Case Study – The Green Card Holder Who Forgot

When Leaving America Doesn’t Mean Leaving the US Tax System

The Challenge

Mark and Emma were both British citizens living in Surrey with their two teenage children.

Twenty years earlier, Mark had been offered an exciting career opportunity in New York. He and Emma relocated to Manhattan, where Mark worked for an investment bank while Emma pursued a career in marketing. After several years in the United States, Mark obtained a Green Card, whilst Emma did not. 

Eventually, the pull of family and friends brought them back home to the UK.

Mark left his job, they sold their New York apartment, packed their belongings, and returned to Britain.

As far as they were concerned, their American chapter was closed.

Over the following two decades, they built a successful life in the UK. They purchased a family home, accumulated substantial pension savings, built an investment portfolio, and established several savings and investment accounts.

Then, during a routine review with a financial adviser, Mark was asked a seemingly simple question:

“Have you ever held a US Green Card?”

The answer would prove far more significant than either of them expected.

Understanding the Issue

Like many former expatriates, Mark assumed that leaving the United States automatically ended any connection to the US tax system.

What he did not realise was that obtaining a Green Card and leaving the US are not necessarily the same thing as ending US tax residency.

Although Mark had not lived in the United States for many years, he had never formally surrendered his Green Card.

The card itself had long since expired and was sitting forgotten in a drawer at home.

However, under US tax rules, an expired Green Card does not necessarily mean US tax obligations have ended.

The Complications

Once the issue was identified, several important questions emerged.

1. Ongoing US Tax Residency

If Mark remained classified as a US Person for tax purposes (after leaving the US), he may have been required to file annual US tax returns reporting his worldwide income and gains, despite living and paying tax exclusively in the UK.

This could potentially include:

• Employment income
• Investment income
• Rental income
• Pension distributions
• Disposals of any assets

2. Foreign Account Reporting

Over the years, Mark and Emma had accumulated numerous UK financial accounts.

These included:

• Current and savings accounts
• Investment portfolios
• ISAs
• Pension arrangements

Certain foreign bank and financial accounts may be subject to reporting requirements for US Persons, such as on a FinCEN Form 114 (otherwise known as an “FBAR”) and/or Form 8938, Statement of Specified Foreign Financial Assets, even where no US tax is ultimately payable.

3. Investment Considerations

Several investments selected by their UK adviser were entirely appropriate from a UK tax perspective but required specialist review from a US tax standpoint.

A US person that has a direct or indirect shareholding in a Passive Foreign Investment Company (“PFIC”), may be subject to punitive taxes and penalties, which can lead to potentially large US tax bills. 

Without proper planning, investment structures that are tax-efficient in one jurisdiction can create unexpected complexity in another.

4. Estate and Succession Planning

The family had recently begun discussing inheritance planning and gifting strategies for their children.

Before moving forward, it would be essential to understand whether still being considered a Green Card Holder could affect future planning decisions.

How the Issue Was Discovered

The matter came to light during a wider financial planning review.

Increasingly, financial institutions, investment managers, and advisers are required to identify clients with potential US tax connections under international reporting regimes such as FATCA. For more information on FATCA, see here.

What began as a routine question quickly developed into a broader assessment of Mark’s historic and ongoing US tax position.

The Solution

USTAXFS undertook a comprehensive review of Mark’s circumstances, including:

• Reviewing his residency history
• Assessing his Green Card status from a US tax perspective
• Determining whether US filing obligations remained in place
• Reviewing UK investment holdings and non-US financial accounts held
• Assessing US tax Compliance requirements and risks
• Coordinating US and UK tax considerations and Treaty applications

The objective was to establish a clear understanding of Mark’s position and develop an appropriate strategy for addressing any outstanding obligations.

The Outcome

With specialist guidance, Mark gained clarity regarding his status and obligations.

The review enabled him to:

• Understand whether he remained a US Person for tax purposes
• Identify any historic filing requirements and how best to manage these to become US tax compliant again
• Determine how best to file timely going forward
• Tax succession planning opportunities should he be a US person or formally wish to give up his Green Card
• Coordinate future financial investment planning more tax efficiently 

Most importantly, he was able to make informed decisions based on a clear understanding of how the US and UK tax systems interacted.

Key Takeaway

• Many people assume that leaving the United States automatically ends their relationship with the US tax system.
• For former Green Card holders, this is not always the case.
• An expired Green Card does not necessarily terminate US tax obligations, and many individuals living abroad are unaware that they may still be considered US Persons for tax purposes.
• As international reporting requirements continue to evolve and financial institutions increasingly identify clients with US connections, understanding your status has never been more important.

Could This Apply To You or Your Clients?

Those who may benefit from specialist advice are people who:

• Previously held a US Green Card
• Worked in the United States before returning to the UK
• Have US citizenship or family connections
• Hold significant overseas (non-US) investments or pensions
• Are undertaking estate or succession planning
• Looking to expatriate i.e. give up their US citizenship or Green Card

USTAXFS specialises in advice, planning and compliance for individuals, funds, trusts and corporations affected by the complex and challenging US tax system, wherever they may be in the world.

For specific advice, please contact us to speak to one of our cross-border tax specialists.

Article by Glenn Snow