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Chapter 9 – Taxation of Nongrantor Trust Interests

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September 25, 2019 - Rachel Allen

Chapter 9 – Taxation of Nongrantor Trust Interests

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, I covered how specified tax deferred accounts and deferred compensation are taxed.... continue reading

September 4, 2019 - Rachel Allen

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

July 8, 2019 - Rachel Allen

Chapter 7 – Specified Tax Deferred Accounts

The exit tax applies to everything a covered expatriate owns. The method of calculating tax, however, differs depending on the asset involved.

For most types of assets, the mark-to-market tax applies. In the last chapter, I discussed the rules for how to calculate the mark-to-market tax, the exclusion that applies, how to value your assets, and some special considerations.

In this chapter, I am discussing a type of asset that is excepted from the mark-to-market rules: specified tax deferred accounts. These are IRAs and other types of accounts that contain a tax deferral benefit. Covered expatriates must pretend that their specified tax deferred accounts were distributed to them in full on the day before their expatriation date and pay tax on the pretend distribution as if it were real.... continue reading

June 7, 2019 - Rachel Allen

Chapter 6 – Mark-to-Market Taxation

In the last chapter, I explained how to determine if you are a covered or non-covered expatriate.

The major difference between covered and non-covered expatriates is that covered expatriates must pay exit tax, and non-covered expatriates do not.

The exit tax applies to everything a covered expatriate owns. The method of calculating tax, however, differs depending on the asset involved.

For most types of assets, the mark-to-market tax applies. To calculate exit tax under the mark-to-market rules, pretend that you sold everything you own on the day before you expatriated. Apply an exclusion to prevent tax on the first $713,000 of gain (for expatriations that occurred in 2018); pay tax on the rest.... continue reading

May 13, 2019 - Rachel Allen

Chapter 5 – Are You A Covered Expatriate?

There are two types of expatriates: covered expatriates, and non-covered expatriates.

Covered expatriates must pretend that they sold all their worldwide assets on the day before expatriation and pay tax on the pretend gains. There are a few types of assets to which other special tax treatments apply if you are a covered expatriate, as well.

Non-covered expatriates do not have to do the pretend sale. They are required to inform the IRS about their expatriation on Form 8854, but without a giant gain recognition event.

There are three tests for covered expatriate status:

  1. Certification test
  2. Net worth test
  3. Net tax liability test

If you meet (or fail, depending on how you look at it) any one of these tests, you are a covered expatriate.... continue reading