The recent decision of the U.S.Tax Court, in Gerd Topsnik, (2014) makes it clear that an “informal” surrender of a Green Card, while recognized under immigration laws is not recognized for tax purposes.
As stated in Checkpoint, ” The Tax Court held that because the taxpayer did not formally abandon his lawful permanent resident “LPR” status under Reg. § 301.7701(b)-1(b)(1) and Reg. § 301.7701(b)-1(b)(3) until 2010, the taxpayer remained an LPR during the years in issue”
The court went on to state: “an alien who comes to the United States so infrequently that, on scrutiny, he or she is no longer legally entitled to permanent resident status, but who has not officially lost or abandoned that status, will be a resident for tax purposes.” (H.R. Rept. No. 98-432 (Part 2)).
The import of this decision may have wide ranging implication for Green Card holders who are under the mistaken impression that by merely leaving and not returning to the U.S. they are fre of U.S. tax compliance requirements,including income, estate and gift tax return filing obligations as well as filing obligations to file an annual Report of Foreign Bank Account “FBAR” under the Bank Secrecy Act.
The Foreign Account Tax Compliance Act reporting requirements are effective as of 2014. This means that the estimate 78,000 participating Foreign Financial Institutions and over 60 governments will begin reporting to the IRS account information for account holders and account beneficial owners who the financial institution has identified as U.S. persons. If a person is so identified they are likely to receive a FATCA compliance letter from the institution requesting information about their U.S. status. If the account holder refuses to provide information or provides incomplete information they institution will commence withholding of 30% of interest and dividends paid on the account and report and pay over such sums to the IRS. The IRS may then commence enforcement proceedings including port of entry withholding orders. This means that the failure to properly abandon Lawful Permanent Residence status can result in civil tax and FBAR penalties, denial of entry into the U.S. or detention at the port of entry and possible prosecution. For most people this is a risk not worth taking and therefore, coming forward and entering into either the voluntary disclosure or Streamline Procedure is the best choice. The decision to come forward should be made with competent counsel and so should the choice of disclosure program. We are experts in guiding clients through the compliance maze. We look forward to being of help.