Hello again from Phil Hodgen.

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Every Tuesday I answer a real question about expatriation from a list subscriber. I also send other emails on this list from time to time, but only about expatriation-related topics.

If you want to ask an expatriation question, hit “reply” and send me an email. :-).

This week

This week’s question is about green card holders, and is asked by someone who is safe from possible exit tax problems.

You too will be safe from exit tax if you received your green card in 2009 or later, and you terminate your green card in 2015.

My correspondent asks:

I am still a conditional permanent resident through marriage (haven’t filed I-751). If I decide to divorce my spouse now and go back to my own country, what will I have to do in terms of filing documents to USCIS and IRS. Thanks!

Conditional green card = green card

A semi-frequent question — from people like my correspondent or from EB-5 investors — is whether a conditional permanent resident’s visa is really a green card for making the holder a U.S. resident for income tax purposes.

Yes it is.

A “permanent resident” visa is commonly called a “green card” because that is what the piece of plastic more or less is — green. You either hold that visa status (and have the card) or you do not.

The only variable in your status is whether you have that visa status forever, or only for a little while. Some people get permanent resident status right away. Other people get the permanent resident status but have to wait for a while to prove that they will be allowed to keep it permanently.

One of these conditional permanent resident visa situations involves marriage. When a U.S. citizen marries someone who is not a U.S. citizen (or green card holder), the spouse can receive a conditional permanent resident’s visa. After two years (to be sure that the marriage is real!) the conditions are removed and the green card is permanent.

Another common conditional green card situation is the EB-5 visa. If the investment that you put money into works as the promoter promised, you convert yourself to a permanent green card holder. If not, you lose that conditional green card.

My correspondent is in that position. He/she has a conditional permanent resident visa.

To convert this to a permanent permanent 🙂 resident visa he/she will file Form I-751 and go through the normal procedures. If this does not happen, the conditional permanent resident visa is automatically cancelled at the end of two years.

USCIS filing requirements

I’m a tax lawyer. I don’t know about the USCIS filing requirements necessary for this person and how to terminate the conditional permanent resident visa.

A guess:

  • you either just let time go by (a conditional green card expires if you do not file Form I-751 within 90 days of its expiration) or
  • you be proactive and file Form I-407 to formally abandon the green card.

But don’t listen to me. What do I know? Talk to an immigration lawyer or ask your favorite USCIS person.

Tax filing requirements

For the tax filing requirements, they are actually pretty easy.

Final tax return

You will file a final U.S. income tax return.

You need to figure out which tax return form to file. You will file either:

  • Form 1040NR prepared as a “dual status” tax return (part-year U.S. resident, part-year nonresident), or
  • Form 1040 prepared to show that you were a resident of the U.S. for income tax purposes for the whole year.

How you decide (resident or nonresident)

You figure out whether you file Form 1040NR (as a nonresident) or Form 1040 (as a resident of the United States) by looking at your tax resident (not immigration) status on December 31. This means that you need to analyze your life and figure out what you were (from a U.S. income tax point of view, not a USCIS point of view) on December 31.

The last day that you are a U.S. resident for income tax purposes is not necessarily the last day that you held the green card visa.

You will be a resident of the United States for the entire year that your conditional green card terminates if you spent too many days in the United States under the “substantial presence test”. Grab IRS Publication 519 for more light reading on this point. 🙂

If you figure out that you are a resident, it may nevertheless be possible to make yourself a nonresident of the United States by claiming the “closer connection exception” (Form 8840) or by claiming the benefits of an income tax treaty (Form 8833)

Statement attached to the tax return

Something important should be attached to your tax return: you will tell the IRS your residency termination date.

Last month I talked about the statement that you attach to your final tax return to establish your residency termination date. You can also read what the IRS said about the topic.

FinCEN Form 114

This is the form for non-U.S. financial accounts that you own. It is likely that you will need to prepare and file that form for the final year that you were a U.S. resident for income tax purposes.

Other stuff?

There may be other stuff you need to file, based on your particular life, income, and assets. Just be sure to log out cleanly from the U.S. tax system.

Pretty simple, but get some help

So in your case it is pretty simple, in concept.

The tax return preparation might be a little tricky, so you might want to get some help with figuring out that final year’s income tax return.

(How is that for a softly-delivered disclaimer?)

See you next week.