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.
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.
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? –
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
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 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 has been increasingly aggressive in asserting international tax penalties: The available data shows . . . there were over 4,000 penalties assessed against individuals and businesses, totaling $1.7 billion [just for this penalty under 6039F]. During this period, the average penalty was . . . $426,000 . . .
Taxpayer Advocate Report (2023): Most Serious Problem #8 – The IRS’s Approach to International Information Return Penalties Is Draconian and Inefficient
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 inUnited 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.
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).
The wait times for the State Department to issue a Certificate of Loss of Nationality (“CLNs”) used to be quite long, based upon the author’s experience with various clients. That has all changed since about the beginning of this year 2023. The author has seen cases that are taking less than 6 weeks from the date of the meeting to take the oath of renunciation before a consular officer.
The press release of the Belgian Protection Authority from May 24, 2023 provides:
The Belgian Data protection authority today declared unlawful, and decided to prohibit, the transfers of personal data of Belgian “Accidental Americans” by the Belgian Federal Public Service Finance (FPS Finance) to the US tax authorities under the intergovernmental FATCA agreement. According to the Belgian DPA, the data processing carried out under this agreement does not comply with all the principles of the GDPR, including the rules on data transfers outside the EU. It also asks the FPS Finance to alert the competent legislator of the shortcomings identified by the DPA.
It is interesting that the term “Accidental Americans” is used in the release. The individual who filed the complaint is a dual Belgian and American citizenship and from the “Accidental Americans Association of Belgium.” The official website of the DBA provides the summary in part as follows:
Conclusions of the Litigation Chamber
The Litigation Chamber concludes that the transfers of data of Americans residing in Belgium to an authority located in a country outside the EU (which cannot offer an adequate level of data protection) are unlawful. For this reason, the Belgian DPA prohibits the FPS Finance from processing the complainants’ data and asks it to alert the competent legislator of this prohibition and of the shortcomings found.
The Belgian DPA also orders the FPS Finance to inform in a complete and accessible manner the data subjects of the data processing carried out as part of the FATCA agreement and of its modalities. It also asks to carry out a “DPIA” which is an analysis of the risks associated with this data processing.
The parties can appeal this decision.
Hielke Hijmans, Chairman of the Litigation Chamber, concludes: “Ordering the cessation of data flows to the United States under the FATCA agreement may seem harsh, but once we find that they do not comply with the applicable law, we are obliged to stop these data flows. This principle has been confirmed in the rulings known as the “Schrems rulings”.
The full decision in French can be reviewed here –
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)
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.
Treasury has not yet finalized the 2801 regulations. The tax that is imposed under Section 2801 was passed into law in 2008, yet the collection of the tax has been suspended until the regulations are finalized.
First, the collection of the tax has been suspended until after guidance is issued along with IRS Form 708.
Second, this is the first U.S. federal tax of its kind as a true “inheritance” tax, in the case of bequests. It is also apparently the first tax of its kind on the recipient of gifts, which are otherwise exempt from income tax.
Third, the IRS has no way to help effectively track the tax, its application, collection and general enforcement.
Fourth, there is no basic guidance beyond the statute for “any United States citizen or resident” who receives such a gift or a bequest to make a host of decisions to properly determine or calculate the tax.
Fifth, presumably no “United States citizen or resident” has ever even paid such a tax, due to its suspension; although the law is now almost six years old.
Sixth, the statute imposes no time requirement for when the tax must be paid.
Seventh, since many of the assets likely to be gifted or bequeathed will be located outside the U.S. in different countries with different currencies and economic variables and legal systems compared to the U.S., there is a particular need to know the allowable methods of valuing the property gifted or bequeathed.
Eighth, Chapter 4 of Subtitle A, FATCA will bring greater awareness of U.S. tax law requirements for U.S. citizens and residents living outside the U.S., specifically including Section 2801.
Ninth and finally, there have been a record number of U.S. citizens who have renounced or relinquished their citizenship during the year 2013, which increases the number of affected taxpayers who might receive covered gifts or bequests.
Finally, there have been other thoughtful comments, including from ACTEC regarding the proposed 2801 proposed regulations – but still no final regulations and no statute of limitations periods running against the government to collect taxes which may be owing going back nearly 10 years!!
