Too Much? – Treasury Proposes Changes in the Expatriation Tax Law – per Green Book (2023 Fiscal Year) – Part I of II

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The Administration made specific proposals in its Fiscal Year 2023 Revenue Proposals to modify key provisions in the law associated with “covered expatriates.” Importantly, they proposed two key concepts that can have far reaching consequences –

  1. Creating, in effect, a new monitoring system of those who become “tax expatriates” – specific to filing of IRS Form 8854 – and
  2. Extending the statute of limitations period indefinitely in the event IRS Form 8854 is not filed by the “tax expatriate”.

What does this mean from a practical perspective to individuals around the world? Specifically, to (i) citizens who formally renounce their citizenship, and (ii) lawful permanent residents who have left the U.S. and did not formally abandon their immigration status with USCIS?

See, Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part I)

First, anyone who fails to file IRS Form 8854 with their tax return or files a false or inaccurate form has to be concerned under current U.S. tax law.

The U.S. federal tax law has a specific crime, for making a false statement or signing a false tax return or other document – which is known as the perjury statute (IRC Section 7206(1)).  This is a criminal statute, not civil.  Some people are also under the misunderstanding that a false tax return needs to be filed.  The statute is much broader and includes “. . . any statement . . . or other document . . . “.

(1) Declaration under penalties of perjury

Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or . . .

The  IRS Form 8854 has a specific penalty of perjury signature requirement independent of any U.S. federal income tax return to be filed. See the current language below:

See a prior post –

* Filing False Expatriation Tax Form – IRS Form 8854

Filing a false IRS Form 8854 . . . becomes problematic quickly for any individual who carelessly discloses inaccurate asset information (or no asset information at all). See, the 2016 indictment of a NY business professor discussed previously here: Expatriation Tax Form 8854 is Part of Criminal Tax Case

Whether criminally or civilly, taxpayers should never underestimate the importance of filing complete and accurate tax returns; specifically including IRS Form 8854, Initial and Annual Expatriation Statement.

In addition to these cases, the Department of Justice has been actively involved in pursuing criminal charges against various individuals associated with tax expatriation cases. See the U.S. Supreme Court of last year to take up a criminal case – Regarding an Unnamed Law Firm that Advises International Tax & Expatriation Matters. A petition for a writ of certiorari to the U.S. Supreme Court was unsealed regarding the 9th Circuit case, In re Grand Jury, case Nos. 21-55085, 21-55145. In that case a law firm and a company was held in contempt of court: Re: a Grand Jury Subpoenas –

The panel affirmed the district court’s orders holding
appellants, a company and a law firm, in contempt for failure
to comply with grand jury subpoenas related to a criminal
investigation, in a case in which the district court ruled that
certain dual-purpose communications were not privileged
because the “primary purpose” of the documents was to
obtain tax advice, not legal advice.

Importantly, the IRS and the DOJ currently have extensive legal tools at their disposal to pursue taxpayers who may owe taxes as a result of becoming a “covered expatriate.” The above criminal cases reflect their interest and appetite in pursuing such cases. 


In addition to criminal exposure, the civil tax exposure can be extensive and the IRS is not shy about assessing tax and international information penalties (even if the assessment for penalties such as not filing IRS Form 5471 are unlawful, as determined by the U.S. Tax Court recently – ). See April 3rd, 2023 decision by the United States Tax Court (the “Tax Court”) – Farhy,[6] stating that the IRS does not have statutory authority to assess penalties under section 6038(b).

The next Part II post will discuss the details of the Administration’s proposed change.

Spoiler Alert: The Author thinks its highly unlikely these changes will be adopted by Congress!

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

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In just over six weeks, there have been three key judicial precedents favorable to international individuals.  These cases have helped clarify the requirements of individuals and the limitations on the powers of the IRS in assessing IIR penalties.  These IIR decisions relate to –

  • Title 31 penalties for Foreign Bank Account Reports (“FBARs”),
  • How these two federal statutory regimes of Title 31 and 26 crossover into international law as set forth in U.S. income tax treaties negotiated with different countries around the world. 

