Tax Treaty Case Law around the Globe 2017

1. S. 32Introduction

This is the first case to challenge the Internal Revenue Code section 877A, which imposes an “exit tax” on certain expatriations. It also discusses the importance of procedural compliance for effective changes of residence when the United States is involved.

2. Facts of the Case

Mr. Topsnik, the petitioner, was born in Germany, had a German passport, and a German driver's license at all relevant times. On 3 February1977, Topsnik also became a lawful permanent resident of the United States (known as a green card holder). He renewed his green card without interruption until 1 March 2014 (its final expiry date).

In 1986 Topsnik, with others, organized a joint venture (“Gourmet Foods”) with a principal place of business in California. In 2000, the joint-venturers found themselves in a dispute with each other, and finally reached a settlement, pursuant to which Topsnik agreed to sell his share in Gourmet Foods for USD 5,427,000 in an instalment sale. He was entitled to receive an initial down-payment of USD 1,600,00 and then monthly instalments of USD 42,500 until the remaining USD 3,827,000 was paid. Topsnik received the down payment and monthly instalment payments as plann...