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.
This post is a collection of questions and answers from Debra Rudd’s February 12, 2021 International Tax Lunch webinar on Asset Taxation During and After Expatriation. The below questions were asked by viewers of the…continue reading
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…continue reading
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….continue reading
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…continue reading
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…continue reading