For this article, David Tzimenakis of The US Tax Team, a New Zealand based US tax advisor, has collaborated with Amanda Sadlier of Optimum Law, a NZ-based US immigration attorney, to consider a holistic perspective on the decision of whether to give up or retain US permanent residence (the world famous ‘green card’) when returning to New Zealand.
Deciding whether to keep or return your green card when moving from the United States to New Zealand involves several important considerations. Most importantly, this decision impacts your future travel to the United States and your US tax obligations.
In this article, David will share some of the US tax considerations of maintaining a green card, Amanda will review the implications and considerations of maintaining a green card from an immigration perspective, and we’ll discuss when to seek professional advice.
First: US Tax Considerations for Keeping or Returning a US Green Card
From a tax perspective, a US permanent resident moving to New Zealand might want to return or abandon their US green card to end their US tax residency. By returning the US green card when moving back to NZ, a person can make a clean break from the US tax system and avoid being a US tax resident while living in New Zealand.
The first tax consideration when guiding a person through this decision is whether they will be subject to an exit tax from the US Internal Revenue Service (IRS) upon returning or abandoning their US permanent resident status.
What is the US Exit Tax?
To simplify, for purposes of this article, the US IRS may impose an exit tax on individuals who it considers to be ‘covered expatriates.’ Covered expatriates are certain individuals who give up US citizenship and individuals (including but not limited to US permanent residents) who the IRS considers to have ‘long term resident’ status. Covered expatriates are in certain circumstances, subject to an "exit tax” upon leaving the US tax system. This tax can be imposed on the unrealised gains which have appreciated on their worldwide assets. In essence, the IRS aims to ensure that it collects the capital gains tax it would’ve eventually collected, had the individual remained a US person.
Who’s a long term resident?
The IRS considers a person who has spent at least 8 out of the last 15 years in the USA to be a long term resident. Only time spent whilst holding the green card is counted for this 8 year test, again another reason why an individual may choose to return the green card upon their return to NZ. Of note, returning the green card stops the clock in the long term resident analysis.
Does the US Exit Tax apply?
Those who are subject to the exit tax are deemed ‘covered expatriates’.
The long term resident question is just one factor in determining if the IRS will consider them a ‘covered expatriate’. If a person is a US citizen or has long term resident status, they may be subject to the exit tax.
Other tests apply before determining with certainty if a person is a covered expatriate, including a net worth test and average tax liability test.
When is professional advice necessary?
It is advisable to get professional, competent US tax advice before making the ultimate decision of whether to keep or retain US permanent residence when leaving the US for the long term. In fact, tax advice should be sought by anyone attempting to determine whether they are a ‘covered expatriate’.
There are caveats to the above simplification of the initial tax analysis, and, when these caveats apply to a person’s circumstances, that can have a significant impact on accurate analysis. These caveats can include average tax liability tests or even an individual’s citizenship status at birth.
Additionally, expert tax advice is particularly important for people trying to make the green card decision who also have a business or spouse with US tax obligations.
Next: The US Immigration Considerations for Keeping or Returning a US Green Card
The discussion of whether to abandon or maintain US permanent resident status when moving from the United States to New Zealand tends to focus on three primary considerations.
What does it take to maintain US permanent residence?
Although permanent residence is an on-going immigration status, it can be lost if it’s not maintained. Importantly, keeping possession of the physical card does not mean that someone has kept lawful permanent resident status.
While there is a widely held misconception that making a trip - however short - to the United States once every six months or once every year will allow someone living and working outside the US to keep their US permanent resident status, this is not true. Living overseas and making occasional short trips to the US will not maintain your permanent residence.
US permanent residents may have residence outside the US so long as their primary residence is in the United States. Without maintaining primary residence in the US, a green card holder could find themselves turned away at the border or facing deportation.
How do future plans influence the decision?
US permanent resident status can be preserved if someone plans to leave the US for an extended and fixed amount of time. This must be done before leaving the US and can have impacts on other aspects of immigration, so it should be carefully considered with professional advice.
A US permanent resident leaving the US for an extended time may be relieved to know that abandoning US permanent resident status - whether formally with return of the card or inadvertently by not residing in the US - does not bar future application for US permanent resident status. However, they must qualify for permanent residence at the time of making a new application and must begin at the beginning of the process again.
It is best for a US permanent resident to discuss any extended absence from the US with a professional before leaving the country to make sure that they fully understand the amount of risk they are taking.
What is your tolerance for risk/inconvenience?
The tidiest solution for a US permanent resident moving out of the US for the long term is to formally abandon their status by completing the required form and returning their green card shortly after they have left the US. This creates a clean break, not just for US tax purposes discussed above, but also, for US immigration purposes.
Once US permanent residence has been abandoned, the person has no immigration status in the US and begins anew in seeking permission to visit, work, or reside in the US.
While not recommended, some green card holders are hesitant to formally abandon their status or are unsure of their future plans when they leave the US. Over a relatively short period of time - approximately six months to a year - some green card holders find they are still able to enter the US with their green card, with varying levels of questions at the border.
Without re-establishing true primary residence in the US to properly maintain permanent resident status, however, this is unsustainable. More often than not, this results in inadvertent abandonment of US permanent resident status. Having the card without clarity about the status tends to make future visits to the US and future permanent resident applications complicated. It is worth repeating: having the card in hand does not mean that the status is retained.
When is professional advice necessary?
A US permanent resident should seek professional advice if they are planning an extended absence (five months or more) from the US. A US immigration attorney can bring forth the available options and help weigh the pros and cons so that the person can be confident that they’ve made an informed decision based on their own unique circumstances and goals. The earlier in the process they get advice, the more the person can build their non-immigration decisions around relevant immigration rules.
Seeking Professional Advice
The information provided above is not a substitute for professional advice responsive to particular circumstances. US immigration records stay with a person for life, so it’s important to get it right. Likewise, the fines and consequences for US tax errors and omissions are significant. Decisions like whether to keep your US green card when you move to NZ require professional tax and immigration advice in tandem.
Both Optimum Law and The US Tax Team are able to assist with evaluating the specifics of your circumstances from both legal immigration and tax perspectives. We’d be pleased to guide you to making an informed decision that’s right for your life.
Reach out today to Dave at info@usatax.nz and Amanda at hello@optimumlaw.co.nz.