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January 16, 2018 - Phil Hodgen

Why (Some) Expatriates Cannot Own Guns

I want to give you a slight detour from tax law to see a little-known Federal law that applies to U.S. citizens who renounce their nationality.

The topic is guns–former U.S. citizens cannot (legally) own them. The topic is interesting in its own right, but it is meta-interesting too:

  • It shows how anti-expatriate fervor has seeped into Federal law generally; and
  • How few people have seen this and care about it, either in specific application or for its implications.

You might not care about guns. You might be violently anti-gun (haha see what I did there?). But the propensity for ever-extending tendrils of Federal legislation might be of interest to you.... continue reading

Expatriation
January 2, 2018 - Phil Hodgen

When Green Card Holding Minor Children Expatriate

How (Green Card) Kids Expatriate

Let’s talk about kids and expatriation. Specifically, let’s talk about kids who have green cards. The rules are a bit different from the expatriation rules that apply to U.S. citizen minors. The key difference:

  • A parent or guardian can terminate lawful permanent resident status for a minor green card holder.
  • A parent or guardian cannot terminate U.S. nationality for a U.S. minor passport holder.

The exit tax consequences are almost always benign for both categories of children, simply because minors usually do not have sufficient assets or income to become covered expatriates. Wealthy kids who give up green cards will, however, be covered expatriates: no exceptions exist to take them out of that status.... continue reading

Expatriation
December 19, 2017 - Phil Hodgen

Green Card Yanked at the Border but want to be a U.S. Taxpayer Anyway?

An email from a New York CPA I know (hi M.S.) raised an interesting procedural question. A green card holder is married to a U.S. citizen. The green card holder files Form I-407 but wishes to continue filing jointly with his wife.

A guy files the I-407 (forced to at border) on (Month) 15, 2017, but he is married to a U.S citizen and wishes to continue to file jointly as a U.S .resident alien for tax. He is living outside the U.S.

Does he have to by law file Form 8854 and file dual status for 2017 as at (Month) 15, 2017?

... continue reading
Expatriation
December 5, 2017 - Phil Hodgen

Roth IRA Taxation for Covered Expatriates

Let’s talk about how a covered expatriate’s Roth IRA is taxed at the time of expatriation.

Summary

Make-Believe Distribution

A Roth IRA is treated as if there is a make-believe distribution to a covered expatriate on the day before renouncing U.S. citizenship or abandoning green card status.

Income Taxation of the Distribution

The income tax cost of the make-believe distribution is zero if:

  • the Roth IRA has been in place for five taxable years (see the explanation below), and
  • the covered expatriate is age 59.5 or older.

If those two conditions are not satisfied, part of the fictional distribution will be taxable.... continue reading

Expatriation
November 7, 2017 - Phil Hodgen

How to Make Zero Capital Gain Tax When Moving Assets Between Spouses

The net worth test is something that may cause an expatriate to become a covered expatriate. Instead of just having a paperwork problem (Form 8854, specifically), a covered expatriate has a paperwork problem plus a potential tax problem.

You become a covered expatriate by satisfying one (or more) of three requirements. Being rich ($2,000,000 or more in personal net worth) is one of those three requirements.

Our expatriation cases frequently require some financial engineering to reduce our client’s net worth to below $2,000,000 — in order to avoid covered expatriate status. And that frequently means shifting assets to the soon-to-be expatriate’s spouse.... continue reading

Expatriation