  Still about 1/5th the cost of a “gold visa”.

• U.S. Estate and Gift Tax Consequences for U.S. Citizens and those with a Green Card (“Gold Card”?)

Finally, maybe the biggest impact on who wants an investor visa that leads to U.S. citizenship depends largely upon the U.S. income tax and U.S. estate and gift tax consequences.  There are many tax implications.  See, my case  Aroeste v United States – Order Nov 2023, that was appealed to the 9th Circuit by the Office of Solicitor General (DOJ).  U.S. District Court ruled in favor of green card holder. 

Ultra high net worth individuals around the world want to know the tax costs of U.S. citizenship.  Importantly, new regulations were issued in January 2025 regarding the tax consequences of renouncing USC and triggering the U.S. “expatriation tax” that is the primary focus of these materials.  See, these regulations – here:  Guidance Under Section 2801 Regarding the Imposition of Tax on Certain Gifts and Bequests From Covered Expatriates

These tax consequences of the “gold visa” will be explored in more detail in Part II.

For a more detailed discussion of tax issues tied to pre-immigration to the U.S., see my chapter of the tax implications of immigration to the U.S. (as opposed to emigration from it).   I wrote the tax chapter in the latest edition of the American Immigration Lawyers Association (“AILA’s) –  Immigration Options for Investors & Entrepreneurs (out of print) titled Key U.S. Tax Considerations for Investor Visa Applicants by Patrick W. Martin. 

There is an idea that only recently has permanent resident US immigration status into the United States grown substantially. The peak years were in the early 1990s as to absolute numbers. However, the greatest number of permanent residents as a relative percentage of the population was in the early 1900s; by far. See the chart below that I created from DHS immigration statistics data.

This is important for LPRs who come into the US and then stay long enough to become “long-term residents” as defined in the tax law. See, an earlier post – Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?

• “Covered Expatriate” Status and Negative US Tax Consequences

Once these “long-term residents” leave the US they can typically be subject to various adverse tax consequences. See an earlier post: The “Hidden Tax” of Expatriation – Section 2801 and its “Forever Taint.”

There were more LPRs admitted, in absolute terms in 1905 (1,026,499) than in 2022 (1,018,349).

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In percentage terms the total number of LPRs in 1905 compared to the total population was more than four times (4X) greater than in 2022 when it was (about 3/10th of 1 percent or 0.306%; versus a total population of 333 million) . In 1905 the total population was about 84 million, with newly admitted LPRs representing 1.225 percent of the entire resident population (1.225%; is greater than 4X the 2022 relative percentage).

• The “Mark to Market” Tax that did NOT Exist in 1820, 1913, 1966 (Not Until 1996)

The US tax expatriation laws now impose a “mark to market” tax on so-called “long-term residents” who become “covered expatriates.” Such a concept in the tax law never existed in the early part of the 20th century, and indeed only became law in 1996. See an earlier post, The Foreign Investors Tax Act of 1966 (“FITA”) – The Origin of US Tax Expatriation law

This so-called Mark to Market tax is based upon a legal fiction, as if the individuals sold their worldwide assets on the “expatriation date.” It applies, even though there’s no current sale of assets, no disposition, transfer, change of ownership, change of title, or other “realization” event. The term “realization” is very significant in US tax law, including as recently discussed by the United States Supreme Court. See below and Moore v. the United States (2024) .

Below is a table of LPRs who were admitted to that status, per year, over the last 200+ years starting in 1820:

Are you or any of your family members one of these millions (more than 88 million) of LPR individuals represented in the above graph over the last 200+ years?

An increasing number of international tax scholars and practitioners are questioning the validity of this “mark to market” tax in light of recent US Supreme Court (SCOTUS) case law. See a recent post, Is the “Mark to Market” Expatriation Tax Unconstitutional? – through the Prism of Moore

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No Court in the land has explicitly ruled on whether the “mark to market” tax under Section 877A is unconstitutional. However, many international tax minds (myself included) have doubted the ability of Congress to levy a tax on unrealized wealth in light of Eisner v. Macomber, 252 U.S. 189 (1920) and the language of the amendment ratified in 1913 to the Constitution.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

16th Amendment of the Constitution [emphasis added]:

One of the exceptional international tax minds, Professor Reuven S. Avi-Yonah has been writing a lot about this issue after submitting an amicus brief along with Professor Bret Wells to the U.S. Supreme Court (SCOTUS) in the Moore case which was decided last week. Moore v. United States, No. 22-800 (06/20/2024). Moore was not about “expatriation taxes” but rather a “mandatory repatriation tax” (“MRT”) under Section 965.

