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Expatriation

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U.S. citizens and permanent residents pay income tax on their worldwide income.  If sufficiently wealthy, their worldwide assets are taxed when they die.  This is true no matter where they live. Every year, more and more people are relinquishing their U.S. citizenship or giving up their green card (permanent resident) visa status.

This means that they are leaving the U.S. tax net. As they leave, the United States seeks its last chance to impose tax. This is called the “exit tax.” Section 877A of the Internal Revenue Code.

If you are rich enough (as defined by the U.S. government) or your tax paperwork is not in order, the Internal Revenue Service pretends that you sold everything you own on the day before you relinquished your citizenship.  After applying an exemption amount ($651,000 in 2012) you pay tax on the “pretend” sale. The Internal Revenue Service pretends that you received all of your IRA balances on the day before you relinquished your citizenship.  That’s all taxable income to you.

There are a number of other special tax rules that may create an enormous tax liability to the United States, just because you gave up your U.S. citizenship or green card visa. Even if you are not rich (again, “not rich” is defined by the U.S. government, not by you), you will still face a mountain of tax paperwork that needs to be filed correctly and on time.

We know these tax rules, perhaps better than anyone else, because we counsel so many people throughout this process.  Let us help you – from your initial questions when you first consider this action, through the tax planning before you relinquish citizenship, and filing the tax returns afterwards.

Recent Articles on Expatriation

September 12, 2017

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,…continue reading

August 29, 2017

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…continue reading

August 15, 2017

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),…continue reading

July 18, 2017

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…continue reading

June 20, 2017

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…continue reading

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