Introduction

The Internal Revenue Code of the United States imposes worldwide income taxation on ALL individuals who are U.S. citizens or who are otherwise defined as “residents” under the Internal Revenue Code. “Residents” includes those who have a visa for “permanent residence” (commonly referred to as a Green Card). A visa for “permanent residence” is a visa for immigration purposes. Once an individual receives a visa for “permanent residence” he will be considered to be a “resident” under the Internal Revenue Code. His status as a “resident” for tax purposes continues until he fulfills specific conditions to sever his “tax residency” with the United States. The conditions required to sever “tax residency” with the United States are found in S. 7701 of the Internal Revenue Code. (Basically a Green Card holder can’t simply move from the United States and sever tax residency.)

In the same way that U.S. citizens are subject to taxation on their worldwide income even if they don’t reside in the United States, “permanent residents” will continue to be subject to taxation on their worldwide income until they take specific steps to sever tax residency in the United States. In certain circumstances Green Card holders living outside the United States can avoid filing some of the “forms” that are required of U.S. citizens living abroad.

The steps to sever tax residency are found in S. 7701(b) of the Internal Revenue Code. Those wishing to explore this further are invited to read my earlier posts about Gerd Topsnik: Topsnik 1 and Topsnik 2. Those “permanent residents” who qualify as “long term residents” will be subject to the S. 877A Exit Tax rules if they try to sever tax residency with the United States. It’s probably easier to secure a “permanent residence visa” for immigration purposes, than it is to sever tax residency for income tax purposes.

On September 5, 2018 I had the opportunity to participate in a conversation with Mr. Gary Clueit who has been a permanent resident of the United States for 34 years. Interestingly Mr. Clueit is one more Green Card holder who never applied for U.S. citizenship. There are both advantages and disadvantages to a “Green Card” holder becoming a U.S. citizen. One often overlooked disadvantage to a Green Card holder becoming a U.S. citizen is discussed here. In general, “permanent residents” (Green Card holders) of the United States have certain “tax treaty benefits” that are denied to U.S. citizens. Because of the “savings clause” U.S. citizens are denied the benefits of tax treaties. Interestingly (at least until now) other countries have failed to understand that the inclusion of the “savings clause” in U.S. tax treaties means that the treaty partner is agreeing that the United States can impose worldwide taxation on the citizen/residents of the treaty partner country. The reason is simple:

The primary impact of the “savings clause” is that assists the United States in imposing “worldwide taxation”, according to U.S. rules on people who are “tax residents” of other countries and who do not live in the United States!

The following tweet links to the podcast of the conversation. Anybody considering moving to the United States as a “permanent resident” should listen to this podcast.

A man of uncommon humanity – Gary @Clueit – explains some @USGreenCardLaw (from both tax and immigration perspectives) and why the #GreenCard is "Tax Kryptonite". The S. 877A Exit Tax figures prominently. https://t.co/gUmbBYr1Hx

— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 7, 2018

More from Mr. Clueit after the jump …

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