Moore argued some of the fundamental issues that lie at the core, in my view, of whether Congress has the legal authority to impose taxation (as an income tax) based upon the increased value of assets as of the date, the individual becomes a “covered expatriate”. How does the individual have any income (see, Eisner v. Macomber) by merely holding and having the same assets on the day prior to “expatriation” as the day after? No sales, no exchanges, no dispositions, no transfers, no gifting, etc. – and yet 26 U. S. C. § 877A imposes taxation on “income.”

See the “TIGTA Report”. Read it here: More Enforcement and a Centralized Compliance Effort Are Required for Expatriation Provisions 

Does TIGTA have the Answer: to the Question – How many former U.S. citizens and long-term lawful permanent residents have filed and should have filed IRS Form 8854?

The short answer to the question above – is NO!

The government does not know how many IRS Forms 8854 should have been filed.

Note the total numbers of 8854 returns filed as reported in Figure 2 of the TIGTA Report were less than 25,000 during a ten year period. This report focuses really only on former U.S. citizens (“USC”) who have renounced their citizenship. Not on lawful permanent residents (“LPRs), which during that same ten year period there were around 200,000 who filed USCIS Form I-407.

* How Many Individuals Should have Filed Form 8854?

This is a classic report that now reads quaintly.

This 1998 U.S. Treasury report was written before the IRS and the Department of Justice started enforcing what has now become numerous international information reporting penalty provisions in the law. The author watched the change over these years, and the introduction of some new statutory penalties (e.g., 26 USC § 6039F in 1996; § 6039D in 2010; § 6039G in 1996; and major modifications in 2010 to § 6048, among others and increased FBAR penalties). Most importantly, the biggest change was how international individual taxpayers can (and often are) severely penalized by the IRS.

This 1998 report is full of sensible ideas. The Treasury explains the complex tax laws applicable to United States citizens (“USCs”) and lawful permanent resident (“LPR”) residing outside the U.S. The report has suggestions on how to best educate international taxpayers living overseas who are impacted by these laws.

Fast forward more than 25 years later (post 9/11/2001; post USA Patriot Act of 2001; post Swiss Bank scandals 2009+; post FATCA 2010+, etc.) and we are in a world of international tax penalties galore.

The U.S. international tax world in 2024 is a very different world, even though the core of the U.S. international tax law of how much tax is owing has largely remained the same for individuals. The calculation of income taxes for USCs and LPRs living overseas in 2024 is largely the same as it was in 1998. Plus, the IRS reports that only 10,684 resident income tax returns (IRS Form 1040) were filed by these individuals living overseas in the last year the IRS Office of Statistics reporting tax returns with IRS Form 2555 (Foreign Earned Income).

What has changed over these years is the IRS enforcement and easy found money on penalty collections. One example is the penalty for reporting tax-free gifts and inheritances. The reporting requirement of that law (26 U.S. Code § 6039F – Notice of large gifts received from foreign persons) was adopted in 1996.

The IRS assessed US$1.7 billion of penalties for this simple 6039F reporting violation over the four years of 2018-2021. The 2018 amounts tripled or quadrupled in subsequent years (e.g., $77M v. $238M v. 282M). Not all of these taxpayers are residing overseas, but certainly USCs and LPRs residing outside the U.S. are likely to encounter foreign gifts and foreign bequests, simply because their lives are foreign!

On the flip side, there have been few favorable changes to the U.S. citizen and lawful permanent resident (“LPR”) living outside the U.S. over these 25 years.

The most favorable developments have come in the last year or so. Importantly, the U.S. Supreme Court rejected the IRS interpretation of multiple per year non-willful FBAR penalties in United States v. Bittner, 143 S. Ct. 713 (2023). The author of this blog worked on the ACTEC amicus brief in Bittner, cited by the majority opinion (Justice Gorsuch) and the dissent (Justice Sotomayor).

Also of significance for individuals living in tax treaty countries is the case of Mr. Aroeste. The author of this blog represents the Mexico City resident who had not formally abandoned his LPRs. The case law provides significant relief for different groups of international taxpayers pursuant per the ruling by the federal district court in Aroeste v United States, 22-cv-00682-AJB-KSC (20 Nov. 2023). That case had over $3M of penalties assessed for IRS Forms 5471, 3520 and FBAR filings.

