It is not unusual for Green Card holders to move outside the U.S. permanently or indefinitely. Often individuals will work in the U.S. for many years and then decide to retire or semi-retire to their country of origin. If those individuals do not formally relinquish their Green Cards, they generally continue to be treated as residents for U.S. tax purposes.
Green Card Test for U.S. Tax Residency
Code § 7701(b)(1)(A) provides in part that an alien individual who is lawfully admitted for permanent residence (i.e., a Green Card holder) at any time during a calendar year shall be treated as a resident of the United States with respect to that calendar year. For tax purposes, an individual is a lawful permanent resident of the United States at any time if:
(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, and
(B) such status has not been revoked (and has not been administratively or judicially determined to have been abandoned).
Code § 7701(b)(6). Stated another way, an individual ceases to be a resident under this rule if the lawful permanent residence status has been revoked or if it has been administratively or judicially determined to have been abandoned.
A green card holder may formally abandon his/her status by filing an USCIS (formerly the INS) Form I-407 (Abandonment of Lawful Permanent Resident Status). For immigration law purposes, an alien’s status as a permanent resident may cease without a formal determination that an alien has abandoned his/her permanent residence. The formal determination may not occur until some time later, such as when the alien tries to return to the United States, claiming to be a permanent resident. Thus, for purposes of the immigration laws, a determination of abandonment may not take place until many years after the actual abandoning act. This reflects the fact that the USCIS does not need to know the alien’s status until he/she tries to return to the United States.
For tax purposes, however, Congress intended an alien to be treated as a lawful permanent resident under Code § 7701(b)(6) until there has been a formal determination that his/her status has been abandoned. This fact is evidenced in the Joint Committee on Taxation’s General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, 98th Cong., 2d Sess. 463 (1984), where it stated:
The Act defines “lawful permanent resident” to mean an individual who has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, if such status has not been revoked or administratively or judicially determined to have been abandoned. Therefore, an alien who comes to the United States so infrequently that, on scrutiny, he or she is no longer legally entitled to permanent resident status, will be a resident for tax purposes. The purpose for this requirement of revocation or determination is to prevent aliens from attempting to retain an apparent right to enter or remain in the United States while attempting to avoid the tax responsibility that accompanies that right.
Although U.S. tax law continues to treat lawful permanent residents as tax residents until there has been a formal determination that his/her status has been abandoned, income tax treaties may be available to override this rule. An individual who would be treated as a resident alien under this rule might be treated as a nonresident alien under the so-called “tiebreaker” rules of the income tax treaties to which the United States is a party.
For instance, an individual who is considered a resident of the United States pursuant to the internal laws of the United States and also a resident of a treaty country pursuant to the treaty partner’s internal laws may be able to claim under the treaty that he/she is a nonresident of the United States. See Treas. Reg. § 301.7701(b)-7(a)(1).
These rules can create a tension between U.S. tax law and U.S. immigration law. An individual may want to claim the benefits of a treaty to be treated as a nonresident of the U.S. for tax purposes. However, such a claim might adversely impact their U.S. immigration status.