A common mistake of people who are lawful permanent residents of the United States (commonly known as Green Card holders) is to think that the tax law and immigration benefits go hand-in-hand when it comes to US taxpayer status. Unfortunately, this is not necessarily true, as the Tax Court demonstrated in 2014 in the case Gerd Topsnik c. Commissioner, 143 TC No. 12.
The question was whether Mr. Topsnik was a permanent resident of the United States; as he informally abandoned his permanent resident status in 2003, while the IRS said it remained a permanent resident until he officially surrendered that status in 2010.
Mr. Topsnik was a German citizen and received his green card in the United States in 1977. He started a business in California and owns a house in Hawaii. In 2003, he sold his home in Hawaii and moved to Germany. In 2004 he sold his company for more than $ 5 million. He claimed to have informally abandoned their green card in 2003 and was therefore more than a resident of the United States.
As such, he claimed to not only be a non-resident under the US – Germany tax treaty, and the gain from the sale of his company was not taxable by the US. IRS said it was still a permanent resident because he had not officially abandoned its status at the time of sale. As a permanent resident, the gain was taxable in the United States, regardless of where they lived in the world. The Allied tribunal with the IRS and Mr. Topsnik was considered a resident of the United States until 2010, and as such, had to pay tax on the sale of your business.
In addition, Mr. Topsnik also claimed to be a non-resident in Germany, and as such since he was not liable on his worldwide income in Germany, he was denied treaty benefits.
Section 7701(b)(1)(A) of the Internal Revenue Code states the requirements for the abandonment of permanent residence for tax purposes. To formally abandon the status of permanent resident, the green card holder must file USCIS Form I-407 or a letter stating his intention to terminate his permanent resident status. The application or letter must be filed with USCIS or a US consulate.
Attached to the request, the holder of the Green Card also send the received Alien Registration Card (USCIS Form I-151 or I-551 form). The green card holder must keep a copy of all documents sent to the USCIS or consular official. Resident status is considered to be officially abandoned once the authorities issue a final administrative order of abandonment.
Until someone officially abandoned their residency status, he or she may not only be responsible for US tax, but may also be required to submit annual declarations of income tax forms United States and considered Reports of foreign banks (FinCEN 114). If the person dies without officially abandoning a resident, and his estate is considered as a succession of US and should have assets worldwide, if the amount of the exemption from property tax. This is the case even if the USCIS does not recognize the green card and the person can not enter the United States as a resident. It is not an ideal situation…
Hello, dear Olivier Wagner.
I read this article and I have a question.
I would like to ask, if I will leave US in december 2018, but abandon green card only at january 2019, will I be obligated to pay income tax during all 2019? Or only for income before the date of green card abandonment?
Hi Yuri,
We replied to you via email. Please, check your inbox.
Thanks.
what if you gave up your green card because of divorce, moved to canada and now 5 months later will be reconciling with your ex wife? can you get your green card back? Is there a time limit?
Hi texmex,
If you filed form I-407, then you lost the Green Card. Otherwise, you can go back (within 6 months without doing anything, 2 years with a re-entry permit).
Hi Olivier,
what if I have received the green card on 2019 but I will have to abandon it on february 2020.
There is no exit tax since I’m not here for the last 8 years.
Will I have to pay 2020 taxes?
And how can I pay 2019 taxes? (since they will be filed and payed on 2020)
Thank you
Hi Ac,
I responded to you via email.
I received a green card in 1981 and left to go back to Australia in 1993 flat broke.
It is now 27 years later and I have slowly built up a good asset base including super and trusts.
I knew my green card expired and had no idea I was a US resident for tax purposes.
I am now a 70 year old self funded retiree and stand to loose EVERYTHING because of US tax and especially penalties.
It is ridiculous. I am, and always have been, an Australian citizen and have had nothing to do with the USA for almost 30 years. How can this be moral?
Is there any chance my expatriation date could be 1993 as it is before that court date? Were the rules different then?
It is just not right.
Hi Distraught! You can indeed set your non-residency date to 1993, but you would have to file form 1040NR along with form 8833 to make such a treaty position to have your residency in Australia (and not the United States) for every year since.
Hi Olivier,
Wondering what’s the optimal date to abandon green card? If I do it immediately upon return to Australia in September do I loose the ability to claim US standard deduction for that year? Would that mean I might be better off to wait to December 31 to abandon green card?
Hi David! Good point. Of course, your Australian sourced income would also be taxed and could push you in a higher tax bracket. All in all, yes, in most cases, keeping the standard deduction would provide more benefits.
Hi Olivier,
I received my green card about three years ago through diversity visa lottery. I have always been living outside USA even after I got the green card. I have not filed US tax returns in the past three years. In fact, I do not even have social security number since I never applied for one. I plan to file I-407 to abandon the LPR status for obvious reasons. If I do so, is there anything else I should do in terms of tax liabilities?
Thanks!
In order to be in compliance, you would need to file tax returns for these 3 years. With the Foreign Earned Income Exclusion and Foreign Tax Credit, you likely wouldn’t have any tax owing.
Hi Olivier,
My wife and I are Canadian citizens and worked in the US for 30 years. We have returned to Canada and surrendered our green cards via I-407 in May 2020. Can we file a regular joint 1040 for 2020 for the full year instead of a dual status return? If so, how do we notify IRS that this return is intentional and not an oversight? I’m concerned about Form 8833 and how/if that would be filed. Both of us fall below the threshold for “covered expatriates”. Thanks for your expertise!
Hi David,
You would file a dual-status return (you didn’t meet the substantial presence test in 2020) – that dual-status return would not need to include form 8833. But as long-term residents, you would file form 8854.
Warm regards,
Olivier
Hi
I am British citizen had a green card I am uk resident and pay uk tax.
I abandoned the green card using i407 last year have received a confirmation from the authorities! Last year.
1) do I have to file fbar for ye31 Dec 20
2) can I file my final tax return for usa as a resident? I have filled all my tax returns in usa as well as uk since 2016. I got my green card in 2016 and elected to be taxed as a resident for the whole year! I have been claiming foreign tax since.
3) as I have not lived in usa at all and have had the green card for l as than 8 years! Also am ,Not covered Expatriate’ do I still have to complete firm 8854?
Hi Rta,
Yes, you would still file an FBAR for 2020
You would have to file a dual-status return
If you had it for 8 years, you would indeed have to file form 8854 the same way as US citizens who renounce US citizenship (alternatively, you can use the tax treaty to be a non-resident for some years, those years would not count towards the 8 out of 15).
All the best,
Olivier
Hi,
I’m currently living in Canada and filed (submitted through mail) the I-407 form on December 30, 2020. It was received and processed by USCIS in January 2021. For exit tax purposes, my last year as an LPR would be 2020 correct (not the receiving/processing date)?
Hi Pedro,
Yes, that’s correct.
All the best,
Olivier