A short-term green card holder could not use a treaty to shed U.S. tax residency

Plain-English summary

A green card holder is a "lawful permanent resident" and therefore a U.S. resident who is taxed on worldwide income until that status is formally given up. This informal Chief Counsel email advice addresses a taxpayer who held a green card for a period, left the United States, later filed nonresident returns, and attached a Form 8833 claiming to be a resident of a foreign country under a tax treaty as of an early date. He argued that treaty residency ended his U.S. tax residency. Section 7701(b)(6) contains "flush language" (added by the 2008 HEART Act) under which a green card holder can stop being treated as a lawful permanent resident by becoming a treaty resident of a foreign country, waiving no treaty benefits, and notifying the IRS. But that flush language applies only to a "long-term resident" (someone who held a green card in at least 8 of the last 15 years) whose expatriation date is on or after June 17, 2008, because it was enacted to coordinate with the Section 877A exit tax on expatriates. Chief Counsel advised that this taxpayer was not a long-term resident at the point he claimed treaty residency (and years spent as a treaty foreign resident do not count toward the 8-year test), so the flush language did not apply. As a result, he could not use the treaty to shed U.S. residency and remained a U.S. person for tax purposes until his green card status was administratively or judicially determined to be abandoned.

Ruling snapshot

• Question: Could a green card holder who was not a long-term resident use the § 7701(b)(6) treaty "flush language" to stop being treated as a U.S. resident?
• Outcome: advice given (no; he remained a U.S. person until abandonment was determined)
• Key authorities: IRC §§ 7701(b)(1)(A), 7701(b)(6), 877A(g)(3), 877A(g)(5), 877(e)(2); HEART Act (P.L. 110-245)

Full text (IRS public release)

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ID: CCA_2024071014575817 [Third Party Communication:

UILC: 7701.21-11, 7701.21-17, Date of Communication: Month DD, YYYY]

         7701.21-20

Number: 202501011
Release Date: 1/3/2025
From: ------------------
Sent: Wednesday, July 10, 2024 2:57:58 PM
To: ----------------------------
Cc: -----------------------------------------------------------
Bcc:
Subject: ----------

---------:

As we understand it: (i) the taxpayer held a green card continuously (i.e., had the status
of a lawful permanent resident of the United States for immigration purposes at all
times) from ------- and has indicated that he abandoned the green card in -------
(although no evidence of a judicial or administrative determination of abandonment has
been provided); (ii) he left the United States in ------- and has not returned; (iii) he did
not timely file income tax returns for the years at issue (--------------), but in ------- he
submitted nonresident returns for --------------; and (iv) he has attached a Form 8833 to
each such return filed in -------, claiming to be a ------ resident for purposes of the ---------
------ income tax treaty. Thus, his claim is that he commenced treatment as a ------
resident for purposes of the treaty no later than -------.

A resident alien is defined to include an individual who is a lawful permanent resident of
the United States. Section 7701(b)(1)(A). An individual is a lawful permanent resident
of the United States if he has been lawfully accorded such status under U.S.
immigration laws and such status has not been revoked (and has not been
administratively or judicially determined to have been abandoned). Section
7701(b)(6). Under the flush language of section 7701(b)(6), an individual shall cease to
be treated as a lawful permanent resident of the United States if such individual
commences to be treated as a resident of a foreign country under the provisions of a tax
treaty between the United States and the foreign country, does not waive the benefits of
such treaty applicable to residents of the foreign country, and notifies the Secretary of
the commencement of such treatment.

The Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART Act”), P.L.
No. 110-245, added section 877A to the Code as part of a new regime for the taxation
of expatriates, and added the above-described flush language to section 7701(b)(6) as
a conforming amendment. The HEART Act also provides in section 301(g)(1) that the
new flush language in section 7701(b)(6) “shall apply to any individual whose
expatriation date [as defined in section 877A(g)(3)] . . . is on or after the date of the
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enactment of [the HEART Act],” i.e., June 17, 2008. Section 877A(g)(3) defines the
expatriation date as “the date an individual relinquishes United States citizenship” or “in
the case of a long-term resident of the United States, the date on which the individual
ceases to be a lawful permanent resident of the United States (within the meaning of
section 7701(b)(6)).” Accordingly, the flush language applies only to an individual who
is a long-term resident and then only if application of the flush language would cause
him to cease to be treated as a lawful permanent resident on or after June 17, 2008,
and thus potentially subject to the exit tax under section 877A. An individual is a “long-
term resident” if he was a lawful permanent resident in at least 8 of the last 15 tax years
ending with the taxable year of his expatriation date, excluding years in which the
individual was treated as a foreign resident under a treaty. Sections 877A(g)(5) and
877(e)(2).

Here, the taxpayer is claiming that he commenced to be treated as a foreign resident
under the ------------- income tax treaty no later than ----------------------. At that point, he
had not been a lawful permanent resident long enough to be treated as a long-term
resident, and his subsequent tax years as a lawful permanent resident are excluded for
purposes of this determination because he was treated as a foreign resident under the
treaty. Because he was not a long-term resident and, even if he had been, did not have
an expatriation date on or after June 17, 2008, the flush language does not apply to
him. Accordingly, he could not cease to be treated as a resident of the United States,
and was thus a U.S. person for federal income tax purposes until the time (if any) that
his immigration law status was administratively or judicially determined to have been
abandoned.

Thanks.

Subin Seth
Senior Counsel (International)
IRS, Office of Chief Counsel
(202) 317-5003
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