US Exit Tax and Green Card Relinquishment

Potentially, yes.

Giving up a green card can trigger expatriation tax considerations if you are treated as a long-term resident for US tax purposes.

The IRS says expatriation tax provisions apply to US citizens who have relinquished citizenship and long-term residents who have ended their residency.

The IRS also says Form 8854 is used by individuals who expatriated on or after 4 June 2004.

A review should usually consider:

• whether you are a lawful permanent resident
• whether you are a long-term resident
• how many years you held a green card
• whether treaty positions affected your US residence status
• whether you are ending long-term residency
• whether Form I-407 is being filed
• whether Form 8854 is required
• whether you meet any covered expatriate tests
• whether you can certify five years of US tax compliance
• whether your net worth is above the relevant threshold
• whether your average annual income tax liability is above the relevant threshold
• whether retirement accounts create special issues
• whether deferred compensation rules apply
• whether US property and investments create estate tax exposure
• whether state tax residency continues
• whether local tax applies after leaving the US

The IRS international tax FAQs state that if you are a long-term resident who surrendered your green card, you may be subject to the expatriation tax.

The planning point is simple.

You should review the tax and financial planning position before giving up a green card, not after.

Green card relinquishment should not be treated as a form-only decision.

For many people, it is the final step in a wider exit plan.

1. Are you a long-term resident?

The expatriation tax rules can apply to long-term residents who terminate US residency.

A long-term resident is generally someone who has held lawful permanent resident status in at least eight of the last 15 tax years.

You should review:

• when the green card was issued
• which tax years count
• whether treaty claims affected the position
• whether you are still treated as a lawful permanent resident
• whether you have already abandoned the green card
• whether you filed Form I-407
• whether you need Form 8854 advice
• whether immigration and tax dates align

2. Could you be a covered expatriate?

Covered expatriate status can have significant tax and planning consequences.

A review should usually consider:

• net worth
• average annual income tax liability
• five-year US tax compliance certification
• whether Form 8854 can be completed accurately
• whether any exceptions apply
• whether US tax returns are up to date
• whether foreign asset reporting is complete
• whether retirement accounts create special issues
• whether trusts or deferred compensation are involved

This is an area for specialist tax advice.

The financial planning role is to help identify assets, accounts, income sources, liquidity needs and planning decisions that need to be coordinated.

3. Are your US tax filings up to date?

The ability to certify US tax compliance can be central.

Before relinquishment, review whether the following are complete where relevant:

• US income tax returns
• FBARs
• FATCA reporting
• foreign trust reporting
• foreign company reporting
• foreign pension reporting
• foreign mutual fund or PFIC reporting
• state tax filings
• retirement account reporting
• prior year corrections

Do not assume filing Form I-407 fixes historical tax compliance.

4. What US assets will you still own afterwards?

You may still hold:

• US property
• US brokerage accounts
• US shares
• 401(k) plans
• IRAs
• Roth IRAs
• pensions
• annuities
• bank accounts
• business interests
• trust interests
• life insurance
• employer stock
• stock options

After relinquishment, these assets may still create US tax, withholding, estate tax, reporting, provider access or succession issues.

5. What happens to US retirement accounts?

US retirement accounts need careful review before and after green card relinquishment.

This may include:

• 401(k)
• IRA
• Roth IRA
• 403(b)
• 457(b)
• TSP
• pensions
• annuities
• inherited accounts

Review:

• whether the account remains accessible
• whether withholding changes
• whether treaty treatment is relevant
• whether RMDs apply
• whether Roth treatment is still useful
• whether local tax applies
• whether beneficiaries are updated
• whether the provider accepts foreign-address clients
• whether future withdrawals should be planned before or after relinquishment

6. Does state tax residency still matter?

Leaving the United States and relinquishing a green card does not automatically end every state tax issue.

Some states have more aggressive residency or domicile concepts.

Review:

• last state of residence
• domicile indicators
• property ownership
• driving licence
• voter registration
• bank accounts
• business interests
• family location
• days spent in the state
• source income
• retirement account income
• future visits

State tax advice should be taken before assuming a clean break.

7. How does this fit the estate plan?

Green card relinquishment may change how the family should think about estate planning.

Review:

• US-situs assets
• US property
• US brokerage accounts
• US shares
• US retirement accounts
• life insurance
• wills
• trusts
• beneficiaries
• spouse citizenship
• children’s residence
• estate tax treaties
• local inheritance tax
• liquidity
• executor access

A tax exit does not always mean an estate planning exit.

This page is for general information only and does not constitute personalised financial, tax, legal, immigration, expatriation, exit tax, Form 8854, Form I-407, pension, retirement, investment, estate planning, US tax, state tax, local tax or currency advice.

Green card relinquishment, long-term resident status, expatriation tax, covered expatriate tests, Form 8854, Form I-407, US tax residency, state tax, US retirement accounts, US property, US-situs assets, investments, trusts, deferred compensation, estate planning, local tax, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. US legal and immigration advice should also be taken before surrendering or relinquishing a green card.

State tax, local tax, legal, pension and estate planning advice should also be taken where relevant.

Financial planning should be coordinated with tax, legal, immigration, investment, retirement and estate planning advice where appropriate.

Do not surrender, relinquish or abandon a green card without reviewing tax, legal, immigration, investment, retirement, estate, local tax, state tax, liquidity and currency implications.

Investing involves risk. Investment and retirement account values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect investments, pensions, retirement accounts, property, tax liabilities and future spending.