Expatriation

The Scenario A nonresident owns 100% of the stock of a foreign corporation, which holds highly appreciated foreign real estate. The nonresident plans to become a U.S. resident (and therefore taxpayer) starting on January 1, 2024. He wants to keep the real estate, and for tax and expense reasons in his home country, dissolving the…

This article looks at Form 5471 filing requirements for Category 2 filers. These are United States persons serving as officers and directors of foreign corporations. The lesson of this post is: If you take only one lesson away from this article, it is this: Reorganizations are treacherous and it takes a lot of work to…

Form 5471 exists because Subpart F (IRC §§951-965) exists. Or to be more precise, Form 5471 exists because Subpart F exists and taxpayers are smarter than the government–but eventually even the government catches on. Why Subpart F Exists Subpart F (or to be more precise, United States Code, Title 26, Subtitle A, Chapter 1, Subchapter…

One favorite way to wiggle out of any responsibility is to mooch off someone else’s hard work. Form 5471 filing is no exception. Go look at Item H on the first page of Form 5471. Joint Form 5471s are a thing. And specifically they are a thing for U.S. officers and directors of a foreign…

Legal Authority This method of joint filing for Category 2 filers is described in Reg. §1.6046-1(e)(3). Introduction Start With the Filing Requirement Trigger Start with the assumption that you have identified two Category 2 filers who have identical reporting requirements that have been triggered by Reg. §1.6046-1(a)(2): A United States person has acquired stock in…

General Information about “Covered Expatriate” Status There are three triggers that can cause you to be a covered expatriate. You only need one to be a covered expatriate. A covered expatriate is someone who answers “No” to one or more of these questions, as of the date of formal termination of permanent resident visa or…

This post is a collection of questions and answers from Debra Rudd’s February 12, 2021 International Tax Lunch webinar on Asset Taxation During and After Expatriation. The below questions were asked by viewers of the webinar, and answered by Debra during the webinar. Some questions have been slightly edited for clarity. This post is not…

This post is a collection of questions and answers from Debra Rudd’s January 15, 2021 International Tax Lunch webinar on the Net Worth Test. The below questions were asked by viewers of the webinar, and answered by Debra during the webinar. Some questions have been slightly edited for clarity. This post is not legal advice….

When you expatriate, you are required to declare all of your assets and liabilities and compute your net worth. If your net worth is above $2 million, you are a “covered expatriate” and hilarity ensues. What goes on your balance sheet? Let’s talk about what goes on your Form 8854 balance sheet.  What, specifically, is…

Covered expatriates are subject to exit tax. For most types of assets, a pretend sale applies, and the covered expatriate must pay tax on gains (after an exclusion is applied) from the pretend sale of all their worldwide assets. This is referred to as the mark-to-market regime. There are a few types of assets to…

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…

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…

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,…

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…

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…