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August 9, 2019 - Debra Rudd

New IRS Expatriation Compliance Initiative

Recently the IRS announced that it will be rolling out a compliance initiative for expatriates.

There is no information about how this program will work just yet. Here is what the IRS news announcement says, and this is all we have to go on at the moment:

“U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.”

From this, it is a little unclear what we should expect, but one thing is obvious at a first glance: there is no mention of any options for voluntarily fixing tax compliance like taxpayers could do using the OVDP or the streamlined procedures.... continue reading

Expatriation
July 9, 2019 - Debra Rudd

Exit Tax Book Chapter 7: Specified Tax Deferred Accounts

The exit tax applies to everything a covered expatriate owns. The method of calculating tax, however, differs depending on the asset involved.

For most types of assets, the mark-to-market tax applies. In the previous chapter, I discussed the rules for how to calculate the mark-to-market tax, the exclusion that applies, how to value your assets, and some special considerations.

In this chapter, I am discussing a type of asset that is excepted from the mark-to-market rules: specified tax deferred accounts. These are IRAs and other types of accounts that contain a tax deferral benefit. Covered expatriates must pretend that their specified tax deferred accounts were distributed to them in full on the day before their expatriation date and pay tax on the pretend distribution as if it were real.... continue reading

Expatriation
June 7, 2019 - Debra Rudd

Exit Tax Book Chapter 6: Mark-to-Market Taxation

Last month, I explained how to determine if you are a covered or non-covered expatriate.

The major difference between covered and non-covered expatriates is that covered expatriates must pay exit tax, and non-covered expatriates do not.

The exit tax applies to everything a covered expatriate owns. The method of calculating tax, however, differs depending on the asset involved.

For most types of assets, the mark-to-market tax applies. To calculate exit tax under the mark-to-market rules, pretend that you sold everything you own on the day before you expatriated. Apply an exclusion to prevent tax on the first $713,000 of gain (for expatriations that occurred in 2018); pay tax on the rest.... continue reading

Expatriation
May 13, 2019 - Debra Rudd

Exit Tax Book Chapter 5: Are You a Covered Expatriate?

There are two types of expatriates: covered expatriates, and non-covered expatriates.

Covered expatriates must pretend that they sold all their worldwide assets on the day before expatriation and pay tax on the pretend gains. There are a few types of assets to which other special tax treatments apply if you are a covered expatriate, as well.

Non-covered expatriates do not have to do the pretend sale. They are required to inform the IRS about their expatriation on Form 8854, but without a giant gain recognition event.

There are three tests for covered expatriate status:

  1. Certification test
  2. Net worth test
  3. Net tax liability test

If you meet (or fail, depending on how you look at it) any one of these tests, you are a covered expatriate.... continue reading

Expatriation
April 5, 2019 - Debra Rudd

Exit Tax Book Chapter 4: Paperwork for Expatriates

Last month, I discussed how long-term residents can become expatriates. Now I will overview the tax paperwork expatriates will need to file.

All individuals who cease to be taxed as US persons file tax returns to signal that change in status to the IRS. Typically, this happens on a dual-status tax return: for part of the year you are a US person reporting your worldwide income, and for part of the year you are a nonresident of the US reporting only your US-source income.

For people whose change in status is also an expatriation event, there is another form to file: Form 8854, Initial and Annual Expatriation statement.... continue reading

Expatriation