Each of these three cases are interconnected and have significant impact to individuals with global lives, global assets, multi-national family members and those who have businesses or accounts in different parts of the world. 

  • Aroeste v. United States

First, on February 13th, 2023, the Southern District of California District Court (the “District Court”) made a key determination in a Joint Discovery Motion decision in Aroeste.[2] The District Court concluded in Aroeste that the IRS/DOJ[3] could not ignore the U.S.-Mexico income tax treaty (“Treaty”) and its application to a Mexican national who has resided almost all of his life in Mexico City and has maintained a “green card” for immigration purposes in the United States.  It is a non-willful FBAR case.  The District Court applied the interconnected statutes and regulations of Titles 31 and 26 to help determine who qualifies as a “United States person”; specifically with reference to international law and obligations set forth in the Treaty.  The key question in that case that remains to be answered is who (specifically Mr. Aroeste and by extension to a pool of millions of green card individuals residing outside the United States who are not citizens[4]) must file FBARs?

Second, on February 28th, 2023, the Supreme Court of the United States (“SCOTUS”) resolved in Bittner[5], that the applicable non-willful FBAR penalty is not measured by every foreign account of the individual as the Service has argued for years.  That case also dealt with non-willful filing of FBARs and the SCOTUS concluded the IRS cannot impose penalties of $10,000 on each and every account held; but rather the penalty is “per report” that was not correctly filed.  Hence, the total maximum penalty per year is $10,000.   A maximum penalty of $50,000 (x5 years) applied per the SCOTUS versus the IRS determined amount of US$2.7M+.

  • Farhy v. Commissioner

Lastly, on April 3rd, 2023, the United States Tax Court (the “Tax Court”) issued a decision in Farhy,[6] stating that the IRS does not have statutory authority to assess IIR penalties under section 6038(b). The IIR that is required by this statute is IRS Form 5471, which includes multiple filing categories. This has far reaching implications about how the government will be able to collect the IIR penalties the Service administratively determines are owed.[7]  The Taxpayer Advocate previously issued a report on point titled:  The IRS’s Assessment of International Penalties Under IRC §§ 6038 and 6038A Is Not   Supported by Statute, and Systemic Assessments Burden Both Taxpayers and the IRS[8]  In that report, the Taxpayer Advocate identified more than $310M of penalties just for the tax year 2014 the IRS “assessed” under Sections 6038 and 6038A.[9] We now know these “assessments” were invalid.

[1] See, footnote 19 regarding United States Tax Court’s Order in the case of Alberto Aroeste & Estela Aroeste vs. Commissioner.

[2] No. 22-cv-682-AJB-KSC, 2023 BL 46094 (S.D. Cal. Feb. 13, 2023).

[3] The “IRS” or the “Service” are used as shorthand for the Internal Revenue Service; and the Department of Justice; Tax Division is referred to as the “DOJ.” 

[4] 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: 2015-2019. According to the report, more than 1 million individuals become LPRs each year and 4.8 million are estimated to have died and/or emigrated.  The authors have extrapolated from these estimates in the report to conclude that more than 3 million of these individuals have emigrated and left the United States. The millions of individuals do not reside in the U.S. of which Mr. Aroeste is one of these individuals; although a tax treaty must exist in the country of residence for the analysis of the District Court in Aroeste v. United States to be applicable. 

[5] No. 31—1195 (U.S. Feb. 28, 2023); 598 U. S. ____ (2023); The majority opinion by Justice Gorsuch cited to the ACTEC amicus brief (where Patrick W. Martin, the author of and a fellow of ACTEC worked on the drafting of the brief) and concluded: 

Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.”   The ACTEC brief was cited by the majority opinion- “ We see evidence, too, that the point of these reports is to supply the government with information potentially relevant to various kinds of investigations, criminal and civil alike. But what we do not see is any indication that Congress sought to maximize penalties for every nonwillful mistake (whether a late filing, a transposed account number, or an out-of-date bank address). See Brief for American College of Trust and Estate Counsel as Amicus Curiae 5–7.”

[6] 160 T.C. No 6 (April 3, 2023).

