German who gave up U.S. residency liable for exit tax.

• Author: Beavers, James A.

The Tax Court held that a taxpayer had expatriated in November 2010 when he surrendered his legal permanent resident status and therefore was subject to Sec. 877A. In addition, the court held that installment payments he received in 2010 before he expatriated were not excluded from his income under the United States-Germany tax treaty.

Background

Gerd Topsnik was born in Germany and became a lawful permanent resident (LPR) of the United States in 1977. In 2004, his LPR status was renewed through 2014.

In 1986, Topsnik started a joint venture named Gourmet Foods Inc., with its principal place of business in California. Topsnik agreed, on July 30, 2004, to sell his stock in Gourmet Foods for $5,427,000 in an installment sale, receiving an initial down payment of $1,600,000 and then monthly installments of $42,500 until the remaining $3,827,000 was paid. At the time of the sale, Topsnik's tax basis in the Gourmet Foods stock was $748,418, and his gross profit from the installment sale was $4,678,582.

Topsnik received the down payment and monthly installment payments as planned, with the buyers making the final monthly installment payment on Sept. 3, 2013. In 2010, Topsnik received 12 monthly installment payments of $42,500 for a total of $510,000. As of Nov. 19, 2010, the amount of unpaid principal and accrued interest on the remainder of the installment agreement had a fair market value of $1,373,374.

On Nov. 20, 2010, Topsnik formally abandoned his LPR status. Since that time, he has not met the certification requirements of Sec. 877A(a)(2)(C). These include fifing Form 8854, Initial and Annual Expatriation Statement, and certifying, under penalties of perjury, that he has complied with all of his U.S. federal tax obligations for the five tax years preceding the tax year that includes the expatriation date, including his obligations to file income tax returns and obligations to pay all relevant tax liabilities, interest, and penalties. Topsnik did not file all his U.S. income tax returns and was not in payment compliance on the tax owed for the five years before his expatriation.

In March 2011, the IRS made a jeopardy assessment of tax, penalties, and interest against Topsnik for the years 2004-2009 and later levied on his installment payments from the Gourmet Foods sale to satisfy his liabilities. In August 2011, Topsnik filed a complaint in district court requesting a review of the IRS's assessment and levies. In that case, the government...