Individuals who do not specialize in U.S. federal tax law, often have little detailed understanding of the U.S. federal “Chapter 3” (long-standing law regarding withholding taxes on non-resident aliens and foreign corporations and foreign trusts) and “Chapter 4” (the relatively new withholding tax regime known as the “Foreign Account Tax Compliance Act”) rules.
Indeed, plenty of U.S. tax law professionals (CPAs, tax attorneys and enrolled agents) do not understand well the interplay between these two different withholding regimes –
Plus, the IRS forms have been significantly modified over the years; with increasing factual representations that must be made by individuals who sign the forms under penalty of perjury. They are complex and not well understood. For instance, the older 2006 IRS Form W-8BEN for companies was one page in length and required relatively little information be provided.
The entire form is reproduced here; indicating how foreign taxpayer information was optional and generally there was no requirement to obtain a U.S. taxpayer identification number. It was governed exclusively by Chapter 3 and the regulations that had been extensively produced back in the early 2000s.
The forms were even easier before those regulations (see old IRS Form 1001). No taxpayer identification numbers were ever required and virtually no supporting information regarding reduced tax treaty rates on U.S. sources of income.
Life was simple back then – compared to today!
The one thing all of these forms have in common is that all information was provided and certified under penalty of perjury. Current day IRS Forms W-8s can typically be completed accurately by experts who understand the complex web of rules. Plus, multiple versions of W-8s exist today; most running some 8+ pages in length.
Making certifications under penalty of perjury are more complex, the more and more factual information that is being certified. If I certify the dog I see in front of me is “white and black” that is not a complex certification, if I see the dog and see the “white and black”. If the dog also has some brown coloring, my certification would necessarily not be false.
However, if I have to certify as to the colors of each dog in a pack of 8 dogs (and each and every color that each dog is/was), that becomes a much more complicated certification.
That’s my analogy for the old IRS Forms W-8s and the current day IRS Forms W-8s.
Compare that form, of just 10 years ago, with what is required and must be certified to under current law. It can be daunting.
Now to the rub. Individuals who certify erroneously or falsely, can run a risk that the government asserts such signed certification was done intentionally. I have seen it happen in real cases; even though the individual layperson (particularly those who speak little to no English and live outside the U.S.) typically has little understanding of these rules. They typically sign the documents presented to them by the third party; usually the banks and other financial institutions.
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 . . .
Therefore, if a U.S. citizen living overseas (or anywhere) signs IRS Form W-8BEN (or the bank’s substitute form, which requests the same basic information), that signature under penalty of perjury will necessarily be a false statement, as a matter of law. Why? By definition, the statute says a U.S. citizen is a “United States person” as that technical term is defined in IRC Section 7701(a)(30)(A). Accordingly, IRS Form W-8BEN, must only be signed by an individual who is NOT a “United States person”; who necessarily cannot be a United States citizen. To repeat, a United States citizen is included in the definition of a “United States person.” Plus, the form itself, as highlighted at the beginning of the form, warns against any U.S. citizen signing such form.
Indeed, criminal cases are not simple, and I am not aware of any single criminal case that hinged exclusively on a false IRS Form W-8BEN. However, I have seen cases, where the government has alleged the U.S. born individual must have signed the form intentionally, knowing the information was false. It’s a question of proof and of course U.S. citizens wherever they reside, should take care to never sign an IRS Form W-8BEN as an individual certifying they are not a “United States person”; even if they think they are not a U.S. person
Part II: This is a follow-up to the federal government’s database known as “TECS” (Treasury Enforcement Communication System)that is now operated by the Department of Homeland Security (“DHS”). The IRS uses it to track travel, trips, movement and even asset movements (e.g., wire transfers) by U.S. citizen taxpayers; including those residing outside the U.S.
This previous post described how the U.S. federal government uses the TECS to locate assets and travel patterns of U.S. citizens; specifically outside the U.S. The IRS trains their employees to (1) Not discuss TECS with taxpayers; (2) Neither confirm nor deny existence of TECS; (3) Keep in separate “Confidential” envelope; and (4) Stamp documents as “OFFICIAL USE ONLY”
The image in this post reflects a page from IRS training materials for their employees; e.g., revenue agents (those individuals who audit taxpayers and determine tax deficiencies and the like), revenue officers (those individuals who work on collecting taxes owed or alleged to be owed) and chief counsel attorneys (those individuals who litigate tax cases against taxpayers); among other IRS employees.