[7] See, Patrick W. Martin, Megan L. Brackney, Robert Horowitz, and Javier Diaz de Leon Galarza:   Problems Facing Taxpayers with Foreign Information Return Penalties, November 12, 2020.

[8] See, Annual Report to Congress 2020 (pp 119-131), citing –  Robert Horwitz, Can the IRS Assess or Collect Foreign Information Reporting Penalties? TAX NOTES TODAY (Jan. 31, 2019) 301-305; Erin Collins and Garrett Hahn, Foreign Information Reporting Penalties: Assessable or Not? TAX NOTES TODAY (July 9, 2018) 211-213 and 2 Frank Agostino and Phillip Colasanto, The IRS’s Illegal Assessment of International Penalties, TAX NOTES TODAY (Apr. 8, 2019) 261-269.

[9] Id.,  See, Figures 1.8.1, Systemic Assessments of IRC §§ 6038 and 6038A Penalties  & 8.2, Manual Assessments of IRC §§ 6038 and 6038A Penalties. 

Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part II)

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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

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.

Citizenship Renunciations Continue a Trend – Upward in 2020

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The total number of USCs who have renounced annually continues a trend upward; on a moving average basis.

The year 2020 was a record year (by far) of 6,705 total USCs reported by the Treasury to have renounced citizenship. That breaks the prior single year record of 5,409 for the year 2016. The number of USCs who renounced declined in 2019 substantially. Maybe the low reported numbers for the 3rd and 4th quarters for the year 2019 represented a backlog in cases that were not reported by the Treasury until the first two quarters in 2020?

The State Department provides the information to the Treasury who then publishes it publicly pursuant to the law.

I create these charts based upon the raw data and names published quarterly by the Treasury Department.

I will update these numbers through each quarter that is available for the year 2021. Currently that is through the 3rd quarter of 2021.

The type of additional data that would be valuable for those of us who have many cases and study this area of the law and practice are as follows:

  • How many renounced prior to the age of 18?

  • From which country did the USC reside?

  • How many applied specific benefits of a U.S. income tax treaty? The following is a list of the U.S. income tax treaties by country:

I create these charts based upon the raw data and names published quarterly by the Treasury Department. This information can be found online here:

Quarterly Publication of Individuals, Who Have Chosen to Expatriate

Russian Citizen who Expatriated from U.S. – Pleads Guilty to Tax Fraud – US$500M Penalty

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I previously wrote about how this blog (with few posts on my part over the last couple of years) is not unlike Kipling’s observation –

” . . .Oh, East is East, and West is West, and never the twain shall meet. . . ”

. . . in that it addresses principally civil federal tax law [the East] but sometimes (not never 🙂 ) crosses over from civil to criminal [the West]. In that May 2020 post, I covered the indictment in the Northern District of California of a Russian citizen who had become a naturalized U.S. citizen (“NUSC”). As a NUSC he necessarily was a “covered expatriate” upon renunciation as has been explained here in other posts. See, When does “Covered Expatriate” Status -NOT- matter?

Mr. Oleg Tinkov was indicted in May 2020 under 26 U.S.C. § 7206(1) – for Making and Subscribing A False Tax Return, Statement, and Document (Two Counts). The Indictment was originally filed under seal and the docket can be reviewed here. His sentencing is set for October 29, 2021.

As explained therein, he renounced his U.S. citizenship many years prior to the indictment – nearly 7 years before he was even criminally indicted:

11. On or about October 28, 2013, TINKOV expatriated from the United States by
renouncing his U.S. citizenship before a diplomatic and consular officer of the United States.

As a very wealthy individual, the value and accuracy of his assets reflected on his Form 8854 would have been significant factually in this case. Particularly, since as a NUSC he would necessarily have been a “covered expatriate” and hence subject to the “mark-to-market” tax on his worldwide income upon his expatriation. The amount of the tax is calculated upon the amount and fair market value of the assets on the ” . . . day before the expatriation date. . . ” 26 U.S. Code § 877A(a)(1).

