# Greencard abandonment, tax strategy sanity check.



## misashi (1 mo ago)

Situation:
Me and my spouse are married since many years. We just moved from the US to Europe.
I am a US citizen, my spouse is a permanent resident (note, NOT long term).

In -22 my spouse was *the only one working* and we moved late this year. We will *not* have any income or other significant financial events before end of year -22.

My spouse will abandon the green card before the new year (with some margin).

The goal is to be able to file jointly for -22 and use standard deductions and so on.
Here is the plan:


my spouse abandons GC as planned,
we elect for non-resident spouse treated as a resident in -22
we file a joint -22 tax return
we then elect to suspend the choice for non-resident spouse treated as a res. for -23 and beyond

Questions:

Is this strategy sound?
Are there any tax implications to consider for the year we suspend the choice of non-res. as res (in this case -23)?
For the tax year of -22, do my spouse then only file the joint 1040 return and skip the 1040-NE entirely?

This plan was largely inspired by the following IRS publication:





About Publication 519, U.S. Tax Guide for Aliens | Internal Revenue Service


Information about Publication 519, U.S. Tax Guide for Aliens, including recent updates. Publication 519 is used to help to determine an individual's status (Nonresident Alien or Resident Alien), and gives information needed to file returns.




www.irs.gov


----------



## Moulard (Feb 3, 2017)

Unless the a day in 2023 as a tax resident will put your spouse into the category of long term permanent resident then I think it may be prudent for your spouse to abandon her green card as early as practical in 2023.

File jointly for 2022, the income averaging effects and higher standard deduction will result in a lower US tax liability

In 2023 you filing a normal tax return Married filing Separately and your spouse filing a dual status return also Married filing separately to cleanly exit the US tax system

If she has no US sourced income in 2023 the limitation on not being able to use the standard deduction on a dual status return will have no impact.


----------



## misashi (1 mo ago)

Thanks Moulard, your suggestion would definitely make things more streamlined. For the sake of this discussion however, let's say this is not an option. Would me and my spouse be able to use the 'elect for non-resident spouse treated as a resident' to file as married filing jointly for the last year of my spouse's US tax residence?

From my understanding of IRS's publication 519, that is the case, but I am not an expert.


----------



## Moulard (Feb 3, 2017)

I am not really an expert either, just someone who has a self-interest in expat tax affairs.

Yes, you can do this... It is sometimes referred to as the "Out of the Fire and Into the Frying Pan" approach.. 

There are a couple of criteria that have to be met...

The spouse must be a nonresident alien at the time the tax return is submitted
Your tax return must be timely
You must attach a statement signed by both of you to your joint return
An election may not be made if an election under IRC§6013(g) was previously terminated by either spouse
If you have previously filed separately there are restrictions if either of you have matters before the Tax Court or have a Notice of Deficiency

Item 1 can be done by either filing I-407 or writing a letter to her local consulate enclosing her greencard along with a letter stating she is relinquishing her permanent residence. 
Item 2 - is straight forward file by the relevant filing deadline - or if you do it on an amended return, within 3 years of the original return being filed. 
Item 3 - There is no set format for the statement, but it should include

A declaration that the election is being made and that the individuals meet the necessary requirements (e.g., that one spouse is a U.S.citizen or resident)
The name, address, and taxpayer identification number (TIN/SSN) of each spouse;
Two signatures; the statement must be signed by both persons making the election
Item 4 - so long as you or your spouse have never made an election under IRC §6013(g) ever before as it is a once in a lifetime election. I am not casting aspersions on the quality or your marriage or your health... but neither of you would ever be able to make the election again were either of you to ever remarry either through divorce or as a widow(er).

If she is self employed, its worth noting an IRC § 6013(g) election does not cover self employment taxes, a separate election under IRC § 1411 would have to be made per the totalisation agreements

I think Phil Hogden wrote about it a number of years ago, although without going into the questions of when and why it might be advantageous .. you should be able to google him and his blog.. you might have to dig through old posts to find it..


