(U.S.) — Surrendering a U.S. green card can trigger U.S. tax consequences for some lawful permanent residents, even when the immigration step appears simple and the person has already moved back to India, Canada, the UK, UAE, Australia, Singapore or another country.

Filing `Form I-407` ends permanent resident status for immigration purposes, but it does not automatically end tax obligations tied to expatriation rules under Internal Revenue Code section 877A. For people who meet the tax definition of a long-term resident, giving up status can become a U.S. Green Card Exit Tax event.

The IRS says expatriation tax provisions apply to U.S. citizens who relinquish citizenship and to long-term residents who end U.S. residency. It uses `Form 8854` for individuals who expatriated on or after June 4, 2004.

Who Qualifies as a Long-Term Resident?

The first question is whether the person qualifies as a long-term resident for U.S. tax purposes. IRS instructions for `Form 8854` define that person as someone who was a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year they are no longer treated as a lawful permanent resident.

That count does not depend on physical presence in the United States for eight full years. The test looks at whether the person was treated as a lawful permanent resident during those tax years.

Years in which a person was treated as a resident of a foreign country under a tax treaty and did not waive treaty benefits do not count toward the 8-of-15-year test. That point carries weight for green card holders who left the United States years ago but kept the card and now assume the tax side ended with their move abroad.

The Expatriation Date Matters

Once long-term resident status enters the picture, the expatriation date becomes central. IRS instructions say a long-term resident terminates lawful permanent residency, and has an expatriation date, on the earliest of certain dates, including the date the person voluntarily abandons lawful permanent resident status by filing Department of Homeland Security `Form I-407` with a U.S. consular or immigration officer.

That date matters because the exit tax rules generally test a person’s status and assets around that point. A green card holder who plans to surrender status without reviewing tax filings, treaty positions and asset values can lock in consequences before doing the tax analysis.

The Covered Expatriate Tests

Long-term residents do not automatically owe exit tax when they give up a green card. The next issue is whether they become a covered expatriate under one of three IRS tests.

IRS instructions for `Form 8854` list those triggers. A person is generally a covered expatriate if average annual net income tax liability for the five tax years before expatriation exceeds the annual threshold, if net worth is $2 million or more on the expatriation date, or if the person fails to certify on `Form 8854` that they complied with all federal tax obligations for the five tax years before expatriation.

For 2026, IRS inflation-adjustment guidance sets the average annual net income tax liability threshold at more than $211,000 for the five taxable years ending before the expatriation date. The same guidance says the mark-to-market gain inclusion amount is reduced by $910,000 for taxable years beginning in 2026.

The $2 million test is not indexed for inflation, and it applies to worldwide net worth. That calculation can include U.S. assets, foreign real estate, Indian property, company shares, retirement accounts, brokerage accounts, crypto, mutual funds and other assets, reduced by liabilities.

The Compliance Trap

The compliance certification on `Form 8854` often presents the hardest problem. A long-term resident who cannot certify five years of U.S. federal tax compliance may be treated as a covered expatriate even if the person falls below the $2 million net-worth mark and below the $211,000 tax-liability threshold.

That trap reaches green card holders who moved abroad years ago and stopped filing U.S. returns because foreign tax credits reduced or eliminated U.S. tax due. Zero tax due does not erase filing duties.

The five-year review can extend beyond income tax returns. It can include FBARs, `Form 8938`, foreign income reporting and other international information returns, any of which can affect whether the person can truthfully certify compliance on `Form 8854`.

Mark-to-Market Tax on Covered Expatriates

If the person is a covered expatriate, section 877A can impose a mark-to-market tax. IRS instructions explain that a covered expatriate is generally treated as if most property interests were sold for fair market value on the day before the expatriation date, with gains taken into account subject to the applicable exclusion amount and special rules.

That means tax can arise on unrealized gains. A house, shares, mutual funds or crypto may not have been sold in the market, but the tax system can treat the property as sold for exit-tax purposes.

