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February 14, 2017 - Phil Hodgen

Does Filing a Late Form 8854 Make You a Covered Expatriate?

Does filing a late Form 8854 make you a covered expatriate?1

No.

If you are late filing your Form 8854, the worst that can happen is that you will be fined $10,000. You will not be a covered expatriate.

Form 8854 and Its Filing Deadline

Congress sets the rules for what is taxed, and what the tax will be. Then it granted the IRS power to design tax forms2 and set filing deadlines.3

Expatriates – citizens who give up their U.S. citizenship, green card holders of long-standing – are required to provide information.4 Form 8854 is how the IRS exercised its power to design a tax return (and set the filing deadline) for the information required from expatriates.... continue reading

Expatriation
January 31, 2017 - Phil Hodgen

State Income Taxation for Expatriates

The exit tax is a Federal tax law, but it can trigger State income tax.

There is no “standard” method for computing taxable income for State purposes, so this is a high-level overview, not an “Insert Tab A in Slot B” detailed instruction manual.

Summary

State income tax laws usually take Federal income as a starting point for calculating State income tax.

Noncovered Expatriates: No Problem

Noncovered expatriates have no additional income for Federal purposes that has been triggered by expatriation. This means they have no additional State income tax, either.

Covered Expatriates: Problem

Covered expatriates have potential State tax to pay.... continue reading

Expatriation
January 17, 2017 - Phil Hodgen

Treaty Election to Avoid Long-Term Resident Status

Green card holders, if they give up their visa status as a permanent resident of the United States, can be hammered by the exit tax. But not all green card holders are at risk—only if you are a long-term resident.

Avoid becoming a long-term resident and the exit tax rules simply do not apply to you.

Let us look at how a green card holder can use an income tax treaty to avoid being a long-term resident.

Green Card to Long-Term Resident to Expatriate

Receiving a green card (and setting foot in the United States) makes you a resident of the United States for income tax purposes.... continue reading

Expatriation
January 3, 2017 - Phil Hodgen

How to Mail Your Form I-407 (And Why)

Conclusion

A joke should always be told punchline first. Right?

Here’s the conclusion of this little essay:

If you plan to file Form I-407 to abandon your green card, do it in person. If that is impossible, do not just mail in the form. Send it by certified mail, return receipt requested.

Tax Effect of a Green Card

The U.S. tax effect of holding a green card visa is that you are considered a “resident alien” until the visa status is terminated. This means you must file a resident’s income tax return every year (Form 1040). You are taxable on your worldwide income, and must satisfy all of the paperwork requirements imposed by the U.S.... continue reading

Expatriation
December 20, 2016 - Phil Hodgen

Make Big Gifts in the Year Before Expatriating

Bottom Line Up Front

If you make a large gift before expatriation and in the same year, you will pay a large gift tax. The unified credit does not apply to you.

Make your big gifts in year 1, and expatriate in year 2.

Objective: Avoid Covered Expatriate Status

A covered expatriate is someone who has a net worth of $2,000,000 or more when relinquishing U.S. citizenship (or giving up a long-held green card).1

If you have a net worth of more than $2,000,000 but less than $7,500,000, it is possible to give away enough assets — with no gift tax — to avoid covered expatriate status.... continue reading

Expatriation