Formal Abandonment of Green Card Required to Avoid U.S. Tax

A recent Tax Court ruling sends a clear warning to Green Card holders that they are liable for U.S. taxes unless and until they formally abandon their permanent resident status.  

Background 

In 1977, Gerd Topsnik, a German citizen, obtained a Green Card, which made him a lawful permanent resident of the U.S. That same year he moved from Frankfurt to Honolulu. In March of 2003, Topsnik renewed his lawful permanent residence status through March 1, 2014.  He also sold his Hawaii residence in 2003, but continued to use that address when registering at hotels and had the new owner of his Hawaii home forward his mail to him. Topsnik traveled extensively and had a substantial physical presence in a number of countries, including the United States, Germany, the Philippines, Canada and Thailand.

In 2004 Topsnik made an installment sale of his stock in Gourmet Foods, Inc., a company he founded in 1986, in the amount of $5,427,000.  He filed U.S. tax returns through and including the 2005 tax year, which included the first two installments of that sale. Topsnik then stopped filing.  The IRS made Substitute for Returns (SFRs) for Topsnik for the years 2006-2009 and tax was assessed. Topsnik later filed an amended return for 2005 seeking a refund of tax payments for the 2005 year and in May of 2010 he filed Forms 1040NR U.S. Nonresident Alien Income Tax Returns for 2006-2009 showing zero tax due for those years.  In November 2010, Topsnik filed a Form I-407, Abandonment of Lawful Permanent Resident Status and surrendered his green card. 

The Opinion

Topsnik claimed that he had informally abandoned his U.S. resident status when he sold his Hawaii home in 2003, at which time he reverted to his status as a German resident. Topsnik stated that he should therefore not be subject to U.S. tax by virtue of a 1989 double taxation treaty between the U.S. and Germany. The Tax Court disagreed:

  • Since Topsnik did not file or pay tax in Germany during the years at issue, he was not a German resident for tax purposes under the treaty and therefore did not satisfy the residency test set forth in that treaty.
  • Since Topsnik did not formally abandon his U.S. residency in 2003 under the terms set form in Reg. 301.7701(b)-1(b), he remained a U.S. resident for tax purposes until he filed the Form I-407 in November of 2010.
  • It does not matter how long a Green Card holder has been away from the U.S. and whether or not that Green Card would have been rescinded. Residency for tax purposes is defined in the Internal Revenue Code and is not bound by immigration laws.

Topsnik was therefore ordered by the Tax Court to pay taxes on the installment sale of his company, plus late filing fees.

International Tax Attorneys in San Francisco

Moskowitz LLP represents U.S. citizens and residents, foreign corporations and nonresident aliens and others with a wide variety of U.S. income tax issues.  If you are a U.S. citizen with foreign activities, a green card holder, a U.S. business with foreign operations or a foreign business with U.S. operations, contact our San Francisco office for advice and assistance with your tax matters.

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