U.S. lawful permanent residents ("green card holders") who live outside the U.S. continue to be subject to U.S. tax on their worldwide income until the green card has been revoked or has been administratively or judicially determined to have been abandoned. Code §7701(b)(6). We posted about this issue over five years ago, and it is important enough to warrant a reminder.
In a recent case, a green card holder claimed that he informally abandoned his U.S. resident status when he sold his home in the U.S. and moved to Germany in 2003. The court held that the taxpayer continued to be a U.S. resident until 2010, when the taxpayer formally abandoned his green card by filing a USCIS (formerly the INS) Form I-407 (Abandonment of Lawful Permanent Resident Status). In reaching its holding, the court not only relied upon Code §7701(b)(6), but cited the legislative history behind the law:
The [House Ways and Means Committee] believes that aliens who have entered the United States as permanent residents and who have not officially lost or surrendered the right to permanent U.S. residence should be taxable as U.S. residents. These persons have rights that are similar to those afforded [U.S.] citizens (including the right to enter the United States at will); equity demands that they contribute to the cost of running the government as much as citizens. [H.R. Rept. No. 98-432 (Part 2), 1984 U.S.C.C.A.N. 697, 1163.]
Topsnik v. Commissioner, 143 T.C. 12 (2014). This issue is also addressed in recently released I.R.S. internal training documents. The relevant materials are shown at the end of this post.
Green card holders who live outside the U.S. and simply allow their green card to expire therefore continue to be subject to tax on their worldwide income, because there has not been a revocation or an administrative or judicial determination of abandonment. Such green card holders may only be treated as U.S. nonresident aliens under the so-called “tiebreaker” rules of the income tax treaties to which the United States is a party. The taxpayer must generally take the treaty residency position on a timely filed U.S. tax return (Form 1040NR). See Treas. Reg. §301.7701(b)(7)(b).