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Reentry Permit: USCIS Impact on IRS Tax Treaty Election
Reentry Permit & Foreign Resident Tax Treaty Election
Can a Re-Entry Permit Impact a Tax Treaty Foreign Residence Election? Oftentimes, when a Lawful Permanent Resident is at risk of becoming a Long-Term Resident and therefore possibly subject to exit tax at expatriation — they want to find a way to avoid that status. Before making any representations to the U.S. government (especially the IRS) it is important to plan for exiting the U.S. If a permanent resident applies for a reentry permit for the time they intend on being outside of the country, but then seek to be treated as a foreign resident for tax purposes, is there a conflict?
Maybe.
Let’s explore the reentry permit’s impact on electing to be a foreign resident under a tax treaty.
What is a Reentry Permit
A reentry permit is used by legal permanent residents who are going to be outside of the United States for more time than allowable under the legal permanent residence/green card rules. In other words, when a Legal Permanent Resident is unable to reside in the United States for at least the time required to maintain their status, then technically their green card is no longer valid.
For some people, they may wish to relocate temporarily but not give up that status.
Therefore, they will apply to USCIS for a reentry permit for up to two years. This allows a lawful permanent resident to remain outside of the United States for up to two years, and their green card will not be considered abandoned.
What is a Long-Term Resident?
When a person qualifies as a Long-Term Resident (LTR) that means they are considered to be a Green Card Holder for eight of the last 15 years. It does not matter whether they are residing in the United States or not, because the time period is based on the green card status — not time living in the U.S. But, one way around that relatively strict LTR rule is that in any year that a US person is treated as a foreign resident under the tax treaty — it will not be counted toward that eight of the last 15 years time-period.
How can a Re-Entry Permit Impact
While technically applying for a reentry permit should not have any direct impact on claiming to be treated as a foreign resident under a tax treaty, it can impact the Taxpayer. That is because in order to show a person is a foreign resident each tax treaty has various tests in which the taxpayer must show significant contacts (or something similar) with the foreign jurisdiction. While most treaties contain nearly identical language — there are some nuances.
At the same time of claiming closer contacts with the foreign country, the taxpayer is also applying for reentry permit, which may impact the ability to show significant majority contacts with the foreign jurisdiction, since the permanent residence status is for people who want “permanent” residence in the U.S.
Foreign Resident 8833 Tax Trap
Another important note for permanent residents considering being treated as a foreign resident under the tax treaty is that if the expatriate already qualifies as a Long-Term Resident and then makes the election to be treated as a foreign resident under a tax treaty, that election will qualify as the expatriating act.
Stated another way, if an expatriate would like to be treated as a foreign resident under a tax treaty but is already a long-term resident under U.S. tax laws, it is crucial that the expatriate plan ahead, because by making that treaty election — it may be considered the expatriating act.
This is why exit tax planning is crucial prior to expatriation.
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