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?

Many tax practitioners think they are prohibited from discussing with a taxpayer the probability or likelihood that a tax return, tax position or a form (e.g., IRS Form 8854, Initial and Annual Expatriation Statement) will be audited by the IRS.

Many practitioners think such a statement is somehow taboo – and cannot be answered when a client asks the question: “Will my tax return get audited?”

Someone who has become a “covered expatriate” might want to know – whether the IRS audit of expatriate tax returns is high or low? What if I do not even have a social security number (e.g., as a U.S. citizen born outside the U.S.) from my date of birth, and I have lived outside the U.S. almost all of my life? Will that impact the chances of tax audit? Can answers be provided to these logical questions raised by taxpayers?

First, no one ever knows whether any tax return or position will get audited. The answer necessarily requires the ability to peer into the future.

Prefer a Q&A format instead? Read this.

The author has extensively discussed the appropriate IRS Form for individuals to sign under penalties of perjury when dealing with their banks and third parties, irrespective of the banks’ location. The choice between IRS Forms W-8 and W-9 hinges on the U.S. income tax residency status of the individual. Forms W-8 and W-9 serve the purpose of conveying the tax residency status of the individual to third parties. The correct (or incorrect form) can have a range of different tax and legal consequences to the individual. A non-resident is generally not subject to income taxation in the United States, except for on limited types of income. In contrast, a resident (for federal income tax purposes) is subject to taxation on their worldwide income. If an income tax resident of the United States falsely certifies their status using Form W-8, severe adverse legal consequences can follow. See e.g., W-8s for U.S. Citizens Abroad: Filing False Information with Non-U.S. Banks (2016)

• IRS Forms W-8 or W-9 (or Other)?

For U.S. citizens, the process is straightforward—they must sign IRS Form W-9. However, for individuals without U.S. citizenship, the situation becomes more intricate. The following posts delve into critical legal considerations surrounding IRS Form W-8BEN.

See, IRS Releases New IRS Form W8-BEN. * U.S. citizens and LPRs beware of completing such form at the request of a third party (2014/2015)

Also, W-8s for U.S. Citizens Abroad: Filing False Information with Non-U.S. Banks (2016)

These comments provide in-depth insights into the legal consequences of filing and signing specific IRS forms (or their equivalents produced by financial institutions: W-8 vs. W-9). Notably, UBS’s explanation titled “UBS One Source Understanding tax forms—non U.S. taxpayers” sheds light on the efforts foreign financial institutions need to dedicate to assist clients who are not “United States persons” for federal tax purposes, ensuring compliance with U.S. federal tax laws.

• Green Card Holders Living Abroad Have Further Analysis to Consider

The complexity heightens for “Green Card” holders living abroad, especially those residing in countries covered by an income tax treaty with the United States. See, Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC. Aroeste v United States – Order Nov 2023, emphasizes a 5-step analysis for Green Card holders who have not formally abandoned their status. The ultimate test is whether the individual is entitled to be treated as a resident of a foreign country under a tax treaty.

• Aroeste v. United States: Decision’s Impact on LPR Individuals

The decision could potentially affect millions of Green Card holders living outside the U.S. Aroeste Court’s 5-step analysis becomes crucial for the 3+ million LPRs residing abroad, determining whether they qualify as “United States persons” under the law.

• LPR Individuals Living in 66 Different Countries Could Be Impacted by Aroeste vs. U.S.

The United States has a total of 58 income tax treaties that covers around 66 countries.   The 1973 U.S. – U.S.S.R. income tax treaty applies to Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.  Some have been cancelled.  

• Importance of Figuring Out your Residency Status if you Never Formally Abandoned your Green Card and Live in an Income Tax Treaty Country.

The impact of the Aroeste v United States decision presents a dual scenario for individuals who have not formally abandoned their “lawful permanent residency” status. On the positive side, there is an opportunity to inform the Internal Revenue Service (IRS) of their non-resident status by utilizing the applicable income tax treaty. There are specific steps to take as explained by the Court in Aroeste vs. United States. This action can relieve them of U.S. federal income tax filing obligations and Foreign Bank Account Report (FBAR) filing requirements, helping to steer clear of potential penalties and taxes that might otherwise be owed. The Court in Aroeste concluded such late filings could subject the individual ” . . . to penalties pursuant to I.R.C. § 6712(a) equal to $1,000 per failure to timely report his Treaty position. . . “

Aroeste v United States – Order Nov 2023

• Potential Downside for “LPRs” Living in an Income Tax Treaty Country.