* Filing False Expatriation Tax Form – IRS Form 8854

Filing a false IRS Form 8854 and therefore necessarily a false tax return, becomes problematic quickly for any individual who carelessly discloses inaccurate asset information (or no asset information at all). See, the 2016 indictment of a NY business professor discussed previously here: Expatriation Tax Form 8854 is Part of Criminal Tax Case

Importantly, this is true even when a naturalized citizen decides to go back to her home country and leave the U.S. – including on a permanent basis; even when the taxpayer’s assets are located outside the U.S. This was the case with Mr. Tinkov per the indictment and the DOJ press release. See the harsh words in the DOJ press release of the guilty plea yesterday, October 1, 2021 – Founder of Russian Bank Pleads Guilty to Tax Fraud

“Tinkov renounced his U.S. Citizenship shortly after receiving millions of dollars,” said Acting Special Agent in Charge Darrell J. Waldon of the IRS-CI Washington D.C. Field Office. “Despite his knowledge of U.S. tax reporting requirements, he substantially understated his wealth on filings with the IRS. International tax cheats remain a priority for my office and our agency; and as such, the International Tax and Financial Crimes D.C.-based group will continue to aggressively pursue those committing international tax crimes.”

If you are a tax professional assisting in the preparation of tax returns and IRS Form 8854 Initial and Annual Expatriation Statement what duty to inquire do you have as to the accuracy and information provided to you by your client? What duty do tax professionals have to reasonably inquire as to “knowledge of client’s omission” – “information to be furnished” and “diligence as to accuracy”? Must the tax professional make reasonable inquiries if any information furnished to you appears to be incorrect, incomplete or inconsistent with other facts or assumptions of the taxpayer or her circumstances? Treasury Circular No. 230 §10.20, §10.21, §10.22, §10.34(d).

* Inadmissible to Return to the U.S.?

Will Mr. Tinkov be held to be inadmissible if he ever wishes to return to the U.S.? See, prior post regarding the U.S. Supreme Court’s holding in Kawashima vs. Holder (565 U.S. 478 (2012) Unplanned Expatriation: Lawful Permanent Residents’ Deportation Risks for Filing U.S. Federal False Tax Returns

Can and will the U.S. federal government deny the ability of Mr. Tinkov to ever return to the United States pursuant to Title 8, U.S.C. Section 1101(a)(43) for being convicted of an aggravated felony? This is probably all moot considering it has been reported that Mr. Tinkoff was diagnosed with leukemia in March 2020 and has changed his life focus. Arrested Billionaire Banker Tinkov Switches Focus to Cancer Foundation

IRS Chief Counsel Concedes Tax Treaty Residency Position for LPR German Taxpayer in Tax Court

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Those who have their “lawful permanent resident” status and live largely outside the U.S. (or plan on moving to do so in the future) should be keenly aware of the definition of a “long-term” resident. See, IRC Section 877 (e)(2).

See an earlier 2014 post, Who is a “long-term” lawful permanent resident (“LPR”) and why does it matter?

Importantly, the U.S. Tax Court just entered a Decision for a case involving a German citizen who had been a lawful permanent resident for many years (U.S. Tax Court Docket 18451-19). In that case the IRS revenue agent took the position the German citizen was a “United States person” and therefore subject to U.S. taxation on his worldwide income and subject to “international information reporting requirements.”

See, an earlier post (May 2020) Few LPRs Who Leave (Emigrate from) the U.S. Formally Abandon their Immigration Status: Important Tax Consequences (Part I) for a more complete discussion of the statutory definition and potential tax treaty override for those non-U.S. citizens.

As previously explained (Oct. 2018) Legal Question of the Day: FBAR Penalties for USCs and LPRs Residing Outside the U.S. Is the IRS Website correct as a matter of law?, “Lawful permanent residents (“LPRs”) may, but are not necessarily defined as “United States persons” under title 26, Section 7701(a)(30)(A) by application of an applicable tax treaty and the flush language of Section 7701(b)(6).  See,  Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card and see the IRS practice unit discussion, Determining Tax Residency Status of Lawful Permanent … –

The determination of if or when one becomes a “long-term resident” is highly complex, due to different cross-provisions in the tax law.  Specifically, Section 7701(b)(6) has a provision that can have unintended consequences for the unwary LPR.  See, for instance, LPR status can be abandoned for tax purposes (since 2008 tax law changes) by merely leaving and moving outside the U.S. in some cases?

