Concept
The United States taxes U.S. citizens and resident aliens on worldwide income, wherever they live. The first question is never where the person spent the year. It is whether the person is a U.S. citizen, a green card holder, or a resident alien under the substantial presence test. The IRS sets the baseline on its page for U.S. citizens and resident aliens abroad: filing, estimated tax, estate and gift returns and worldwide income reporting apply the same way inside the United States and abroad.
That pulls an American founder in Dubai, a green card holder in London, a dual citizen in Lisbon and a resident alien with a foreign holding company into one tax perimeter. The work is sequential: fix status, map the perimeter, then choose the U.S. method before the transaction — not after a bank asks for a W-9.
U.S. persons with foreign companies, foreign trusts, PFICs, crypto, prior non-filing or exit-tax exposure should work with a U.S. international tax CPA and, where there is legal risk, a U.S. tax attorney.
Key parameters of the topic:
| Parameter | Value |
|---|---|
| Saving clause | Preserves the US's right to tax its own citizens and residents as if the treaty didn't exist, subject to exceptions |
| Lawful permanent resident | Generally evidenced by a green card; status lasts until abandoned, revoked, or determined to have been abandoned |
| What doesn't end the status | An expired card, leaving the country, or years of living abroad — none by themselves |
| Dual-status year | Resident alien for part of the year, nonresident alien for the rest |
| When it arises | On entry via green card or substantial presence, and on exit through loss of status, treaty position or expatriation |
| What dual status changes | Income allocation, deductions, treaty reporting, foreign information returns, and sometimes the start date of worldwide income reporting |
Who is a U.S. person for tax purposes
The Internal Revenue Code draws the circle in section 7701(a)(30): a "United States person" is a citizen or resident of the United States, a domestic partnership, a domestic corporation, any estate other than a foreign estate, and a trust that passes two tests at once — a U.S. court can exercise primary supervision over its administration, and one or more U.S. persons control all of its substantial decisions. The IRS repeats the list in its classification of taxpayers. Anyone outside it is a foreign person, taxed in the United States mainly on U.S.-source and effectively connected income.
| U.S. person | Test |
|---|---|
| Citizen | Citizenship alone, wherever the person lives |
| Green card holder | Lawful permanent resident at any time during the calendar year, until the status is abandoned in writing or terminated |
| Substantial presence resident | At least 31 days in the current year and 183 weighted days over three years, unless an exception applies |
| Partnership, corporation, company or association | Created or organised in the United States or under U.S. law |
| Estate | Any estate other than a foreign estate |
| Trust | A U.S. court can supervise its administration and U.S. persons control all substantial decisions |
For an individual who is not a citizen, residence is decided by section 7701(b) and only three routes lead there: lawful permanent residence at any time in the calendar year — the IRS green card test, which runs until the status is renounced in writing to USCIS or terminated administratively or by a federal court — the substantial presence test, or the first-year election. The day count has its own exits. Days spent as an exempt individual — for instance a teacher or trainee on a J or Q visa, or a student on an F, J, M or Q visa — are not counted if Form 8843 is filed; a person present fewer than 183 days in the year who kept a tax home and a closer connection abroad can claim the closer connection exception on Form 8840, unless they applied for a green card that year.
The same status travels into paperwork. Form W-9 counts as a U.S. person a U.S. citizen or resident alien; a partnership, corporation, company or association created or organised in the United States or under its laws; an estate other than a foreign estate; and a domestic trust. That is why bank forms ask whether the holder is a "U.S. citizen or other U.S. person": the second box covers the resident alien, the U.S. entity, the estate and the trust. A disregarded entity with a foreign owner signs no W-9 at all — the owner gives a Form W-8, even with a U.S. TIN. FBAR draws its own line: the Internal Revenue Manual reads 31 CFR 1010.350(b) to cover any entity formed under U.S. law whatever its income tax treatment, so a single-member LLC disregarded for income tax still reports its foreign accounts. Securities law uses another test again: under SEC Regulation S a natural person is a "U.S. person" only if resident in the United States, so a U.S. citizen living abroad can sit outside that definition for an offering while remaining fully inside the tax system.
Status
There are three common routes into U.S. tax residency for an individual.
U.S. citizen
Citizenship is normally enough to keep a person inside the worldwide system. A second passport, a foreign residence permit or a foreign tax-residency certificate does not switch it off.
Green card holder
A lawful permanent resident is normally a U.S. resident alien for tax until the green card is properly abandoned, revoked or terminated for tax purposes. A long-term holder can also fall into the expatriation rules.
Substantial presence
A non-citizen without a green card can become a resident alien on day count. The IRS sets out the formula in its substantial presence test guidance.
Treaties matter at the edges but do not open a general exit. The IRS treaty overview notes that most U.S. income tax treaties contain a saving clause preserving the right of the United States to tax its own citizens and residents as if the treaty did not exist, subject to specific exceptions.
