This is the Expatriation Only newsletter, and I'm Phil Hodgen.
A joke should always be told punchline first. Right?
Here's the conclusion of this little essay:
If you plan to file Form I-407 to abandon your green card, do it in person. If that is impossible, do not just mail in the form. Send it by certified mail, return receipt requested.
Tax Effect of a Green Card
The U.S. tax effect of holding a green card visa is that you are considered a "resident alien" until the visa status is terminated. This means you must file a resident's income tax return every year (Form 1040). You are taxable on your worldwide income, and must satisfy all of the paperwork requirements imposed by the U.S. government on its taxpayers.
The only way to avoid this status is to give up your green card visa.1
How to Abandon a Green Card Visa
You can abandon your visa status as a permanent resident of the United States by filing Form I-407.
Your Last Day as a (Tax) Resident
The critical piece of information you want to know is the effective date of terminating your tax status as a "resident alien". This is the date on which you cease being taxed by the United States on your income earned outside the United States. It is frequently important to get this done within a particular calendar year.
For immigration status purposes, a variation of a few days (or a few weeks) usually does not matter.
But for income tax purposes, the effective date of abandonment of your green card is critical. It is the last day that you are taxable in the United States. It also has exit tax implications.
Green card holders who have had that visa status for eight or more years out of the last 15 years will be expatriates when they abandon their permanent resident visa status.
People frequently want to abandon their green cards in year seven. In that way, the exit tax rules simply do not apply to them.
Making sure your Form I-407 was received in December 2016 (for instance) is vital to this strategy. If Form I-407 is booked into the USCIS system in January 2017, you have an unwanted (and possibly costly) tax problem to solve.
Last Day: When the USCIS Receives Form I-407
The termination date for "resident alien" status (fully taxable in the United States on your worldwide income) is the date that the USCIS receives your Form I-407.
Here is what Publication 519 (Warning: PDF) says about the effective date:
"Until you have proof your letter was received, you remain a resident alien for tax purposes even if the USCIS would not recognize the validity of your green card because it is more than ten years old or you have been absent from the United States for a period of time."2
The Regulations give us the details:
"An administrative or judicial determination of abandonment of resident status may be initiated by the alien individual, the Immigration and Naturalization Service (INS), or a consular officer. If the alien initiates this determination, resident status is considered to be abandoned when the individual's application for abandonment (INS Form 1-407) or a letter stating the alien's intent to abandon his or her resident status, with the Alien Registration Receipt Card (INS Form 1-151 or Form 1-551) enclosed, is filed with the INS or a consular officer. If INS replaces any of the form numbers referred to in this paragraph or section 301.7701(b)- 2(f), refer to the comparable INS replacement form number. For purposes of this paragraph, an alien individual shall be considered to have filed a letter stating the intent to abandon resident status with the INS or a consular office if such letter is sent by certified mail, return receipt requested (or a foreign country's equivalent thereof). A copy of the letter, along with proof that the letter was mailed and received, should be retained by the alien individual. If the INS or a consular officer initiates this determination, resident status will be considered to be abandoned upon the issuance of a final administrative order of abandonment. If an individual is granted an appeal to a federal court of competent jurisdiction, a final judicial order is required.3
An Example of Partial Information
The website for the U.S. Embassy in Australia does not give you the critical piece of information (use certified mail, return receipt requested). This is something that tripped up a client of ours in December, 2016.
You cannot file Form I-407 in person at the U.S. Embassy in Canberra. In-person filing is possible in limited situations at the Consulate offices in Sydney, Perth, and Melbourne.
Instead, the website tells you:
"The best way to submit your I-407 is to mail the completed form to (the U.S. Embassy in Bangkok).
I have no doubt that in due course the U.S. Embassy staff in Bangkok will process your Form I-407.
But how can you predict how long it will take for a letter to reach Bangkok, work its way through the mail room at the U.S. Embassy, and be processed by the USCIS staff?
It is hard to fault the Embassy's website. If all government websites (or publications, for that matter) were written to be exhaustively correct, you would never stop reading. The rules are simply too many and too complex. The IRS form instructions and other publications face a similar constraint: you can explain tax law completely or you can explain it succinctly. But you can't do both.
In Other Words . . .
In other words:
If you want to stop being a U.S. taxpayer ("resident alien"), you must abandon your green card visa.
In order to satisfy the IRS that you have abandoned your green card visa, you must prove that the USCIS received your Form I-407.
In order to prove that the USCIS received your Form I-407, you will need to file the form in person or send it by certified mail, return receipt requested.
See how the USCIS information (via the U.S. Embassy website) was partially true? And Publication 519 more or less told you the complete and accurate story about the tax rules?
Let that be your warning.
You are embarking on a thrilling quest of assembling multiple half-truths into what you hope is a reliable full-truth. You may be lucky and get it right. Just don't rely on what you read here -- it is full of partial information. Go get some help.
Talk to you in a couple of weeks.