However, on the flip side, this termination of U.S. income tax residency status may lead to the individual “cease[ing] to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).” Such a shift can trigger adverse U.S. tax consequences, affecting not only the individual but also extending to children, spouses, family members, and friends who could receive “covered gifts” or “covered bequests.” This classification may result in the individual being deemed a “covered expatriate” under the expatriation tax law, as outlined in IRC 877A(g)(3). See, IRC 877A(g)(3). Potentially severe adverse tax consequences can follow from this edge of the sword. The Court in Aroeste vs. United States did not address these adverse tax consequences as they were not at issue.

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). 

Important resources for United States international tax rules for those considering renouncing or relinquishing United States citizenship or abandoning lawful permanent residency

This Blog 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 Blog.

Although the author has taken great care to make sure that the information contained herein is accurate and useful, it is necessary that you consult an experienced attorney to address any particular situation.  Most importantly, if you are contemplating renouncing (or proving relinquishment) of U.S. citizenship or formally abandoning your LPR status, you must get legal advice.  This is a very important decision with a range of complex legal consequences.

The 6th circuit found in 2022 that IRS Notice 2007-83 was not valid. In Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022), the court concluded that the Notice failed to comply with the APA’s notice-and-comment procedure. Specifically, the Court stated:

Several taxpayers complain about the Internal Revenue Service’s enforcement of an administrative regulation that requires them to report transactions involving cash-value life insurance policies connected to employee-benefit plans. The taxpayers claim that the IRS failed to meet a reporting requirement of its own by skipping the notice-and-comment process before promulgating this legislative rule. If individuals “must turn square corners when they deal with the government,” the taxpayers insist, “it cannot be too much to expect the government to turn square corners when it deals with them.” Niz-Chavez v. Garland , ––– U.S. ––––, 141 S. Ct. 1474, 1486, 209 L.Ed.2d 433 (2021). We agree with the taxpayers and reverse the district court’s contrary decision.

Mann Constr., Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022)

The IRS Notice referenced in the  Aroeste v. United States case was about a different federal tax issue, i.e., “tax expatriation” matters –  IRS Notice 2009-85.

See, Federal Court Determines IRS “Guidance for Expatriates Under Section 877A” – IRS Notice 2009-85: “Is Not Binding Authority”

On the same day of the Aroeste decision, the 6th Circuit issued a follow-on decision –Mann Construction, Inc. v. United States, No. 23-1138 (6th Cir. 2023)  The appellate court’s Chief Judge. Sutton, noted:

When the Internal Revenue Service levied tax penalties against Mann Construction and its owners under one of its regulations, technically a Notice, the taxpayers replied that the IRS violated the Administrative Procedure Act. In a prior opinion, we held that the Notice violated the APA. The IRS voluntarily refunded the penalties to the plaintiffs and agreed not to apply the Notice to the taxpayers in the future. Even so, the district court on remand proceeded to invalidate the regulation nationwide. Because the dispute is moot, we vacate the district court’s decision.

Importantly, in the Mann decision – The IRS refunded the past penalties with interest, abated the unpaid penalties, and agreed not to apply the Notice to these taxpayers or anyone else within the Sixth Circuit. See I.R.S. Announcement 2022-28, 2022-52 I.R.B. 659 (Dec. 27, 2022).

How the IRS will respond to the Notice issue in Aroeste remains to be written:

Aroeste v United States – Order Nov 2023Download

The Federal District Court made numerous key legal findings in its Order on November 20, 2023; in Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC. One of the more significant findings was that IRS Notice 2009-85 is not binding authority. This blog is dedicated to tax expatriation related matters under U.S. law.

• IRS Notice 2009-85 is Not Binding Authority per the Court

See, 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. Please read through the case in detail.

The author along with his Chamberlain Hrdlicka, Attorneys at Law colleagues have been representing Mr. Aroeste throughout this District Court case. The author of tax-

expatriation.com has represented him for several years throughout the IRS audits and the on-going U.S. Tax Court cases along with his wife.

