How does the U.S. tax law impact green card holders?

Lawful permanent residents of the United States, also known as “green card holders”, have tax filing obligations with the Internal Revenue Service, even if they are living abroad. The following apply to green card holders:

• A green card holder generally must report and pay tax in the same manner as a United States citizen, which means that they report and pay tax on their world-wide income and file a Form 1040.
• A green card holder may be considered a dual resident, which means that the individual is both a resident of the United States and a resident of a foreign country, such as Mexico. A dual resident taxpayer, who determines that he or she is a resident of another country under a tax treaty, is considered a nonresident alien for purposes of computing that individual’s income tax liability. Treas. Reg. § 301.7701(b)-7(a)(1). A dual resident taxpayer, who determines his or her U.S. tax liability as if he or she were a nonresident alien, files a Form 1040NR (U.S. Nonresident Alien Income Tax Return). Treas. Reg. § 301.7701(b)-7(b).
• The IRS takes the position that an individual who is a dual resident must file information returns as a U.S. resident, even though the individual is required to file a Form 1040NR. See IRM 4.26.16.3.1.2 (11-06-2015) (U.S. tax treaty provisions do not affect residency status for FBAR purposes”);
• If a green card holder terminates his or her U.S. resident alien status (give up green card), and the individual is considered a long-term residence under IRC § 7701(b)(6), the individual can trigger the expatriation tax regime under section 877A.

Individuals, who are green card holders and have tax compliance issues should contact competent U.S. tax counsel, who can evaluate the case, explain the options, and formulate a defensible strategy.