A treaty tie-breaker can help a non-citizen resident alien — above all a green card holder or a substantial-presence resident who is simultaneously resident in another treaty country. The position may require disclosure on Form 8833, and for a long-term green card holder the act of claiming it is itself expatriation, with the exit-tax consequences that follow. A treaty claim is planned before filing, not added as a footnote after the return is prepared.
Long-term resident and surrendering the green card
The IRS instructions for Form 8854 define a lawful permanent resident as a person given the privilege of residing permanently in the United States as an immigrant — generally evidenced by a green card — until that status is abandoned, revoked, or administratively or judicially determined to have been abandoned. An expired physical card, leaving the country and several years of living abroad do not by themselves end U.S. tax residency.
The same instructions define a long-term resident as a lawful permanent resident in at least 8 of the last 15 tax years, ending with the year in which the person is no longer treated as a lawful permanent resident. The threshold is tested before filing Form I-407 to surrender the card, before taking a treaty nonresident position and before planning a move out of the United States: once it is crossed, departure runs through the expatriation regime.
Dual-status years
A dual-status year arises when a person is a resident alien for part of the year and a nonresident alien for the rest. It happens on entry into the U.S. system through a green card or substantial presence, and on exit through loss of status, a treaty position or expatriation. Dual-status filing affects income allocation, deductions, treaty reporting, foreign information returns and sometimes the start date of worldwide income reporting; the first and last day of residency are documented with exact dates rather than reconstructed from memory.
Annual perimeter
The annual perimeter is wider than the annual cash bill. Each area maps to a form; FEIE and the foreign tax credit and FATCA, FBAR and Form 8938 carry the detail.
| Area | What to check | Typical form |
|---|---|---|
| Income tax | Salary, consulting, dividends, interest, rent, capital gains, crypto, pensions, company income | Form 1040 |
| Foreign earned income | Bona fide residence, physical presence, foreign tax home, housing costs | Form 2555 |
| Foreign tax credit | Foreign income taxes paid or accrued, baskets, carryovers, resourcing | Form 1116 |
| Foreign accounts | Foreign bank, securities and financial accounts over the aggregate threshold | FinCEN Form 114 / FBAR |
| Foreign financial assets | Specified foreign financial assets over the FATCA threshold | Form 8938 |
| Foreign corporation | 10% ownership, control, CFC status, Subpart F, section 951A (GILTI through 2025, net CFC tested income from 2026) | Form 5471, Form 926 |
| Foreign partnership or branch | Foreign partnership, foreign disregarded entity, foreign branch | Form 8865, Form 8858 |
| Foreign funds | Foreign mutual funds, ETFs, passive holding companies | Form 8621 |
| Foreign trusts and gifts | Transfers, distributions, ownership, large gifts or bequests | Form 3520, Form 3520-A |
| Exit planning | Renunciation, green card termination, five-year compliance, net worth, unrealised gains | Form 8854 |
The reporting duty stands even when relief wipes out the tax. FBAR is a Bank Secrecy Act filing with FinCEN, separate from the income tax return; the IRS comparison of Form 8938 and FBAR is the clean starting point because Form 8938 does not replace FBAR.
Foreign structures
Foreign structures do not make U.S. tax disappear. They usually replace it with a more technical regime, and each carries its own form.
Foreign company → CFC
A controlled foreign corporation brings in Subpart F and the section 951A regime — taxed as GILTI for years through 2025 and renamed net CFC tested income (NCTI) from 2026. A U.S. officer, director or shareholder files Form 5471. Detail in U.S. CFC rules.
Foreign fund → PFIC
A non-U.S. ETF or fund can be a passive foreign investment company. The IRS Form 8621 page shows why an ordinary foreign portfolio becomes a U.S. compliance problem. Detail in PFIC and Form 8621.
Foreign trust → 3520
A foreign trust is a tax classification and reporting problem, not just an estate document. The IRS Form 3520 page covers trust transactions and large foreign gifts. Detail in Foreign trusts and Form 3520.
Partnerships, branches and disregarded entities add Forms 8865, 8858 and 926 — covered in foreign entity forms.
Disclosure
FATCA turns U.S. status into a banking-compliance fact. The Treasury FATCA framework operates through reporting by foreign financial institutions; the IRS page for foreign financial institutions describes the reporting of U.S. accounts and of foreign entities with substantial U.S. owners. FBAR is the separate Bank Secrecy Act regime — FinCEN explains the purpose of FBAR, filed when foreign financial accounts exceed US$10,000 in aggregate at any point in the calendar year.
For an individual the regime surfaces before the tax does — at the bank. A foreign financial institution asks for a Form W-9 on a set of U.S. indicia: a U.S. place of birth, a U.S. mailing address, a U.S. telephone number, standing instructions to transfer funds to an account in the United States. For a dual citizen that is the usual point of discovery: the status question arrives before the U.S. filings are ready, and handing the bank a non-U.S. passport does not erase a U.S. birthplace.
