Article written Oz Halabi and Cora-Ann V. Pestaina
It may be hard for some to imagine but not everyone has a dream to reside in the United States (and be considered a U.S. taxpayer) forever. For individuals with lives outside the United States, it may become difficult to maintain their lawful permanent residence (i.e., their green card), regardless of how tough it may have been to obtain it, due to the associated tax and travel consequences of trying to do so. In this article, we will discuss the legal consequences applicable to green card holders who are considering abandoning their green card (and, potentially, their U.S. taxpayer status). Abandonment of lawful permanent resident status is an irrevocable act.
On September 13, 2021, the House Ways and Means Committee, the chief tax-writing committee in the United States Congress’ House of Representatives, published proposed tax law changes that, in general, will increase the tax rates across the board. The proposed changes include increasing of the top marginal rate to 39.6% (from the current 37%); eliminating (almost entirely) the “qualified small business exception” imposing the net investment income tax also on capital gains from the sale of shares in a company, whether or not the seller “actively participated” in the business of the company; and increasing the long-term capital gain tax rate to 25% (from the current 20%). On these federal tax rates, there is the state tax (in most states) and city tax (in some cities). These law changes are expected to significantly increase the overall tax burden of U.S. tax residents. U.S. residents that will be affected by these changes are individuals residing in the United States, green card holders (i.e., lawful permanent residents (LPR)) and citizens, whether they reside in the United States or not. LPRs are generally required to file a U.S. income tax return and report worldwide income no matter where they live, and they have the same tax obligations as U.S. citizens. If an LPR wishes to reside outside the United States, any income generated both in the United States and in a foreign country may trigger U.S. tax obligations. As a result, LPRs facing these tax burdens may consider abandoning their lawful permanent residence. A determination that LPR status has been abandoned can be initiated by the LPR or by the U.S. government. It should be emphasized that, for federal tax purposes, an abandonment of LPR status is realized only if the U.S. government issues a final administrative or judicial determination of abandonment.
LPRs are required to actually reside in the United States. If an LPR wishes to reside abroad for some time, merely returning to the United States once a year or even a few times a year will not “automatically revalidate” a green card. Department of Homeland Security (DHS) may initiate an independent determination that their LPR status has been abandoned. Remaining outside the United States for 12 or more consecutive months may trigger that determination of abandonment of LPR status. See 8 CFR 211.1(a)(2). Based on this, certain airlines may even refuse to board LPRs who have been absent from the United States for over one year. If the issue is the desire to spend a long period of time abroad, an LPR wishing to spend more than 12 consecutive months outside the U.S. can consider applying for a re-entry permit prior to their departure from the United States. This application must be submitted while the LPR is still in the United States and the LPR must also attend a biometrics appointment in the United States, scheduled usually about 4-6 weeks after the application was filed. Once granted, the re-entry permit will allow the LPR to maintain their LPR status while residing abroad for up to two years. Without a re-entry permit as proof of the intent to maintain status, a Customs and Border Protection (CBP) officer at a U.S. port of entry may determine that permanent residency has effectively been abandoned and may seek to confiscate the green card.
However, it is important to note here that LPRs do not have to automatically surrender their green cards even if asked to do so. An LPR does not lose LPR status as a result of time abroad. They remain an LPR until a final order of removal is issued and the government must prove abandonment by clear, unequivocal, and convincing evidence, a higher evidentiary standard than clear and convincing. See Matter of Huang, 19 I&N Dec. 749 (BIA 1988). To abandon LPR status, the LPR must file Form I-407, Record of Abandonment of Lawful Permanent Resident Status. Form I-407 must be signed voluntarily. Neither failure to sign a Form I-407 nor abandonment is grounds for detention. Rather, an LPR who refuses to sign Form I-407 must be issued a Notice to Appear (NTA) so that an immigration judge can determine whether they have lost their LPR status. If a CBP officer raises the issue of abandonment, the LPR who does not wish to abandon LPR status can offer up evidence of ties to the United States (e.g., a home, a job, family, debt, membership in associations, etc.); explain the purpose of their visit outside the United States and the expected termination date of that visit or explain the facts that made it impossible to return by a date certain. See Matter of Kane, 15 I&N Dec. 258 (BIA 1975). At this stage, the individual must demonstrate by a preponderance of the evidence (which is more likely than not (more than 51%)) that he/she did not abandon LPR status. See Matter of Y-G-, 20 I&N Dec. 794 (BIA 1994). The CBP officer must consider the totality of the circumstances. If the officer remains unconvinced, the individual can ask for a hearing before an immigration judge. If the green card is confiscated, the CBP officer must provide alternative evidence of LPR status (e.g., an I-94 and/or passport stamp that says, “Evidence of Temporary Residence.”) It is also important to note that the mere signing of a Form I-407 is not conclusive evidence that an individual intended to abandon their residency. See Matter of Wood, No. A24-653-925 (BIA Jan. 13, 1992), reported in 69 Inter. Rel. 512 (April 27, 1992). An individual can still request a hearing before an immigration judge to determine whether LPR status was abandoned. LPR status will be maintained until a final order of removal is issued. Accordingly, an LPR wishing to abandon LPR status for tax purposes should be aware that U.S. tax obligations will not go away merely because a CBP officer confiscated the green card.
LPRs who do not wish to potentially suffer through any of the above when trying to return to the United States after an extended stay abroad and who have no desire to actually reside in the United States or who, after consultation with a tax professional, have concluded that they simply cannot live with the tax implications of LPR status when they don’t want to live in the United States, can make a voluntary and irreversible decision to file Form I-407. USCIS has an I-407 Unit in Williston, VT for this purpose. There is no government filing fee for processing Form I-407. Form I-407 must be used by LPRs who are either outside the U.S. or at a Port of Entry who want to abandon their LPR status. It may also be used by individuals who were admitted into the U.S. as nonimmigrants or paroled into the U.S. after abandoning a prior LPR status, and who now want to record that prior abandonment of LPR status. It must also be noted that, generally, if a parent abandons LPR status, any minor children in that parent’s custody will also have abandoned their LPR status. Form I-407 requires basic biographical information; data on the LPR’s last departure from the U.S.; a statement of the reason for the abandonment of LPR status; and a submission of the original green card along with the Form I-407. USCIS aims to process the form within 60 days.
The decision to abandon one’s LPR status has many consequences, among which are immigration and tax consequences. The United States imposes, under section 877A of the Code, an exit tax, on “covered expatriates.” Once abandonment of LPR status occurs, the individual will lose the ability sponsor any family members and in order to visit the United States, may need to apply for and obtain a nonimmigrant visa. However, it is possible to regain LPR status in the future through an entirely new green card process. The abandonment will not be considered material. It is extremely important to consult with immigration and tax advisors before deciding to abandon the green card.
