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Chapter 7 – Specified Tax Deferred Accounts

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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

April 19, 2019 - Rachel Allen

Chapter 4 – Paperwork for Expatriates

Last month, I discussed how long-term residents can become expatriates. Now I will overview the tax paperwork expatriates will need to file.

All individuals who cease to be taxed as US persons file tax returns to signal that change in status to the IRS. Typically, this happens on a dual-status tax return: for part of the year you are a US person reporting your worldwide income, and for part of the year you are a nonresident of the US reporting only your US-source income.

For people whose change in status is also an expatriation event, there is another form to file: Form 8854, Initial and Annual Expatriation statement.... continue reading

April 19, 2019 - Rachel Allen

Chapter 3 – How a Green Card Holder Becomes an Expatriate

Last month, I talked about citizens and how they can renounce their US citizenship. This month, I am focusing on another group of people who can become expatriates, known as long-term residents.

“Long-term resident” is a special term under US tax law. It looks and sounds very similar to “lawful permanent resident”, which is a term that is used to describe a type of US immigration status.

Everyone who has the immigration status of being a lawful permanent resident is automatically a US resident for tax purposes, and must pay tax on their worldwide income. Someone who has had that status for “too long” (as defined by the Internal Revenue Code) becomes a long-term resident.... continue reading