----------



## misashi (1 mo ago)

Thank you for that thorough answer.

That leads us back to one of my original questions



> Are there any tax implications to consider (for my spouse) on the year we suspend the choice of non-res. as res (in this case -23)?


I'm guessing it's called into the frying pan for a reason 😅


----------



## Moulard (Feb 3, 2017)

Well yes, most people extricate themselves from the US tax obligations with the intent of staying out of the US tax system because it is rather toxic for those of us living outside the US.

If the two of you make an election under IRC § 6013(g) then she remains a US Person for tax purposes and will be obliged to file US returns on her global income until such time as she either revokes the election. 

This whole forum is full of the various woes that can occur depending on her circumstance

She will have to declare that she is a tax resident with local financial institutions.. which may limit banking options if they do not wish to deal with FATCA rerporting
potential income tax payable on phantom gains on things like mortgages caused by exchange
potential capital gains tax on the sale of a primary home even it it was not taxable in the country she was residing
US taxation of local private pension plan distributions because by definition they do not quality for the same preferential treatment
Taxation of Foreign grantor trusts as personal income
Odious Controlled Entity and Foreign Branch reporting


----------



## misashi (1 mo ago)

Agreed. The end game is to part ways with US taxation and making sure to do it before becoming a Long Term Resident and risking becoming a *Covered expatriate.*

What I still do not understand is the start and end of the election duration and how it effects the status of my spouse for 2023.

Bare with me:
If we elect for my spouse to be a us resident for tax purposes as part of filing taxes for 2022 (i.e. may/april 2023), it transforms my spouse from a non-resident alien into a us resident alien _retroactively_ for the latter part of 2022.

Here is what publication 509 has to say about actively *ending the choice*



> Revocation. Either spouse can revoke
> the choice for any tax year, provided he or
> she makes the revocation by the due date
> for filing the tax return for that tax year.
> ...


So the way I'm understanding this it means:
revoking the choice for 2023, would need to be done before the 2023 tax filing deadline (i.e. april 2024), which means that in the end, the only part for which the election was in effect, was late 2022, until end of year.

And that's exactly what we want. But I have I creeping sensation that I'm overlooking something... 😬


----------



## Moulard (Feb 3, 2017)

I don't think you are overlooking anything

On your 2022 tax return you would file jointly attaching a statement making the election under §6013(g) 
On your 2023 tax returns you would attach a statement revoking the election to your 1040 and she would attach a copy to her dual status return.


I still think that returning the greencard and/or filing I-407 on 1 January is a cleaner solution so long as 1 day in 2023 as a tax resident will not take her over then "IN 8 years of the last 15 years" rule and even if it did, it would not automatically cause her to be a covered expatriate...


----------



## misashi (1 mo ago)

*Issue solved! *
We sought professional help to figure out the right approach. It turns out there is no need for any elaborate strategy at all *😄*. My spouse can simply *give up the green card before end of year* and we can still file a joint return for -22. For -23 my spouse will be a non-resident alien for the entire year and we will have achieved all that we wanted.

*How?!*
As always god is in the details. In this case in how the IRS defines
resident alien of the United States for tax purposes (Publication 519, chapter 1):


> Resident Aliens
> You are a resident alien of the United States for
> tax purposes if you meet either the green card
> test or the substantial presence test for calen-
> dar year 2021 (January 1–December 31).


The key part is '..._if you meet either_...'. Essentially, because of the substantial presence test my spouse would still be a resident alien for the entire -22 tax year, even after giving up the green card.

I hope this realization will be helpful for someone in a similar situation in the future.


----------



## Moulard (Feb 3, 2017)

Apologies, I am so used to answering questions from those who have already left the US and not surrendered their greencard that I kinda went on autopilot a bit.

Ending Residency under a substantial presence test has a couple additional requirements when you file your return..

She will have to attach a statement to the return... details here.






Residency Starting and Ending Dates | Internal Revenue Service


An alien’s period of residency in the United States must have an official starting date and ending date.




www.irs.gov


----------

