An email from a CPA I know raised an interesting procedural question. A green card holder is married to a U.S. citizen. The green card holder files Form I-407 but wishes to continue filing jointly with his wife.
A guy files the I-407 (forced to at border) on Surrender Date, but he is married to a U.S citizen and wishes to continue to file jointly as a U.S .resident alien for tax. He is living outside the U.S.
Does he have to by law file Form 8854 and file dual status for 2017 as at Surrender Date?
My reading indicates that under IRC 877/877A he is deemed by virtue of filing Form I-407 to have expatriated on Surrender Date (the earliest of rule….) and is therefore deemed a dual status taxpayer by 7701(b) and that the instructions to Form 8854 make it clear that he must file Form 8854 for that 2017 filing and cannot otherwise delay the severing of his U.S. tax residence and is a de facto NRA as of Surrender Date.
Here are the tax issues to solve:
- Does filing Form I-407 on Surrender Date cause the gentleman to be required to file Form 8854? (Answer: yes).
- What is his income tax return filing status for his 2017 U.S. income tax return if he takes no remedial action? (Answer: married filing separate).
- What remedial action can the gentleman take to change his U.S. income tax filing status to “Married Filing Jointly”? (Answer: make an election under IRC §6013(g)).
Impact of Filing Form I-407
Although my CPA friend does not say so in this question, it is clear that the green card holder is a “long-term resident”1
for expatriation purposes. He has held permanent resident status in at least eight of the last 15 years, ending with the 2017 tax year.
A long-term resident becomes an expatriate when he ceases to be a lawful permanent resident of the United States.2
An individual cease to be a lawful permanent resident of the United States when that status has been revoked.3
Filing Form I-407 revokes the visa status that is known as “lawful permanent resident:
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.4
Giving Form I-407 to one of our friendly government employees at the border will certainly qualify for delivering the required paperwork to the USCIS (successor entity to the INS).
The expatriation date is the date that the individual ceases to be a lawful permanent resident.5
Since status ends when permanent resident status is revoked (on that magic day at the airport), the gentleman in question:
- is an expatriate; and
- has an expatriation date of Surrender Date.
Filing Status for the Expatriation Year
Humans have two possible U.S. income tax returns that they can file:
- Form 1040 for U.S. citizens and resident aliens; and
- Form 1040NR for nonresident aliens.
You figure out what you are — for choosing the correct tax return for filing — by looking at your status on December 31.6
The gentleman in question is not a U.S. citizen. So the question is whether he is a “resident alien” or not.
There are three ways to be a resident alien, and our gentleman is not a resident alien under any of those ways:
- By having a green card visa (nope–he gave it up on Surrender Date.7
- By becoming a resident of the United States by spending too much time in the USA (the substantial presence test) (nope–he spends almost no time in the United States).8
- By electing to be a U.S. resident under IRC §7701(b)(4) (nope–he didn’t do this and he isn’t eligible to do it).9
This means that on December 31, 2017 he will not be a resident alien. That makes him a nonresident alien, and the tax return he must file is Form 1040NR.
A nonresident alien filing Form 1040NR cannot use the “Married Filing Jointly” filing status.10
This leaves only “Married Filing Separate” as a filing status for the gentleman for the Form 1040NR that he files.
It gets weirder. For part of the year, the gentleman was a U.S. resident alien (because his permanent resident status had not yet been revoked). For the rest of the year, he was a nonresident alien (for reasons identified above).
This means that he must file a dual-status tax return. I will leave the details for how it’s done for another day. (Hint: See IRS Publication 519, Chapter 6).
This means essentially that the tax return the gentleman will file is a Form 1040NR, with an attached Form 1040 that covers the year from January 1, 2017 to Surrender Date, and reports all income worldwide as taxable in the United States. For Surrender Date to December 15, 2017, he will only report U.S. source income received on Form 1040NR. Income earned outside the United States is not taxable.
How to File “Married Filing Jointly”
Here we are. Due to an ill-fated trip to the United States, our gentleman had his permanent resident visa forcibly terminated. This triggered an expatriation event (and application of the exit tax rules).
He is now stuck filing a separate tax return instead of a joint tax return with his U.S. citizen spouse–which is what he would prefer.
Here’s how he can file a full-year U.S. income tax return, and file jointly with his U.S. citizen spouse: make an election under IRC §6013(g).
Remember that a nonresident may not file a joint tax return?11
Well, every good tax rule has an exception. Here, our nonresident may file a joint tax return with his U.S. citizen spouse if he makes an election to do so.
He is eligible to make the election because he is a nonresident at the end of 2017, and is married to a U.S. citizen:
This subsection [i.e., IRC §6013(g)] shall be in effect with respect to any individual who, at the close of the taxable year for which an election under this subsection was made, was a nonresident alien individual married to a citizen or resident of the United States, if both of them made such election to have the benefits of this subsection apply to them.
Here is how you make the election:12
(i) A husband and wife shall make the election under this section by attaching a statement to a joint return for the first taxable year for which the election is to be in effect. The election must be made before the expiration of the period prescribed by section 6511(a) (or section 6511(c) if the period is extended by agreement) for making a claim for credit or refund. If either or both spouses die after the close of the taxable year but before the joint return is filed, the election may be made by the executor, administrator, or other person charged with the property of the deceased spouse. If the election is made with a joint amended return, the amended return should be made on Form 1040 or 1040A, the word “Amended” should be written clearly on the front of the return, and an amended return also must be filed for each subsequent taxable year as to which a return previously has been filed by either spouse.
(ii) The statement must contain a declaration that the election is being made and that the requirements of paragraph (a)(1) of this section are met for the taxable year. The statement must also contain the name, address, and taxpayer identifying number of each spouse. If the election is being made on behalf of a deceased spouse, the statement must contain the name and address of the executor, administrator, or other person making the election on behalf of the decreased spouse. The statement must be signed by both persons making the election.
If you are a green card holder living outside the United States, be careful. Entering the United States may cause you a few unpleasant hours at the airport, followed by a forced abandonment of your visa status. Perhaps this will trigger exit tax consequences for you–paperwork, and possibly tax will be payable.
And it is possible to be a nonresident of the United States, yet file a U.S. resident tax return with your spouse. All it requires is a bit of paperwork — the IRC §6013(g) election attached to a tax return — and of course the good sense to marry a U.S. citizen or resident. 🙂