As is increasingly common in IRS tax audits of international individual matters, information penalties become a cudgel to impose greater

economic pressure (when the income tax determinations are relatively modest) to pursue cross border cases. In the recent U.S. Tax Court case (U.S. Tax Court Docket 18451-19), the IRS had assessed substantial penalties for more than 10 tax years for failure to file IRS Form 8865.

What was striking about the German citizen case who had been a lawful permanent resident for many years (U.S. Tax Court Docket 18451-19) is that the IRS conceded the case as part of a “qualified offer” procedure (Section 7430) where the taxpayer offered what was less than 1% of the total tax, penalty and statutory interest amounts determined by the IRS. Plus, there was both a statutory notice of deficiency (90/150 day letter) on income tax and negligence penalties plus a separate direct assessment of information penalties under IRC Section 6038(b) for not filing IRS Form 8865.

The importance of an international information penalty assessment, is that the U.S. Tax Court will often times not have jurisdiction to address the issue; at least not on first blush. See, Flume v. Commissioner, T.C. Memo 2017-21, Judge Goeke addressing 5471 penalties and IRC Sections 6330(c)(2)(B) and 6330(c)(4)(A). For an excellent discussion on these issues, see two outstanding tax authors –

USC Renunciations: Ski Slope Upward – Ski Slope Downward

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The federal tax law has a very transparent system of reporting and identifying former U.S. citizens who have renounced their citizenship. The data with the names of each individual are published quarterly on the federal government’s website as Required by Section 6039G.  The complete set of lists including thousands of names of former U.S. citizens going back to the mid-1990s can be reviewed here.  Quarterly Publications.   Quarterly Publication of Individuals, Who Have Chosen to Expatriate.

See previous posts regarding the numbers of USCs who were renouncing at an increasingly rapid pace starting at just around and just before the year 2010. The FATCA transparency laws were passed in 2010 and so too were more international information reporting requirements (IRC 6038D) and strong enforcement efforts overseas by the IRS and DOJ Tax Division; which could be part of a cause and effect consequence? See, CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS (§§ 1471 – 1474)

Why have U.S. Citizenship Renunciation Numbers Plateaued?

Posted on : The current renunciations and now steep decline starting in 2018 may be temporary or part of a trend?

Subsequent posts will discuss the new trend of how relatively fewer lawful permanent residents (“LPRs”) are formally abandoning their status compared to USCs who formally renounce. This is true even though the number of USCs renouncing is in decline.

The expatriation laws were modified substantially in 2008 per the “HEART” Act, as part of a trend of changes in the expatriation tax law during a dozen year time frame. See prior post, Timeline Summary of Changes in Tax Expatriation Provisions Since 1996

There have been no substantial modifications to the law since 2008 when the “mark to market” rules were adopted. Importantly, expatriates often must concern themselves The “Hidden Tax” of Expatriation – Section 2801 and its “Forever Taint.” These new taxes on “covered gifts” or “covered bequests” (currently taxed at 40% of the value of the property received) were adopted in 2008, but have yet to go into force. They can be particularly troublesome for LPRs – See, What are the Number of LPRs who Leave U.S. Annually without filing Form I-407 – Abandonment? and “LPR Tax Limbo” – Formal Abandonment of LPR (Form I-407) – BIG GAP with Actual Emigration of LPRs

Old News – Important News: U.S. Tax Court Rules IRS Rev. Rul. 91-32 is NOT the Law

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The U.S. Tax Court ruled that the IRS’ interpretation of when sales of partnership interests by non-U.S. persons (in this case, it was a foreign corporate partner with an interest in a U.S. limited liability company) is subject to U.S. income taxation is wrong.  See, Grecian Magnesite Mining vs. Comm’r (149 T.C. No. 3 – 2017).  

