When are you no longer a US taxpayer (Permanent resident)

Oct 9, 2015

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…

Know any US citizens living outside the US with US tax questions? Don’t keep me a secret, let them know.
Olivier Wagner, CPA
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