Plus, the DOJ conceded the penalty assessed against a Polish immigrant for a foreign gift in Wrzesinski v. United States, No. 2:22-cv-03568, (E.D. Pa. Mar 7, 2023) for not filing IRS Form 3520 based upon reasonable cause. Finally, the U.S. Tax Court decision in  Farhy v. Commissioner of Internal Revenue (2023) concluded the IRS could not automatically assess penalties for not filing IRS Form 5471.

See Three Precedent Setting Cases in International Information Reporting (“IIR”) in 6 Weeks:  * Aroeste, * Bittner, and * Farhy: all Interconnected via Title 26, Title 31 and U.S. Income Tax Treaties

Indeed, the international tax world has changed much over this past quarter century since the 1998 U.S. Treasury report. These recent string of cases in favor of international taxpayers is starting to look like a positive trend. See, Six Weeks, Three International Information Reporting Decisions (18 Sept. 2023).

More comments to come – in Part II.

The U.S. tax law is complex, including when an individual (i) becomes and (ii) ceases to be, a U.S. income tax resident (USITR). USITR is not a technical term used under the tax law. The U.S. tax and information reporting requirements are very different depending the status of an individual. Anyone who is not a United States citizen, is either a –

• “Resident alien“, or a
• “Nonresident alien” as the tax law defines both of these categories.

You can’t be both.

“Resident aliens” are generally also “United States persons” (both technical terms in the federal tax law).

“Non-resident aliens” as defined are necessarily not “United States persons.”

Being one versus the other has huge U.S. tax and reporting consequences.

An individual who is a “lawful permanent resident” as referenced in the tax law (Section 7701(b)(6)) cross-references the U.S. immigration law. The first requirement of that statutory tax rule in § 7701(b)(6)(A)) is that “(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws [such status not having changed]. . .[emphasis added]” This means the tax definition is dependent upon the immigration laws, which are found in Title 8, Immigration and Nationality Act. Importantly, the last part of that sentence (i.e., [such status not having changed] is a requirement in the immigration law (Title 8), but does not appear in the tax definition.

The term “lawful permanent resident” cannot be found in Title 8 as a noun or object (i.e., the individual). Instead, the immigration law defines the status of a person in 8 U.S. Code § 1101(a) as follows:- “. . . (20) The term “lawfully admitted for permanent residence” means the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, such status not having changed.“

This analysis is fundamental to be able to determine whether an individual who holds a “green card” in their pocket even has the status of being “lawfully admitted for permanent residence . . . such status not having changed.” It’s a fundamental legal question under immigration law that must be answered first, to then be able to answer the tax question.

Each form an individual files or does not file (e.g., IRS tax form 1040 v. 1040NR; 8833, 5471, 8854, 8621, 3520, 8864, 8858 and FinCEN forms 114; and immigration forms, e.g., I-485, I-407, etc.) can have a potential impact on the tax residency status of an individual.

The immigration law and when forms, such as Form I-485,  Application to Register Permanent Residence or Adjust Status are submitted to the U.S. federal government can have an impact on this determination. The government can use it against the individual as they did unsuccessfully in Aroeste (see below – Pages 9 and 11 of 17); asserting that Mr. Aroeste waived the treaty by not submitting certain forms.

See an earlier post that explains in some detail how and when an individual can cease to be a “United States person” if they live in a country with an income tax treaty and yet retained their “green card” in their pocket: Federal District Court Rules in Favor of Mexican Citizen – Aroeste vs. United States (LPR) – Tax Treaty Applies: Government’s Motion for Summary Judgment is Denied

The entire case from the Federal District Court can be read here: Aroeste v. United States, 22-cv-00682-AJB-KSC (20 Nov. 2023):

The tax residency analysis for those who have kept their “green card” in their pocket, can be even more complex as was analyzed by the Court. There are additional provisions of the law that must be considered including old Treasury Regulations that pre-date many provisions of various U.S. income tax treaties.

For instance, each of the following federal tax statutory rules, which will be considered in more detail in later posts (II and III):

• 26 U.S. Code § 894 – Income affected by treaty
• 26 U.S. Code § 7852(d) – Other applicable [treaty] rules

Additional posts will review the impact of these provisions in the law and how various immigration forms (including I-485 and I-407, Record of Abandonment of Lawful Permanent Resident Status) and tax forms (including 1040 v. 1040NR; 8833, 5471, 8854, 8621, 3520, 8864, 8858) and FinCEN form 114, can impact the determination of whether someone who has a “green card” in their pocket is or is not a United States person.