Do the Expatriation Tax Provisions Apply to You?

Do the Expatriation Tax Provisions Apply to You?

Expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. resident status for federal tax purposes.

The IRS imposes a mark-to-market regime, which generally means that all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date. Any gain or loss arising from the deemed sale is taken into account for the tax year of the deemed sale. The amount that would otherwise be includible in gross income by reason of the deemed sale rule is reduced (but not to below zero) by the exclusion amount ($690,000 for 2015). The amount of any gain or loss subsequently realized (i.e., pursuant to the disposition of the property) is adjusted for gain and loss taken into account under the mark-to-market regime, without regard to the exclusion amount.

Different rules apply according to the date of expatriation. If expatriation occurred on or after June 17, 2008, and you are considered a “covered expatriate” you will be treated as relinquishing your U.S. citizenship on the earliest of four possible dates:

1. the date the individual renounces his or her U.S. nationality before a diplomatic or consular officer of the United States, provided the renunciation is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the U.S. Department of State;
2. the date the individual furnishes to the U.S. Department of State a signed statement of voluntary relinquishment of U.S. nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-(4)), provided the voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the U.S. Department of State;
3. the date the U.S. Department of State issues to the individual a certificate of loss of nationality; or
4. the date a U.S. court cancels a naturalized citizen’s certificate of naturalization

Who should take action?

The Internal Revenue Service reminds practitioners that anyone who has expatriated or terminated his U.S. residency status must file Form 8854 and that a $10,000 penalty may be imposed for failure to file this form when required.

Contact a member of Withum’s International Team at [email protected] to start the planning process for your company’s global movement so you are prepared from the start. Information and knowledge is power.

Nicole DeRosa, CPA, MAcc T (732) 828 1614 [email protected]

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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.