Frankly, there is not a lot of detailed law about how and when the IRS can use TECS or other tracking techniques of individuals and their assets. There are no tax cases (at least none that I am aware of) where the Courts have tried to impose limits on the use and methods of the federal government in collecting this type of TECS information. Indeed, there are specific provisions granting broad use of taxpayer information when the government alleges there is a “terrorist incident, threat, or activity” as that term is defined in IRC Section § 6103.
On the other hand, there are important laws about how the IRS cannot generally disclosetaxpayer information. For instance, see the same code section IRC Section § 6103 for wrongful disclosures of taxpayers’ information. That statute makes it a violation (even a criminal violation in certain willful circumstances) to disclose taxpayer information in “most” (or at least many) circumstances. The statute is comprehensive and there is a lot of case law interpreting various provisions. A good overview of the statute can be found in the Criminal Tax Manual for the Department of Justice, Tax Division – Chapter 42.00
A recent case (United States v. Garrity, 2016 U.S. Dist. LEXIS 66372 (D. Conn. 2016), discussed in Jack Townsend’s blog, was one where the IRS had disclosed the name of a deceased taxpayer Paul G. Garrity, Sr. regarding his foreign (non-U.S.) accounts. The disclosure included IRS investigation techniques that were disclosed as part of a FOIA request, which ultimately made it to the public. This was found to be disclosure of return information as defined by IRC Section § 6103. However, the Court there found that there was no violation of the statute by the IRS, as the taxpayer was deceased by the time the claim was brought by the estate. The government made a Title 31 FBAR penalty assessment of over US$1M including interest and penalties that is still pending.
It seems to me that the use of the TECS database by the IRS and Section 6103 are a bit like two heads of a coin. It all deals with taxpayer information and what rights, if any do taxpayers have to protect their personal and financial information – especially where it can (purposefully or inadvertently – e.g., through a data breach/hacking) be released to the public.
There are many unanswered questions as there has been little to no litigation regarding how and when the TECS database can and should be used.
Does the government have any limits on its use?
This ultimately becomes more of a policy discussion about how and to what extent can/should the federal government have and use and collect personal financial and travel information of individuals (particularly for tax purposes)?
The world is starting to wake up to better understand how the U.S. Treasury negotiated so-called “bilateral” FATCA Intergovernmental Agreements (“IGAs”) with some 113 countries around the world. The list of all countries can be found here at the Treasury website – Foreign Account Tax Compliance Act (FATCA)
Not all of these countries have actually signed the IGAs. Many of them have what the U.S. Treasury calls an “agreement in substance.”
How does this impact USCs and LPRs residing outside the U.S.? Many ways.
First, extensive information is being collected by foreign financial institutions (FFIs – non-U.S. financial institutions) throughout the world to identify “U.S. Persons” and “Substantial U.S. Owners.” The IGAs use the term “Specified U.S. Person” with respect to what are defined as “U.S. Reportable Accounts.” See as an example, the Treasury FATCA IGA with Colombia, which is largely identical in form to almost all other IGAs.
Second, many FFIs have adopted a policy to no longer accept or retain U.S. accounts, due to the cost of compliance associated with U.S. citizens and lawful permanent residents. Also, many FFIs simply want to avoid the risk of being penalized heavily by the U.S. federal government for having U.S. taxpayers and being charged with some type of wrongdoing; namely aiding and abetting U.S. taxpayers to evade U.S. tax obligations. See, Jack Townsend’s thoughtful website Federal Tax Crimes that reviews in detail the various cases with foreign banks, with a particular focus on Swiss banks, U.S. DOJ Program for Swiss Banks .
Now to the “dirty little secret” of FATCA IGAs. They are not bilateral in the sense that U.S. banks do not need to provide the same detailed information on their non-U.S. clients (e.g., UK, French, Canadian, Mexican, Chinese, Dutch, Spanish, Colombian, Brazilian, residents, etc.) as do FFIs regarding “U.S. accounts.” This is no real secret, since a simple reading of the FATCA IGAs will get you to this conclusion by simply understanding the difference between what is defined as a “U.S. Reportable Account” (which is extraordinarily broad) compared to “Country X Reportable Account.” The latter definition, e.g., a Colombian Reportable Account, only obligates U.S. banks to send information of individual residents on U.S. source income under chapter 3 and certain accounts of Colombian entities.