The Court ruled that the gain from the partnership (which was not attributed to real estate – which itself was taxable under FIRPTA/Section 897) was capital gain and not U.S. source income.  The Court said it would not follow the IRS’ interpretation in Rev. Ruling 91-32.

The significance for tax expatriation considerations is that IRS Revenue Rulings and other “administrative guidance” or IRS opinions of the law (such as private letter rulings, notices, technical advice memorandum, etc.) do not carry the weight of law. Let alone IRS instructions to forms.  There are a number of IRS opinions of the law regarding “expatriation tax” matters – e.g., IRS Notice 97–34 for those former citizens or LPRs who may be “covered expatriates.”

This conclusion of the Tax Court was (until Congress changed the law overriding the case law) particularly important for non-resident aliens (who were previously U.S. citizens or lawful permanent residents); as the IRS in the past has relied upon Rev. Rul. 91-32 to impose taxation on non-residents who sell their U.S. partnership interests.   See, for instance, the IRS Technical Memorandum where it states the law that ” . . . capital gains are not taxable under § 871(a)(2), unless an alien is present in the United States 183 days or more. . . ” yet still concluded the gain was “effectively connected income” (“ECI”) subject to U.S. taxation.  Memorandum – Internal Revenue Service

A second blow for the government came when the U.S. Court of Appeals for the D.C. Circuit confirmed the U.S. Tax Court and ruled in favor of the taxpayer. 

The government appealed the U.S. Tax Court opinion to the D.C. Circuit, which also ruled in favor of the taxpayer. See full 2019 opinion – here – The DOJ, tax division attorneys of course argued for the government and Michael J. Miller based in Manhattan, an exceptional international tax lawyer, litigated the case in the U.S. Tax Court also argued on appeal for the non-U.S. taxpayer.

While a win for the taxpayer, Congress repealed the result by amending IRC Section 864(c) as part of the major tax reform of 2017 (so-called Tax Cuts and Jobs Act of 2017). Now, such gain from the sale of a partnership interest is treated as “effectively connected” with a US trade or business (“ECI”) to the extent the seller of the partnership interest would have had ECI gain had the partnership itself sold all of its assets. The gain is measured by the fair market value as of the date of sale. Also a new 10% withholding tax was imposed with the same legislation under IRC Section 1446(f). It requires the buyer of a partnership interest to withhold a 10% tax on the “amount realized.”

“LPR Tax Limbo” – Formal Abandonment of LPR (Form I-407) – BIG GAP with Actual Emigration of LPRs

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Millions of lawful permanent residents (LPRs) who have left the U.S. and not “formally abandoned” their LPR status (by filing Form I-407, Record of Abandonment of Lawful Permanent Resident) typically remain in some kind of “LPR U.S. tax limbo.” How many individuals worldwide are in this LPR U.S. tax limbo?

Why are these numbers important for the tax-expatriation analysis? See, a recent post, Why Most LPRs Residing Overseas Haven’t a Clue about the Labyrinth of U.S. Taxation and Bank and Financial Reporting of Worldwide Income and Assets (Part I). Indeed, most individuals probably do not think they are a U.S. federal income tax resident when they leave the U.S. to reside overseas back to their home country. Why would they? There is no tax training manual provided to LPRs who leave the U.S. and no tax advisories – reflected on the card itself (unlike the last page of the U.S. passport, paragraph D). More precisely, most are probably not giving much, if any thought, to the complex U.S. federal tax residency rules and their extraterritorial application.

These individual are typically ill-informed about these rules and mistaken as to how the IRS typically has a different view of their on-going tax obligations. The IRS is increasingly pursuing LPR taxpayers residing outside the U.S. based upon my own anecdotal experience with individual clients and their IRS tax audits. For background information, see, the IRS’s own summary of “. . . Resident Aliens Abroad“. Also, see,  Timing Issues for Lawful Permanent Residents (“LPR”) Who Never “Formally Abandoned” Their Green Card and see the IRS practice unit discussion, Determining Tax Residency Status of Lawful Permanent … –

The “big gap” referred to above can be identified from the the Office of Immigration Statistics (OIS) report titled: Estimates of the Lawful Permanent Resident Population in the United States and the Subpopulation Eligible to Naturalize: 2015-2019. According to the report, more than 1 million individuals become LPRs each year. Between naturalization, mortality and emigration the report shows that the LPR population, year over year, has remained stable. In 2019 the total number of LPRs per this report was 13.6 million, up from just 13.0 million in 2015.

