09 April 2020 - Article
This article forms part of With…insights, our Asia Pacific thought leadership magazine., which showcases not only legal issues but also other interesting topics that matter to you. To read more please click here.
United States citizens residing abroad have increasingly become aware of the US federal tax obligations that apply to them even while living overseas. News reports and personal experiences (like trying to open a bank account) have alerted even the most unsuspecting individuals to 'FATCA' and US tax filing responsibilities for expat Americans.
However, it is in our experience that individuals who are lawful permanent residents of the US (that is, Green Card holders) spending time abroad may not be aware that the same US federal tax obligations apply to them too. Any Green Card holder who spends more than a small amount of time traveling outside the US should be informed of the tax and immigration consequences of doing so.
Like a US citizen, a Green Card holder is subject to annual US federal income tax and reporting on a worldwide basis. US federal income tax reporting can apply to a Green Card holder even if the person's Green Card is expired!
Also, similar to US citizens, Green Card holders may be subject to US federal gift and estate tax on transfers of property wherever located. That is because holding a Green Card creates a strong indication of US 'domicile' status for US federal gift and estate tax purposes. Just consider the case of Estate of Khan, in which the US Tax Court held that the late Mr Khan, a Green Card holder who did not visit the US for the last five years of his life, was deemed domiciled in the US for US federal estate tax purposes. This is a practical concern for any Green Card holder who has been making gifts to relatives or friends.
If you are a Green Card holder and, having read this article so far, you are discovering some previously unknown (and uncomfortable) facts, do not be concerned. We routinely have clients face this very same situation and we help them participate in one of a few IRS voluntary disclosure programmes in order to get into tax compliance for previously failing to file US federal tax returns. Often, there is limited penalty exposure.
From an immigration perspective, you should also be aware that Green Card status may be endangered by extended residence abroad. Therefore, if you wish to keep your Green Card, you should take steps to inform the US government of any prolonged presence overseas. It would be wise to take advice in this respect, as careful consideration should be given when discussing with US immigration and border patrol officers why you are spending extended periods of time outside America. After all, to obtain a Green Card, you stated your intent to permanently reside in the US.
Related to this last point of communicating with immigration officials, if prompted, do not consider relinquishing your Green Card without taking legal advice. There could be serious tax implications of doing so because persons who have held a Green Card for eight of the last 15 years are subject to the same US expatriation tax rules as U.S. citizens. This means that for a long-term permanent resident of the US who is considered a 'covered expatriate' upon relinquishing the Green Card, this individual may be subject to an 'exit tax' as if he or she sold his or her worldwide assets and is subject to US federal income tax on the hypothetical gain. Other onerous implications could arise as well, such as after Green Card relinquishment gifts from the former Green Card holder to American citizens and residents could be subject to US gift or estate tax. This status as a covered expatriate only applies in the case that the former Green Card holder, at the time of relinquishment, (i) was worth more than US$2 million, (ii) annually paid more than US$162,000 in US federal income tax on average for the prior five years, or (iii) was not in US tax compliance for the same five- year period.
In summary, Green Card holders who spend a significant amount of time outside the US or are considering a move abroad should carefully note the US tax and immigration issues that apply to them.