Table of contents
- What do “willful” and “non-willful” mean for US citizens and green-card holders living abroad who have not filed?
- Why does the willful or non-willful question matter for a US citizen or green-card holder overseas?
- Can a green-card holder living in a tax-treaty country clean up past US tax filings?
- When is a green-card holder no longer treated as a lawful permanent resident for US tax purposes?
- Can a green card be given up for tax purposes just by moving outside the US?
- Does giving up long-term green-card status trigger the US exit tax?
- What does the IRS streamlined procedure require taxpayers to certify?
What do “willful” and “non-willful” mean for US citizens and green-card holders living abroad who have not filed?
“Willful” and “non-willful” describe how a failure to file is characterized. For any US citizen (USC) or lawful permanent resident (LPR, a green-card holder) living outside the US who has not been filing US income tax returns or FBARs (the Foreign Bank Account Report), the willfulness question is one of the most important to understand. The IRS “streamlined” procedure requires a taxpayer to certify that the conduct was non-willful. The distinction shapes the options a person has for correcting past filings.
Why does the willful or non-willful question matter for a US citizen or green-card holder overseas?
The willful or non-willful question matters because it shapes what steps a US citizen or green-card holder living abroad needs to take about filing US income tax returns. The answer affects how a person who has not been filing may approach cleaning up past returns and FBAR filings.
Can a green-card holder living in a tax-treaty country clean up past US tax filings?
A green-card holder who lives predominantly in a country that has a US income tax treaty may be in the best position to clean up past US tax filings and return positions. The US has 68 income tax treaties. Under the “tie-breaker provisions” of such a treaty, typically Article 4, the person’s facts may allow them to file as a non-resident, and those filings may apply to several prior years.
When is a green-card holder no longer treated as a lawful permanent resident for US tax purposes?
A green-card holder is no longer treated as a lawful permanent resident for US federal tax purposes under IRC Section 7701(b)(6) when three tests are met:
- the individual is treated as a resident of a foreign country under the provisions of a tax treaty;
- the individual does not waive the benefits of the treaty; and
- the individual notifies the Secretary of the commencement of such treatment.
When a green-card holder notifies the IRS that he or she is not a US resident under an applicable income tax treaty and files the treaty position accordingly, the issue of “expatriation” becomes front and center.
Can a green card be given up for tax purposes just by moving outside the US?
In some cases, yes. Since the 2008 tax law changes, lawful permanent resident status can be abandoned for tax purposes by merely leaving and moving outside the US.
Does giving up long-term green-card status trigger the US exit tax?
Giving up green-card status can trigger the US “exit tax” for a green-card holder treated as a “long-term resident.” A green-card holder who has held that status for 8 years or more is generally treated as a long-term resident and may be subject to the exit tax of IRC Sections 877 and 877A. A separate tax may also apply to future US persons who receive gifts or inheritances from such a former green-card holder under Section 2801.
What does the IRS streamlined procedure require taxpayers to certify?
The IRS “streamlined” procedure, announced on June 18, 2014, has specific requirements that obligate the taxpayer to certify “non-willful” behavior. That certification is made under penalty of perjury. Where a green-card holder’s past failure to file US income tax returns was not non-willful, difficult legal questions arise about the consequences.