My client is resident in the UK and is a "Green Card" holder although he no longer works in the USA. He therefore needs to file a US tax return each year as a Resident Alien. I prepare his UK tax returns but not his US ones.
He has recently retired and will soon wish to take his 25% tax free lump sum from his UK pension pot. However, one US tax advisor has stated that this will be fully taxable in the USA whilst another has stated that it will be exempt.
I guess the solution is to consult a third US advisor but first I would be interested if anyone here has any experience/expertise in this type of situation and has an opinion as to which US advisor is correct.
Many thanks.
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The correct answer is no-one knows. Some people argue Article 17(1)(b) applies. Others think it is Article 17(2). Others argue that taking any treaty position might be considered an expatriating act and trigger an expatriation tax liability. The positive news as a green card holder is that Article 1(4)&(5) won't apply. The BIG question is does it matter? The client may have excess foreign tax credits, tax basis in the plan or wish to file as a treaty based non-US resident (albeit that this would be an expatriating act). Would the client be subject to expatriation tax if the green card was abandoned?