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September 12, 2017 - Phil Hodgen

How to Handle Inheritances from an Expatriate

Everyone focuses on the income tax side of expatriation. Understandable. The year of giving up U.S. citizenship or permanent residence is a busy year and income tax is painful.

But estate tax problems can lurk, even after expatriation. Expatriates receiving inheritances from U.S. persons is one side of the equation.

Let’s look at the other side of the equation: money flowing back to the U.S. when an expatriate dies.

An expatriate (covered or otherwise) leaves an inheritance to a U.S. person. Here are the questions to ask:

  • What assets belonging to the expatriate (covered or noncovered) are hit with the U.S.
... continue reading
Expatriation
August 29, 2017 - Phil Hodgen

Expatriates Receiving Inheritances from U.S. Persons

Let’s say you have expatriated (gave up U.S. citizenship or your green card) and you expect to receive an inheritance from a U.S. person–perhaps your parents.

How is that inheritance taxed?

Correspondent KP emailed me to ask exactly this question. (Hint: you can email ask a question, too; just hit reply and suggest a topic or ask a question for me to answer in the newsletter).

Perhaps you have already answered this in the expatriation blog and I just couldn’t find it (in which case, please send me a link), or it might be worth considering as a future topic:

If a person has renounced US citizenship, filed the 8854, and IS -for all intents and purposes- considered to be a non-resident non-citizen, what US tax/reporting obligations come into play if said person inherits a US estate from a US citizen & resident relative?

... continue reading
Expatriation
August 15, 2017 - Phil Hodgen

Net Worth Test: Use Gift Tax Resident or Income Tax Resident Rules?

The tax rules for expatriation are still (almost a decade after being enacted) approximately as precise as fog. An accountant friend, Ed R. (he does not have a website, otherwise I would link to it), sent me an email after my webcast about expatriation, with an example of this.

Are You a “Gift Tax Resident” or an “Income Tax” Resident?2

Here’s the problem. The exit tax is an income tax rule, but the IRS tells us to use the gift tax rules for defining net worth so you can figure out if an individual is a covered expatriate or not.... continue reading

Expatriation
July 18, 2017 - Phil Hodgen

Pension Valuation for the Net Worth Test

The net worth test rates you as a covered expatriate if your net worth is $2,000,000 or more.1 Pensions and retirement plans are assets that you include in calculating your net worth.2

How do you figure out how much your pension is worth?

Government Guidance: Embarrassing

There is scant (and by “scant” I mean nothing at all) guidance on how to compute the value of your pension benefits. The Instructions to Form 8854, for instance, say absolutely nothing at all.3

Notice 2009-85 merely points you to Notice 97-14 for guidance on how to calculate your net worth.... continue reading

Expatriation
June 20, 2017 - Phil Hodgen

Taxation of MSAs and HSAs after Expatriation

This is another piece of the rewrite project for The Exit Tax Book.


Specified Tax-Deferred Accounts After Expatriation: Generally

Distributions from specified tax-deferred accounts after expatriation are unremarkable: an expatriate (covered or not) is treated like any nonresident alien, and taxed accordingly. The only difference will be for covered expatriates: since they are taxed when they expatriate, they are not taxed a second time when they receive distributions of money that was previously taxed.

This chapter discusses distributions from every type of specified tax-deferred account except IRAs:

  • Health Savings Accounts (HSAs);
  • Archer Medical Savings Accounts (MSAs);
  • Section 529 education savings plans; and
  • Coverdell education savings plan.
... continue reading
Expatriation