Hence, all non-U.S. source income to a Colombia resident individual is not subject to reporting by the U.S. financial institution. She could have a portfolio of US$150M in non-U.S. mutual funds, ADRs traded on the NYSE and have no reporting of all of her income going back to the Colombian government. Also, stock sales of U.S. corporations (e.g., Apple, Ford or Microsoft) is not treated as “U.S. source income” defined under chapter 3. Plus, a Colombian resident who has an offshore corporation (e.g., a BVI company) that owns the investments, NO reporting is required of the U.S. financial institution; even if the entire US$150M portfolio were invested in U.S. stocks, U.S. treasuries, and other American made financial investments.
Contrast that with what is defined as a “U.S. Reportable Account” that would include a U.S. Person that is a “Controlling Person” of a “Non-U.S. Entity.” Take the same example in reverse; a Colombian bank must identify all of its clients with Non-U.S. Entities (undertake an expensive due diligence process) to then identify whether such entities (e.g., a BVI company) has a “Specified U.S. Person”. Plus, it does not matter if the income is from Colombian sources or non-Colombian sources. Income is income and must be reported by the FFI.
Accordingly, Banks around the world in at least 113 countries (e.g., UK, French, Mexican, Chinese, Dutch, Spanish, Colombian, Brazilian, Cayman, Singapore, Guatemala, Hong Kong, etc.) are required to drill down and collect detailed information on beneficial owners of basically all companies, trusts and other legal entities. This work is required, so as to identify who are “U.S. persons” to identify “substantial U.S. owners” as that term is defined in the FATCA regulations. The IGAs call these essentially “U.S. Reportable Accounts.” In the case of FFIs, U.S. taxpayers cannot hide behind offshore opaque legal entities (e.g., which would generally be illegal for USCs to form and hold assets in a foreign corporation and not report the assets, activities and earnings of the foreign corporation, which would generally be a CFC or possibly a PFIC). See prior post: March 30, 2015, The Problem with PFICs! “Avoid PFICs Like the Plague”
The FATCA IGAs, require these FFIs to provide extensive information on all income on these “U.S. Reportable Account” to the IRS, either directly or indirectly through their own governments.
In contrast, individuals resident in any foreign country (e.g., UK, French, Mexican, Chinese, Dutch, Spanish, Colombian, Brazilian, Belgium, Guatemala, Luxembourg, etc.) can generally hold their ownership interests of U.S. investment assets in U.S. banks and financial institutions through opaque legal structures and hide behind the entity without worrying that a U.S. financial institution has any duty to identify and disclose who are the beneficial owners to the tax authorities of those residents. See Colombian individual scenario above with a BVI company.
Why did the Treasury purposefully create this limited reporting obligations for U.S. financial institutions while creating extensive and detailed reporting obligations for FFIs?
Why are U.S. financial institutions not required under FATCA IGAs to identify the beneficial owners of opaque legal structures to report the income and gains to foreign tax authorities?
Why are U.S. financial institutions not required under FATCA IGAs to identify the and report non-U.S. source income in their U.S. accounts?
Why has the U.S. refused to participate in the OECD common reporting standards?
still are not final. See, Guidance under Section 2801 Regarding the Imposition of Tax on Certain Gifts and Bequests from Covered Expatriates
systems compared to the U.S., there is a particular need to know the allowable methods of valuing the property gifted or bequeathed. 
Compliance Act”) rules.
extensively produced back in the early 2000s.
methods of the federal government in collecting this type of TECS information. Indeed, there are specific provisions granting broad use of taxpayer information when the government alleges there is a “terrorist incident, threat, or activity” as that term is defined in IRC Section § 6103.
The list of all countries can be found here at the Treasury website – Foreign Account Tax Compliance Act (FATCA)
government for having U.S. taxpayers and being charged with some type of wrongdoing; namely aiding and abetting U.S. taxpayers to evade U.S. tax obligations. See, Jack Townsend’s thoughtful website Federal Tax Crimes that reviews in detail the various cases with foreign banks, with a particular focus on Swiss banks, U.S. DOJ Program for Swiss Banks .
See prior post: March 30, 2015, The Problem with PFICs! “Avoid PFICs Like the Plague”