While many may consider this case to be a Title 31/FBAR case (which it is), it has greater ramifications under the tax expatriation laws in the author’s view. The finding by this Court regarding IRS Notice 2009-85 is significant with far reaching implications. The IRS Notice 2009-85 is broad in its scope and is more than 60 pages in length. It notes that, “Section 877A(i) provides that the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of section 877A.” (p.4)

• No Treasury Regulations Ever Issued – After 15 Years of IRS Notice 2009-85

The Treasury Department never issued regulations under 877A, which is now 15 years old. The notice provides the historical background as follows:

Notice 2009-85 PURPOSE Section 301 of the Heroes Earnings Assistance and Relief Tax Act of 2008 (the “Act”) added new sections 877A and 2801 to the Internal Revenue Code (“Code”), amended sections 6039G and 7701(a), made conforming amendments to sections 877(e) and 7701(b), and repealed section 7701(n) with respect to individuals who on or after June 17, 2008, relinquish U.S. citizenship or cease to be lawful permanent residents of the United States. This notice provides guidance for individuals who are subject to section 877A.

IRS Notice 2009-85., p. 1.

The Court in Aroeste concluded that Mr. Aroeste ceased to be a lawful permanent resident.

Specifically, the Court finds Aroeste . . . ceased to be treated as a lawful permanent resident of the United States because he commenced to be treated as a resident of Mexico under the Treaty, did not waive the benefits of such Treaty, and notified the Secretary of the commencement of such treatment.

Aroeste v. United States, p. 17.

• Case Law from – Aroeste v. United States_- Clarifies Key Concepts in the Law

• IRS Notice 2009-85

Many practitioners have questioned the accuracy and validity of many of the conclusions asserted in the 2009 notice; such as the timing of when someone becomes a “covered expatriate”. How and why they become a “covered expatriate” by the concepts introduced in the 2009 notice. The multiple examples presented, reflecting various tax outcomes according to the IRS, were never commented on by the public.

Another question many have raised is the effectiveness of IRS Form 8854? Throughout the notice, the IRS uses the word “must” some 88 times regarding the individual who ceased to be a U.S. citizen or a “lawful permanent resident” (or in some instances references to third parties). Does the IRS imply that if any of these “must”/conditions imposed under the notice are not satisfied, the individual is necessarily a “covered expatriate” with the adverse tax consequences that might follow?

Are their other adverse tax consequences that might follow? For instance, can the IRS repeatedly assert international information penalties regarding the individual’s

• companies in her own country,
• beneficiary rights of a trust or an estate in her own country, or
• other investment assets or financial accounts in her country of residence that might be deemed a “specified foreign financial asset” if the individual is a United States person”?

Can the IRS in perpetuity assert such information penalties regarding other code sections such as 6038D, 6038, 6039F, 6048, etc.? 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

For instance, the 2009 notice provides that a “covered expatriate” must file a “dual status return” and file a Form 1040NR with a 1040 attached as a schedule for the “year of expatriation”. See, IRS Notice 2009-85, p. 49.

The IRS goes on to say in that notice that individuals “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.” Id., p. 50. The government asserts that if this condition is not satisfied, the individual will necessarily be treated as ” . . . covered expatriates within the meaning of section 877A(g) whether or not they also meet the tax liability test or the net worth test.“

These would be pretty damning consequences to an individual, if they otherwise met the statutory test of certifying compliance with the tax laws for the preceding five years.

Importantly, the Court in Aroeste v. United States concluded as a matter of law that 2009-85 is not binding authority as it fails to comply with the Administrative Procedures Act (“APA”). It concluded Mr. Aroeste did not need to file Form 8854 with his amended returns. He had filed Form 8833 – treaty based reporting.

The court cited to ” . . . 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.”

None of these comments represent legal advice. Complex laws applied to specific facts require a legal expert to opine on the consequences and recommended courses of action. It is worth noting that individuals who have a “green card” and who have not previously articulated the application of a U.S. income tax treaty, should consider taking proactive steps to protect their rights under the law. Also, United States citizens who formally renounced their citizenship, who may never have taken specific tax reporting positions should consider taking proactive steps to help avoid the risk the IRS might assert substantial penalties or conclude the individual became a “covered expatriate”.

Last week (Nov. 20, 2023), Judge Battaglia in the Southern District of California (San Diego) ruled in favor of our client Mr. Alberto Aroeste regarding the application of the U.S.-Mexico Tax Treaty. The DOJ, Tax Division arguments on behalf of the Internal Revenue Service in the case (and their Motion for Summary Judgment – MSJ) were largely rejected by the Court.

