Unravel the complexities surrounding a green card holder's final day as a US resident under tax law.
Understanding the last day of US residency for tax purposes is not just a matter of legal jargon. It's a crucial element for accurate tax reporting and compliance. According to Section 301.7701(b)(3) of the U.S. tax law, the last day of residency is tied closely to the individual's actions and intentions. It's not simply the previous day the person was physically present in the U.S., but rather the day on which the person has commenced terminating the green card status.
In short, you must send a notice to the US government stating your intent to abandon your green card. Let's explore more details.
For a green card holder, leaving the country is more complex than abandoning residency. The U.S. tax law requires a formal declaration of the intent of abandonment, which involves filing Form I-407 (I think the regulation refers to a letter, but it means Form I-407) with an original green card with the U.S. Citizenship and Immigration Services. This legal step is vital for establishing the end of U.S. residency for tax purposes.
By sending the documents to the USCIS, you effectively make a legal statement. The intent-based declaration on Form I-407 is consistent with the regulation.
Documentation is critical when filing the intent of abandonment. Proof of mailing provides evidence that the declaration was indeed sent and received. This often entails sending the form via registered or certified mail and keeping a copy of the receipt.
In addition, the timing of your declaration is when such a letter is sent according to the same regulation. In other words, your green card status terminates when you mail the documentation.
Creating and retaining a clear paper trail is essential to avoid disputes with the Internal Revenue Service (IRS) over the timing of the abandonment, especially if the green card holder's tax obligations change. Accurate records and proof of mailing ensure a clear paper trail verifying the individual's actions.
Filing an intent of abandonment has significant implications for green card holders. It's not just a formality. It's a decision that affects your tax liabilities and residency status. You move to a foreign country and send the documentation to the U.S. government. You can control when to send such documentation. Such timing will affect your tax liabilities because the period of being a green card holder changes. For instance, if you send your documentation on January 31, then your tax period for a green card holder starts from January 1 to January 31 of such year. If you send the documentation on December 31, the entire year is subject to the US taxes as a resident. Some of you may be subject to the exit tax. The net assets you own the day before your abandonment decides the unrealized capital gain that may trigger the mark-to-market tax under the exit tax scheme.
In addition, there may be a legal issue if you want to visit the U.S. with a tourist visa while not abandoning your green card. The USCIS's data still tells that you are a green card holder. Yet, you are trying to enter the country as a tourist. That creates an inconsistency. To learn further the implications, you need to talk to an immigration attorney on this subject.
Once you send the documentation, you will no longer be a US resident. You will be free from the worldwide taxation of the US tax regime. However, depending on your situation, you may be subject to US taxes for your US source income.
In short, when you need to abandon a green card, we suggest you work with a consultant such as CHI Border to effectively manage the process. Please contact us if you have any questions.