Some property does not fall under the ordinary mark-to-market approach. IRS instructions list exceptions that include eligible deferred compensation items, ineligible deferred compensation items, specified tax-deferred accounts and interests in nongrantor trusts.

Asset classification therefore becomes part of the analysis. A simple list of holdings is not enough if one category receives mark-to-market treatment and another falls under a separate rule.

Worldwide Asset Review Required

Worldwide asset review also becomes unavoidable before any surrender. Green card holders with ties to India often hold Indian real estate, Indian mutual funds, NRE/NRO accounts, Indian company shares, ESOPs, RSUs, provident fund balances, pensions, gold, crypto and U.S. retirement accounts at the same time.

Some of those assets bring extra complexity. Indian mutual funds may create PFIC issues for U.S. tax purposes, while appreciated real estate can produce a larger number once converted into U.S. dollars. U.S. 401(k), IRA and deferred compensation items can fall into their own expatriation categories.

A proper schedule would identify fair market value, tax basis, holding period, unrealized gain, currency conversion, ownership percentage and any prior gifts or transfers. Without those figures, the covered expatriate analysis and the exit tax calculation can quickly become unreliable.

Treaty Positions and Dual Residence

Treaty positions can also alter the result. IRS FAQs warn that if a long-term resident claims treaty benefits as a resident of another country, the person may be subject to expatriation tax.

The IRS also says an election under treaty tie-breaker rules to be treated as a nonresident of the United States can trigger expatriation tax, similar to relinquishing the green card, if the other requirements are satisfied. That point can affect green card holders in India, Canada, the UK, Australia and other treaty jurisdictions where dual-residence questions arise.

A treaty claim that looked routine in a local tax filing can therefore carry consequences in the U.S. Green Card Exit Tax analysis. Someone who has spent years outside the United States may still need to examine whether a treaty election already changed the tax position before any formal surrender step begins.

Practical Steps Before Surrender

The practical sequence starts before `Form I-407` is filed. A person considering surrender has to determine whether the 8-of-15-year long-term resident rule applies, identify the planned expatriation date, confirm whether the past five years of U.S. filings are clean, calculate worldwide net worth on the expected expatriation date and compute the five-year average U.S. income tax liability.

That review also includes preparing an asset schedule with fair market value and basis, identifying PFICs, pensions, trusts, retirement plans and deferred compensation, checking treaty positions and `Form 8833` issues, and planning the final U.S. return along with `Form 8854`.

Missing returns or FBARs can change the timing of any surrender. Filing `Form I-407` first and identifying the tax problem later may leave fewer options for dealing with compliance gaps before expatriation becomes effective.

Penalties and IRS Enforcement

The filing risk does not end with analysis. The IRS expatriation tax page states that a $10,000 penalty may be imposed for failure to file `Form 8854` when required, and that the agency has sent notices to expatriates who have not complied with `Form 8854` requirements.

The IRS also says individuals can continue to be treated as U.S. citizens or long-term residents for U.S. tax purposes until they have notified the IRS through `Form 8854` and, for long-term permanent residents, the Department of Homeland Security of termination of residency. Immigration status and tax status do not always end at the same moment.

That split explains why coordination matters. Ending permanent residence on the immigration side without completing the tax side can leave a former green card holder still exposed to filing duties, penalties or covered expatriate treatment.

Straightforward vs. Complex Cases

Some green card holders will face a straightforward surrender. People who are not long-term residents, or who are fully compliant and below the covered expatriate thresholds, may complete the process without triggering the U.S. Green Card Exit Tax rules.

Long-term residents with appreciated worldwide assets, missed filings or treaty elections face a different calculation. In those cases, the central document is often not `Form I-407` but `Form 8854`, because that form ties together expatriation status, five-year compliance certification and the tests that determine whether the person becomes a covered expatriate.

The order of events can decide the outcome. A green card surrender may look like an immigration formality, but for a long-term resident it can become a tax event measured by years of status, worldwide assets and whether the IRS sees five years of compliance in place before the card is given up.