Terminating IRS Taxation

[JohnSt]

Earlier this year, my wife filed form I-407 and handed her green card over the US Consulate. This is a Department of Homland Security form, and the embassy simply took the form and the green card. She never actually lived in the States, though we've been dutifully filing annual tax forms.

In her case, from 8854 does not apply. She held the green card for less than 8 years. I also believe forms 1040-C and 2063 also do not apply (she never actually departed from the US).

My question is how do we inform the IRS (or prove) that she has no further tax obligations? I am aware we have one final filing to do for part of 2007. However, outside of a cover letter saying "I filed I-407 and this is my last return," I'm not clear on this procedure.

[Mark T Serbinski CA CPA]

Your return for 2007 will be an "expatriating return". This notification is given on form 1040NR, and will terminate her filing requirements with the U.S.

[JohnSt]

Thanks Mark. However, is this really an expat return based on the 1040NR definition? Item P reads, "Is this an expatriation return? If Yes, you must attach an annual information statement." The instructions further indicate "If the alternative tax regime under the expatriation tax provisions applies to you, check the Yex in Item P."

But, in her case, she is not required to submit an annual (or even initial) 8854 information statement. So, I can't see how she could comply with that statement.

Granted, a US citizen expat would have filed the 8854 at the expatriation date. But, assuming such person does not meet the thresholds, even they would not be required to file the annual expat statement -- and presumably could not answer "yes" to Item P.

Are we caught in a grey area here?

[nelsona]

... and in fact, you do not have to file 1040NR in your expat year, as a Cdn, and as a resident last year, you could just as easily file a 'normal' 1040 for your expat year.

Personally, I would simply go with a letter.

[JohnSt]

Thanks nelsona. Awhile back, I tried to find the treaty clause that discloses Canadians are eligible to provide just a 1040. Could you point me in that direction? Thanks.

[nelsona]

The treaty clause is XXV.

Now, this clause does state that Cdns can use the same method as an american. Of course, an american expatriate may actually have MORE requirements than a Cdn GC holder, so that may not be of so much use to you.

In any event, a letter will suffice.