What Long-Term Green Card Holders Should Understand Before Leaving the US: The §877A Exit-Tax Framework

Why This Question Is More Nuanced Than It Looks

A client I spoke with last year had held her US green card for eleven years. Her employer had asked her to move back to London for a two-year role, and she assumed, completely reasonably, that surrendering the card was an immigration conversation. She was surprised to learn that for long-term residents, the US treats the surrender more like the relinquishment of citizenship. The conversation she expected to have with her immigration lawyer turned out to also need a tax adviser.

This article explains the US tax rules that apply when a long-term green card holder surrenders the card or is treated a shaving abandoned it. The framework sits in Internal Revenue Code §877A and the covered-expatriate regime, and it is widely misunderstood, many long-term residents don't realize they are inside rules that mirror those applied to US citizens who renounce. The article is educational. It explains what the rules are; it does not recommend whether or when a reader should surrender a green card. That decision rests with the reader, their immigration counsel, and a qualified cross-border tax adviser.

The First Thing the IRS Looks At: Long-term Resident Status

The first thing the IRS looks at is whether the individual is a long-term resident at all. §877A only applies to green cardholders who meet that threshold.

A long-term resident is a lawful permanent resident of the US in at least eight of the last fifteen tax years ending with the year of expatriation. The test is counted on a tax-year basis, and a year in which the individual was a lawful permanent resident for any part of the year generally counts. Years in which a US income-tax treaty position treated the individual as a resident of the other country can be excluded, a technical point often needing a qualified tax adviser's reading of the specific facts.

Green card holders with fewer than eight qualifying years fall outside the §877A regime. Surrender in that case is ordinarily an immigration event and a change of tax residency, not an expatriation for IRS purposes. The rules that follow apply only to readers who are, or will become, long-term residents by the time they surrender.

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The Second Thing: the Three Covered-expatriate Tests

The second thing the IRS looks at is whether the long-term resident is a covered expatriate. Three tests apply; meeting any one triggers covered-expatriate status.

The net-worth test. An individual whose net worth is $2 million or more on the date of expatriation is a covered expatriate. The $2 million threshold is a statutory figure in §877A and has not been indexed. Net worth is computed on a US-tax fair-market-value basis and includes worldwide assets.

The average-tax-liability test. An individual whose average annual US net income-tax liability for the five tax years preceding expatriation exceeds an inflation-indexed amount is a covered expatriate. The indexed amount is published by the IRS each year, readers should check the current-year figure against their own five-year average.

The certification test. An individual who fails to certify, on Form 8854 and under penalty of perjury, US federal tax compliance for the five preceding years is a covered expatriate, regardless of the other two tests. Often decisive for readers with filing gaps from earlier in their US period.

The tests describe a status, not a choice.

The Third Thing: the Mark-to-market Deemed Sale

The third thing the IRS looks at is what happens once covered-expatriate status attaches: the mark-to-market regime of§877A.

A covered expatriate is treated as having sold their worldwide property for its fair market value on the day before the expatriation date. Gain is recognized, and loss is recognized subject to certain limitations. The deemed sale produces a US tax event in the year of expatriation. An inflation-indexed exclusion amount reduces the gain recognized, readers should check the current IRS publication for the year's figure.

Certain asset categories are handled differently. Deferred compensation, specified tax-deferred accounts (including IRAs), and beneficial interests in non-grantor trusts sit outside the mark-to-market rule and are taxed under a separate regime, typically a 30%withholding on future distributions, subject to treaty override where available.

For non-covered long-term residents who surrender the card, the deemed-sale rule does not apply. The US tax exposure is the ordinary rule: resident taxation up to the date of surrender, non-resident taxation from that date forward.

The Forms: Form 8854 and Form I-407

Two forms sit at the center of the expatriation process. They serve different functions and are filed with different agencies.

Form I-407 is the immigration filing that records the abandonment of lawful permanent resident status. It is filed with US Citizenship and Immigration Services. The date it is accepted is generally the date used to determine the expatriation date for §877A.

Form 8854 is the tax filing. It is attached to the dual-status final-year income-tax return and is where the individual certifies US tax compliance for the five preceding years, reports net worth, reports the deemed-sale computation, and identifies which covered-expatriate tests are or are not met. Failure to file Form 8854 is itself enough to make an individual a covered expatriate under the certification test.

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After Expatriation: Retirement Accounts and the10-year Shadow

Two items that sit downstream of the expatriation event come up consistently when readers are thinking through the framework.

US retirement accounts after expatriation. IRAs, 401(k)s and similar specified tax-deferred accounts survive expatriation as accounts, but distributions to a covered expatriate are generally subject to30% US withholding at source. Treaty positions with the new country of residence can change the result, but not every treaty addresses pension or retirement-account distributions, and the treaty reading should be done in advance.

The 10-year shadow on gifts and bequests. IRC §2801 imposes a transfer tax on US persons who receive gifts or bequests from a covered expatriate. The tax is imposed on the US-person recipient, not on the expatriate. It matters most to long-term residents with US-citizen children or spouses, because transfers between them after the surrender sit inside §2801 for as long as the rule applies.

The Tests and the Regimes at a Glance

Source: Skybound 2026

Questions To Raise With A Qualified Adviser

For a long-term green card holder looking at the §877A framework, a list of questions worth raising with a qualified cross-border tax adviser and an immigration attorney includes:

• Am I a long-term resident under the 8-of-15-years test, including the effect of any treaty-tie-breaker years?
• Where do I stand on each of the three covered-expatriate tests, net worth, average tax liability, and certification?
• If the mark-to-market regime applies, what is my worldwide asset position and how would the deemed sale affect each category?
• How are my US retirement accounts expected to be treated on distribution, and does the country I'm moving to have a treaty that addresses them?
• Are there US-citizen beneficiaries, a spouse, children, for whom the §2801 10-year shadow materially changes the picture?
• What is the sequencing of the Form I-407 filing and the Form 8854 filing for my facts?