Planning
Legal planning for U.S. persons is not about hiding the U.S. connection. It is choosing the correct U.S. method before the transaction. Common tools — foreign tax credit design, FEIE where it fits, totalization analysis for social security, entity classification on Form 8832, section 962 elections, the high-tax exception, U.S. C-corp blockers, domestic instead of foreign trusts, PFIC avoidance and pre-immigration basis planning — are set out in U.S. tax planning tools. The family office tax controls page turns the same rules into a compliance calendar, an ownership map and a document vault.
Cleanup and exit
Cleanup starts with classification. A non-willful taxpayer may use the IRS streamlined filing compliance procedures; a taxpayer with willful or criminal exposure may need the IRS Criminal Investigation voluntary disclosure practice. The IRS page on delinquent international information returns matters because late forms run through normal procedures and penalties can still apply. Large unpaid federal tax debt is a passport risk — see the IRS page on passport revocation or denial and the State Department page on unpaid federal taxes. Full sequence in enforcement and cleanup.
Leaving the system is its own regime. Renunciation or abandoning a long-held green card can trigger covered-expatriate status and a mark-to-market exit tax on Form 8854 — see expatriation and exit tax.
Common mistakes
- Treating foreign tax residence as an exemption from U.S. filing.
- Filing FBAR but missing Form 8938.
- Buying non-U.S. ETFs without PFIC analysis.
- Holding retained earnings in a foreign company without Form 5471 and section 951A analysis.
- Using a foreign trust for succession without Form 3520 and Form 3520-A analysis.
- Claiming FEIE and the foreign tax credit on the same excluded income.
- Renouncing citizenship or abandoning a long-held green card without five years of compliance and Form 8854 planning.
Q&A
What is a U.S. person for tax purposes?
Under section 7701(a)(30) of the Internal Revenue Code: a U.S. citizen, a resident alien under the green card or substantial presence test, a domestic partnership or corporation, an estate other than a foreign estate, and a trust supervised by a U.S. court and controlled by U.S. persons. A U.S. person is taxed on worldwide income and carries the U.S. information-reporting load; a foreign person is taxed mainly on U.S.-source and effectively connected income.
What does "U.S. citizen or other U.S. person" mean on a bank or W-9 form?
"Other U.S. person" is everyone in the Form W-9 definition who is not a citizen: a resident alien, a partnership, corporation, company or association organised in the United States, an estate other than a foreign estate and a domestic trust. A foreign person — including the foreign owner of a disregarded U.S. LLC — gives the institution a Form W-8 instead.
Can a non-citizen who spends a lot of time in the U.S. avoid becoming a U.S. person?
Sometimes. Days as an exempt individual, such as a student on an F or J visa, are not counted if Form 8843 is filed; someone present fewer than 183 days who kept a tax home and a closer connection abroad can file Form 8840. Neither route is open to a person who applied for a green card during the year, and a treaty tie-breaker is a separate position disclosed on Form 8833.
Is a U.S. citizen living abroad also a U.S. person for FBAR and securities purposes?
For FBAR, yes: citizens, residents and entities formed under U.S. law report foreign accounts once they exceed US$10,000 in aggregate. Securities law differs: SEC Regulation S treats a natural person as a U.S. person only when resident in the United States, so a citizen abroad may fall outside that definition for an offering while staying fully taxable.
Does foreign tax residence remove the U.S. filing duty
No. A U.S. citizen or green card holder stays inside the worldwide system regardless of where they are tax resident. A foreign residence certificate may reduce double taxation through the foreign tax credit or a treaty, but it does not switch off U.S. filing.
Can a person owe no U.S. tax and still have to file
Yes, and it is the common case. After the foreign tax credit or the foreign earned income exclusion the cash tax can be near zero while FBAR, Form 8938, Form 5471, Form 8621 and Form 3520 duties remain. The penalties attach to the unfiled forms, not to unpaid tax.
Is a foreign holding company a problem for a U.S. person
Often yes. A controlled foreign corporation brings Form 5471, Subpart F and the section 951A regime — GILTI for years through 2025, net CFC tested income (NCTI) from 2026. Retained earnings do not defer the analysis.
Why is a normal foreign ETF a U.S. tax issue
A non-U.S. fund is usually a PFIC. Without a QEF or mark-to-market election the default PFIC regime is punitive, and Form 8621 reporting applies. This is why off-the-shelf foreign portfolios are rarely suitable for U.S. persons.
Does renouncing citizenship end U.S. tax cleanly
Not automatically. Covered-expatriate status can trigger a mark-to-market exit tax and Form 8854, and five years of prior compliance is part of the test. Renouncing before cleanup can make the position worse, not better.