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All covered expatriates must pay exit tax. The exit tax is computed differently depending on the type of asset.
Over the last two months, I discussed two types of exit tax: the mark-to-market regime, and the tax on specified tax deferred accounts.
For most assets, the mark-to-market regime applies. Specified tax deferred accounts are an exception to the mark-to-market rules: these accounts are subject to a pretend lump sum distribution of the full plan value on the day before expatriation date.
This month, I am discussing another type of asset that is excepted from the mark-to-market rules: deferred compensation. This includes stuff like pensions, stock options, etc.... continue reading
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:
... continue reading“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.”
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
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
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:
If you meet (or fail, depending on how you look at it) any one of these tests, you are a covered expatriate.... continue reading