See earlier post titled – Tax Notes International: Article by Robert Goulder: FBAR Madness: We need to Chat About Aroeste

A thorough read of the Order from the Court is recommended to understand the substantial legal findings and legal analysis made by the Court relevant to those who possess a “green card” referred to as “lawfully admitted for permanent residence” in Title 8, § 1101(a)(13) [Immigration and Nationality Act]. Key to this case, Title 26, § 7701(b)(6) [Federal Tax Code] then rather contorts the concept by saying an individual is a “lawful permanent resident” in accordance with immigration laws; but then goes on to put conditions on who apparently is a “lawful permanent resident” for federal tax purposes. While immigration law requires the individual be ” . . . accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, such status not having changed”; the tax definition seems to ignore that status (i.e., has it changed and is the personal no longer accorded the privilege of residing permanently in the U.S.?).

The Board of Immigration Appeals (the “Board”), has long recognized that an alien’s status may change by operation of law, such that an alien may abandon his LPR status without a finding of removability (or, formerly, deportability or excludability) after a formal adjudicatory process. See United States v. Yakou, 428 F.3d 241, 247 (D.C. Cir. 2005); at 247-51 (discussing case law regarding abandonment and holding that an alien may abandon LPR status without formal administrative action); see also Matter of Quijencio, 15 I. & N. Dec. 95 (B.I.A. 1974); Matter of Kane, 15 I. & N. Dec. 258 (B.I.A. 1975); Matter of Muller, 16 I. & N. Dec. 637 (B.I.A. 1978); Matter of Abdoulin, 17 I. & N. Dec. 458, 460 (B.I.A. 1980); Matter of Huang, 19 I. & N. Dec. 749 (B.I.A. 1988).

The Court did not need to get into the nuances of immigration law to rule against the government in this case.

Some of the substantial takeaways from the decision are:

• Waiver of the Tax Treaty: The government cannot assert an individual waived the treaty law because she initially filed the wrong IRS forms (1040) instead of the non-resident form (1040NR) and IRS Form 8833.

The Court agrees with Aroeste. Although Aroeste gave untimely notice of his treaty position, the Court finds this does not waive the benefits of the Treaty as asserted by the Government. Rather, I.R.C. § 6712 provides the consequences for failure to comply with I.R.C. § 6114, namely a penalty of $1,000 for each failure to meet § 6114’s requirements of disclosing a treaty position.

Aroeste v United States – Order 20 Nov 2023 (p. 17)

• Expatriation Tax form – IRS Form 8854: Validity and its Failure to Comply with the Administrative Procedure Act (“APA”)

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.

Aroeste v United States – Order 20 Nov 2023 (p. 11)

• Tax Treaty Law Applies – Article 4 Regarding Tax Residency

Various detailed analysis and discussions from the Court –

Aroeste v United States – Order 20 Nov 2023 (p. 11-14)

• The Preamble to the FBAR Regulations is Not the Law –

. . . the Government points to the preamble to the 31 C.F.R. Part 1010 regulations, providing that “[a] legal permanent resident who elects under a tax treaty to be treated as a non-resident for tax purposes must still file the FBAR.” Amendment to the Bank Secrecy Act Regulations—Reports of Foreign Financial Accounts, 76 Fed. Reg. 10234-01 (Feb. 24, 2011).
The Court finds this unavailing. The Government’s argument does not refute the plain language of the FBAR regulations, which explicitly invoke provisions of Title 26, including the provision that requires consideration of an individual’s status under an applicable tax treaty for the purpose of determining whether an individual is a “United States person” subject to FBAR filing. Specifically, Title 31 C.F.R. § 1010.350, which governs reporting of FBARs, subsection (b)(2) states that a “resident of the United States is an individual who is a resident alien under 26 U.S.C. 7701(b) and the regulations thereunder . . . .” The Government fails to cite to any case law or statue indicating otherwise, and the Court finds none. As such, because the Court finds the Treaty applicable to Aroeste, then the residence provisions of the Treaty, or the “tie breaker rules” dictates whether Aroeste may be treated as a nonresident alien.

Aroeste v United States – Order 20 Nov 2023 (p. 14)

This is the third court case (the other two were in U.S. Tax Court) I have had over the last several years where the IRS tried to assess substantial penalties and taxes against LPRs who resided substantially outside the United States. The other two cases were conceded by the IRS prior to going to trial. One case had over US$40M at stake as assessed by the IRS. This case, in federal district court, was pushed all the way to this favorable (to Mr. Aroeste and those around the world in similar circumstances) outcome by the government. We were successful with all of these non-U.S. citizen cases (two brothers from Mexico and an individual from Germany).

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 3^rd, 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).