The “gap” is the difference between the numbers of LPRs who have left-emigrated the U.S. (some 3+ million) compared to something like an annual average of 15-19 thousand who have filed Form I-407. The gap is in the millions of persons who are in LPR U.S. tax limbo.


The report is also worth reading if you want to understand the demographics of the LPR population. Mexico has about 2.5 million (which is by far the greatest number) of the total 13+ million LPR population.

Out of the total 13.6 million LPRs, there are a total of 9.13 million eligible to become naturalized citizens according to the report (see previous post Why a Naturalized Citizen cannot avoid “Covered Expatriate” status under IRC Section 877A(g)(1)(B)). Some 2.3M, 1.13M and .99M live in California, NY and Texas, respectively as the most LPR populated states.


This report provides only an estimate of “emigration” based upon the government’s research on emigration. See page 5 of the report –

Attrition due to emigration must be estimated because reliable, direct measurements of LPR emigration do not exist.

These estimates are not tied to “formal abandonment” filings of LPR status by filing USCIS Form I-407, Record of Abandonment of Lawful Permanent Resident

As the report points out there is no reliable direct measurements of LPR emigration. They do not exist. This lack of information is what drove me to file 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).

The information I obtained in the FOIA response was surprising, since the government had records showing only 46,364 Forms I-407 were filed in the years 2013 through 2015, as follows:

SOURCE: Federal Government Response to FOIA Request: Office of Performance and Quality (OPQ), Performance Analysis and External Reporting (PAER), JJ

This represents an average of only 15,455 individuals who formally abandoned their LPR status. Contrasted with more than 3.6 million estimated to have emigrated in 2019 per the DHS report leaves a massive gap of well over 3 million persons who held a “green card” and have left. They are now in LPR U.S. tax limbo.

What about the tax consequences? How many of these LPRs who left the U.S. know, understand or have any idea whatsoever of the federal tax filing obligations regarding their status?

What is the takeaway from the DHS report and LPR – I-407 information provided to me by the FOIA response? There is a discrepancy in the millions of people. Millions of individuals who actually leave or have left the U.S. to reside somewhere else around the world; compared to only some tens of thousands of individuals who have formally filed Form I-407, Record of Abandonment of Lawful Permanent Resident.

What can these individuals do to get out of the LPR U.S. tax limbo?

16th Annual University of San Diego School of Law – Procopio International Tax Institute – Corona-virus Postponement

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The USD-PITI has been held for 15 years on the campus of the University of San Diego School of Law in the beautiful Peace & Justice Center.

The 16th annual conference was originally scheduled for October 28th through the 30th to be held off-campus due to major on-campus construction. The conference has been rescheduled to October 2021 due to the corona-virus.

A special thanks goes out to Dean of the law school, Stephen C. Ferruolo, who has served the law school for nine academic years and nine USD-PITIs. He has been an exceptional dean and wraps up his deanship tenure this month.

I, Patrick W. Martin, have had the good fortune of being involved and working closely with the law school as the original founder of the USD-PITI that first started in 2005 during the tenure of then dean Daniel B. Rodriguez. It has been successful because of the thousands of individuals around the world who have actively participated in these many years of international tax conferences. Review prior conference agendas and speakers here, going back to 2005.

As the chair of the advisory committee for the USD-PITI, I look forward to inviting you and seeing you in person at the 16th Annual USD-PITI Conference to be held October 28th and 29th, 2021.

Due to on-going campus construction the conference will be held at the beautiful Hilton San Diego Bayfront

USD-PITI international tax webinar courses are expected for the Fall of 2020.  Prior participants in USD-PITIs are eligible to obtain access to the prior years CLE video conferences of courses held in prior years.

Stay tuned . . .