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January 22, 2021 - Debra Rudd

Net Worth Test Q&A

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. Do not make big life decisions without consulting an expert.

Q1:
Regarding the tax liability test, when testing a married filing jointly couple, both expatriating, do you divide their joint liability by two? Or does it need to be more precisely allocated to the source of income?... continue reading

Expatriation
April 8, 2020 - Phil Hodgen

What goes on your balance sheet when you expatriate?

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 an asset you own?

This is how you figure it out:

  1. Assume you are a U.S. citizen or a resident of the United States (as “resident” is defined for estate/gift tax purposes).
  2. There is an asset that you are wondering about. Should you include it on your balance sheet or not?
... continue reading
Expatriation
September 25, 2019 - Debra Rudd

Exit Tax Book Chapter 9: Taxation of Nongrantor Trust Interest

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 which an exit tax still applies, but the exit tax works a little differently than for the mark-to-market assets. These are specified tax deferred accounts, deferred compensation, and interests in nongrantor trusts.

In the last couple months of this series, I covered how specified tax deferred accounts and deferred compensation are taxed.... continue reading

Expatriation
September 4, 2019 - Debra Rudd

Exit Tax Book Chapter 8: Deferred Compensation

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

Expatriation
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.”

... continue reading
Expatriation