The Eight-Year Line

The statute defines an expatriate as ANY UNITED STATES CITIZEN WHO RELINQUISHES HIS CITIZENSHIP, AND ANY LONG-TERM RESIDENT OF THE UNITED STATES WHO CEASES TO BE A LAWFUL PERMANENT RESIDENT. Both limbs. Somebody who never naturalised, held a green card for years and then went home has done the second thing, and the machinery that everybody associates with renouncing citizenship applies to them on the same terms.

The definition is any individual, other than a citizen, WHO IS A LAWFUL PERMANENT RESIDENT OF THE UNITED STATES IN AT LEAST 8 TAXABLE YEARS DURING THE PERIOD OF 15 TAXABLE YEARS ending with the year of the event. Eight is the number that decides whether any of this applies, and it arrives sooner than people expect for the reason set out in the next figure.

The count is in TAXABLE YEARS in which the person was a lawful permanent resident, not in elapsed time. A green card granted in December and surrendered in January more than seven years later has touched NINE taxable years while being held for a little over seven. That is how somebody who has been here 'about seven years' crosses an eight-year line without noticing it, and it always runs against them — the arithmetic never rounds in the taxpayer's favour.

The statute provides that an individual SHALL NOT BE TREATED AS A LAWFUL PERMANENT RESIDENT for any taxable year in which they are treated as a resident of a foreign country under a tax treaty between that country and the United States AND DO NOT WAIVE THE BENEFITS of that treaty. This can take years back out of the count, and it is the one lever in the whole provision that runs in the taxpayer's favour. Whether it applies to a given year is a treaty question with a filing consequence attached — it is not something to assume, and it is not something a page can decide.

For a covered expatriate the statute provides that ALL PROPERTY OF A COVERED EXPATRIATE SHALL BE TREATED AS SOLD ON THE DAY BEFORE THE EXPATRIATION DATE FOR ITS FAIR MARKET VALUE. Nothing is actually sold and no money changes hands, which is what makes it dangerous: the gain is taxed on assets still held, and the tax has to be paid from somewhere else. The statute does provide an exclusion sheltering a first slice of that gain — that amount is deliberately not printed on this page, because the statute adjusts it every year for cost of living and a stale figure on a page about a tax bill is worse than none.

Passing the eight-year line makes somebody a long-term resident. Whether they are a COVERED expatriate — the status the mark-to-market rule attaches to — turns on three further tests: an average annual net income tax liability above a threshold, a net worth of two million dollars or more, or a failure to certify five years of tax compliance. The third is the one that catches otherwise ordinary people, because it is not about wealth at all: it is a certification, and failing to make it is enough on its own.