Embarking on the journey to cease your tax residency in the United States can seem like navigating a complex maze. However, with a clear roadmap, you can confidently transition to your new tax status. This guide will walk you through the essential steps to successfully terminate your tax residency in the United States.
Determine Residency Status
The first step is to determine if you are indeed a tax resident of the United States. You are generally considered a tax resident if you meet the substantial presence test or have a green card. The substantial presence test considers the number of days you have been physically present in the U.S. over a three-year period.
Meet the Conditions for Termination of Residency
To cease being a tax resident, you must meet specific conditions, such as relinquishing your green card or meeting the criteria for a closer connection to a foreign country. This might involve proving that your primary residence, family, and economic ties are in another country.
File IRS Form 8840 or 8854
If you are a long-term resident, you will need to file IRS Form 8854, which involves declaring that you have met the requirements to terminate your residency. If you are a nonresident alien, you may need to file Form 8840 to claim a closer connection to a foreign country.
Notify the IRS
You must notify the IRS of your change in tax residency status. This can involve submitting a statement that includes your name, address, taxpayer identification number, and the date of termination of residency.
Settle All Tax Obligations
Ensure that all your U.S. tax obligations are settled before you terminate your tax residency. This includes filing all required tax returns and paying any outstanding taxes, interest, and penalties.
Keep Detailed Records
Maintain comprehensive records of your residency status, the steps you took to terminate your residency, and all correspondence with the IRS. These records may be required to substantiate your non-resident status in the future.
Legal References
- 26 U.S.C. § 7701(b) - Definitions of Resident Alien and Nonresident Alien
- 26 CFR § 301.7701(b)-1 - Resident Alien
- IRS Publication 519 - U.S. Tax Guide for Aliens
- IRS Form 8840 - Closer Connection Exception Statement for Aliens
- IRS Form 8854 - Initial and Annual Expatriation Information Statement
Useful Links
