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  1. @Carsten,

    The question of how your assets are taken into account for your wife’s expatriation is a question of facts.

    Start by looking at it like this: if she divorced you today, what would be her separate property, your separate property, or joint property?

    This depends on where you have lived, and the marital property rules of that place. Usually (but not always) the name of the owner does not necessarily control the result. For instance, in community property jurisdictions even though one spouse’s name is on an asset, it does not mean that the asset belongs to that one spouse. The asset could still be a joint asset.

    Practical advice: what’s the worst that can happen? If she is treated as owning half of your stuff, is she still below $2,000,000 in total assets? If so, then . . . who cares? 🙂 Otherwise, you are going to have to look at this asset-by-asset.

    The other choice you have — usually the marital property rules have some default standards for deciding what is separate and what is joint. But every place that I can think of also says “the couple can change this by agreement between themselves.” Consider moving stuff around between the two of you until the desired result occurs. But be careful when doing so — it could be a taxable gift or a taxable sale if things aren’t done right.

  2. Hi Phil,

    I am US citizen and my wife a long-term permanent resident. She plans to return her green card later this year, after our move abroad. My question is about determining her net-worth. She would be well below the 2 million threshold when only looking at her assets. Since we are married however, I wonder if and how my assets are taken into account. For example I have a brokerage account in the US which is in my name only. Does this in any way affect the calculation of her net-worth?


  3. @MG,

    The adjusted basis numbers matter to covered expatriates because this is going to help the IRS figure out how much “mark to market” gain and other taxable income will be reported. For a regular non-covered expatriate, the adjusted basis number only matters for U.S. assets — assets that will be subject to U.S. tax on later sale.

    Oh, and I guess it matters for assets that could potentially be given to a U.S. person, because the later sale of that asset would trigger capital gain tax too. The recipient of the gift has an adjusted basis equal to the donor’s adjusted basis.

  4. Hi Phil,
    I have a quick question on the Part V of Form 8854. For the Balance Sheet “column b) U.S. Adjusted Basis” what amount should I include here for Insurance Cash Value Accounts? What is the purpose of this column? Is this targeting covered expatriates?

  5. E,

    Since you will be a covered expatriate, you know for a fact that you will be taxed on the value of the intellectual property when you renounced your citizenship.

    Since tax is inevitable, think about beating the IRS to the punch. Can you engineer a transaction BEFORE you expatriate that will be treated as a sale but will be more benign to you over the long run?

    There are two tax moments to consider: the time of expatriation (a giant lump sum of tax will be due) and the tax on the ongoing royalty stream after expatriation–royalties from exploiting the intellectual property in the USA will be taxable.

    Optimize for minimum tax from the sum of BOTH of those. Do not just optimize for minimum exit tax.


  6. Dear Phil,

    thanks for your answer, now I know I will hit the Net Worth test badly and will be a Covered expat. and head to Exit Tax, So as for FMV of IP royalty, how will IRS take it? Should I hire professional appraiser to go through a lenghty process? Is there a simple formular? For instance, If I put down FMV 10 million, later on turn out to be 20 millions, I wonder if IRS will turn back and charge me again? (and looks wired that FMV of IP is 100% pure gain, I don’t see how to deduct its cost base)

    And by the way, could I take credit of the Exit tax paid (or deferred to pay) from my income taxt return? For example, if I paid Exit tax of 500,000 (for unrealized royalty), then the same year I receive a royalty payment and own tax 100,000, could I substract what I already paid? Not sure how the “Step-up” new base works in this situtaion. and also the timing is strange, Exit tax supposedly is “to the day before expatriation”, but I pay it at least a year later or deferred for years.

    expatriation is a messy business, thank God there are experts like you who could crack it….Thanks a lot,


  7. @Eda,

    The intellectual property that you own has a value. Think of it this way. Would you sell me the intellectual property for $1? Then I would collect the income stream in the future. No? Would you accept $2? Of course not. You will receive hundreds of thousands of dollars in the future from royalties on this intellectual property.

    OK. Will you take $3? 🙂

    There is a number – a price at which you would be willing to take a lump sum of cash today and someone else would collect the future royalties.

    That number goes on your balance sheet on Form 8854. You have an asset: intellectual property. It has a value: the present value of future cash flow from the intellectual property.

  8. Dear Phil,

    How to define ” Net Worth”? is it just how much money you have ( a house could be exchanged into money) right now, or your future earning, such like copyrights royalty has to be estimated in? for instance, a person receives annual royalty payment of 500,000, now he has 1,500,000 in pockets already, So what is his Net Worth? 1.5million as he has or way over 2millions after count in future royalty payments? future payments are foreseen but uncertain!

    It’s quite confusing , and it’s critical once come to expariation……

    thanks a lot!

  9. It is possible and in fact we do a lot of this kind of thing when preparing couples for expatriation.

  10. Put the value of the bank account in column A and the same value in column B.

    For 2013 and 2014 I do not know whether you are required to file any tax forms. Maybe not, because your income was low.

    And I absolutely agree with you on the complexity. Government bureaucratic systems are a subtractive social system. Insert two intelligent humans and the things they produce will be dumber than either individual would be capable of producing.

    But today is not the day for a rant.

  11. Hi Phil. I relinquished my green card at the U.S. Embassy in Frankfurt Germany January 2014. I am not a covered expatriate and the last taxes I filed were for 2012. I have no income…only Social Security, which I started to receive at the end of 2012 and have a very meager bank account.

    I don’t know how to fill out Part V of form 8854. There are four columns for entry under “Assets”. I only have about 6 thousand dollars in the bank and own nothing anymore in the States since 2012. I guess that would just go in the first column (a) FMV?

    Also do I have to fill out tax forms for 2013 and 2014 although I didn’t have any income except SS?
    Seems simple but these people scare the shit out of me!

  12. In a community property state, can we partition property formally so that the expatriating spouse has non-IRA and cash assets and the non-expatriating, US citizen spouse retains his IRA & other income tax-deferred assets. Partitioning will be equitable in total share but will recognize the income tax-deferred nature of the property retained by US citizen spouse? In other words, is an expatriating spouse forced to claim 50% of her US citizen spouse’s IRA as her own?

  13. A completed gift is one where you (the giver) have completely transferred ownership with no right to receive anything in return, no further control, etc.

    For a gift of cash, transfer to a bank account that is in your wife’s name — where you have no spousal rights under local law — will be sufficient.

  14. Hi Phil,
    I´m considering expatriation and am pretty sure I´m non-covered according to all the rules and requirements I´ve read but, to be certain according to the net worth test I am considering giving a cash gift to my wife who is not an american citizen. You wrote “… be sure it´s a completed gift..” What is a completed gift? And is proof of the gift required and if so what proof would suffice?

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.