If you have terminated your U.S. resident alien status by giving up your green card, you may still need to furnish certain documents to the IRS to comply with tax obligations. Specifically, you are required to file Form 8854, Initial and Annual Expatriation Information Statement. This form is used to inform the IRS of your expatriation and to certify that you have complied with all federal tax obligations for the five tax years preceding the date of your expatriation.
Here are the key steps and requirements:
- Form 8854 Filing: You must file Form 8854 in the year you relinquish your U.S. citizenship or terminate your long-term residency. This form is necessary to notify the IRS of your expatriation and to certify compliance with your tax obligations for the previous five years.
- Certification of Compliance: On Form 8854, you must certify that you have complied with all U.S. federal tax obligations for the five years preceding your expatriation date. Failure to certify compliance can result in being classified as a "covered expatriate," which has significant tax implications.
- Expatriation Tax: If you are classified as a "covered expatriate," you may be subject to the expatriation tax under Section 877A of the Internal Revenue Code. This tax treats all your property as sold on the day before your expatriation date for its fair market value, and you must recognize any gain or loss from this deemed sale. However, there is an exclusion amount that adjusts for inflation, which for 2023 is $821,000.
- Deferred Compensation and Nongrantor Trusts: Special rules apply to deferred compensation items, specified tax-deferred accounts, and interests in nongrantor trusts. These items are generally not subject to the mark-to-market tax but may be subject to withholding or other specific tax treatments.
- Notification to the Department of Homeland Security: You must also notify the Department of Homeland Security of your termination of residency by filing Form I-407, Abandonment of Lawful Permanent Resident Status, before a diplomatic or consular officer of the United States or at a U.S. port of entry before a U.S. immigration official.
- Annual Filing Requirement: If you are a covered expatriate, you may need to file Form 8854 annually if you have deferred the payment of the mark-to-market tax, have eligible deferred compensation items, or have an interest in a nongrantor trust.
Failure to comply with these requirements can result in significant penalties, including a $10,000 penalty for each year that Form 8854 is not filed when required.
For more detailed information, refer to the "Expatriation Tax" section in Publication 519, U.S. Tax Guide for Aliens, and the Instructions for Form 8854.
Sources:
Instructions for Form 8854 (2023)
Publication 519 (2023)
§ 877A. Tax responsibilities of expatriation
§ 7701. Definitions
Publication 4588
