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Ten Facts About Tax Expatriation – Part II

On November 6, 2019 we posted Ten Facts About Tax Expatriation - Part I, where we discussed that whatever your motives, just because you leave the United States and renounce your citizenship, don't assume you can leave U.S. taxes (or U.S. tax forms and complexity) behind, particularly if you are financially well-off.

For those who expatriate after June 16, 2008, the rules are different, since Internal Revenue Code Section 877A applies instead of Section 877. You are subject to an immediate exit tax, which deems you (for tax purposes) to have sold all of your worldwide property for its fair market value the day before your departure from the U.S.
We also discussed in Ten Facts About Tax Expatriation - Part I:

1. Uncle Sam taxes income worldwide.

2. Expatriating means really leaving.

3. The old 10-year window is closed.

Herein will discuss 7 more, of the 10 things you need to know about Expatriation:
(set forth below and in one subsequent blog posts)

4. Big changes came in 1996.
Thirty years later, in 1996, after the Forbes story on "The New Refugees" created a stir, Congress tried again. As part of the Health Insurance Portability and Accountability Act of 1996 (otherwise known as HIPAA), Congress added a presumption of tax avoidance if an expatriate's five-year average net income tax exceeded $100,000, or if the expatriate's net worth was $500,000 or more (both adjusted each year for inflation). But people could--and with the help of skilled lawyers did--rebut the presumption, and the IRS still had to show tax avoidance in most cases.

5. Tax avoidance is now irrelevant.
In 2004 (in the American Jobs Creation Act), Congress threw out the tax avoidance motive test altogether, imposing 10 years of U.S. tax on U.S. source gross income and gains on a net basis if you left the country for any reason. However, Congress increased the threshold for determining who was subject to this expatriation tax. An individual was only subject to the expatriation tax if he had an average net annual income tax for the five years preceding expatriation of $124,000, or if he had a net worth of $2 million or more on the date of expatriation. (If you expatriated on or after June 17, 2008, under the new Section 877A, there is a higher net worth threshold--currently $145,000 of annual net income tax for 2010.)

In some cases, even if you're below these thresholds, you'll get taxed. For example, expatriates must certify their past U.S. tax compliance by filing an IRS Form 8854. Any expatriate who fails to certify compliance with U.S. federal income tax laws for the five taxable years preceding expatriating is subject to the expatriate income tax even if he didn't meet the income tax liability or net worth tests.
Plus, later U.S. visits can be expensive if you expatriated before June 17, 2008 (and Internal Revenue Code Section 877 applies). In that case if an expatriate comes back to the U.S. for more than 30 days in any year during the 10 years following expatriation, that person is considered a resident of the U.S. for that whole tax year. That means the person would again be subject to U.S. tax on his worldwide income, not just his U.S.-source income. Ouch!

This 30-day rule does, however, have an exception for any days (up to a 30-day limit) that the individual performed personal services in the U.S. for an employer (who is not related). This exception only applies if that individual either had certain ties with other countries or was physically present in the U.S. for 30 days or less for each year in the 10-year period on the date of expatriation or termination of residency.

6. There are special rules for long-term residents.
It's easy to define who is or is not a U.S. citizen, but the term "long-term resident" isn't quite so clear. A long-term resident is a non-U.S. citizen who is a lawful permanent resident of the U.S. in at least eight years during the 15-year period before that person's residency ends. A "lawful permanent resident" means a green card holder. However, a person is not treated as a lawful permanent resident for purposes of this eight-year test in a year in which that person is treated as a resident of a foreign country under a tax treaty, and does not waive the treaty benefits applicable to the residents of that country. Caution: holding a green card for even one day during a year will taint the whole year.

7. There's an exit tax for expatriations on or after June 17, 2008.
The Heroes Earnings Assistance and Relief Tax Act of 2008 (generally known as the Heroes Act) changed the method of taxation for those who became expatriates on or after June 17, 2008, adding even more complexity and usually higher U.S. taxes. If you are a U.S. citizen or long-term resident who expatriates on or after June 17, 2008, you will be deemed (for tax purposes) to have sold all of your worldwide property for its fair market value the day before you leave the U.S.! All that gain is subject to U.S. tax at the capital gains rate. Plus, all your gain is taken into account without regard to any ameliorative tax provisions in the Internal Revenue Code.
Put differently, you get all of the bad parts of the tax code, and none of the good. That would include, for example, the inability to benefit from the $250,000 per person ($500,000 per couple) exclusion from gain on a principal residence (Section 121 of the Internal Revenue Code) and many other rules. The exit tax is like an estate tax, in the sense that everything that would be part of your estate will be subject to income tax on unrealized gains as of the day before you expatriate, as if you sold all your assets the day before leaving. In effect this is Congress' way of making sure your assets don't escape the estate tax entirely through expatriation.

"Should I Stay or Should I Go?"


Need Advise on Expatriation? 


Contact the Tax Lawyers of
Marini & Associates, P.A.


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Toll Free at 888-8TaxAid ( 888 882-9243)



Read more at: Tax Times blog

The Estate Tax Challenge

We previously posted on November 14, 2016 Trump Presidency Could Be Death Knell For Estate Taxes! where we discussed President-Elect Trump's tax plans, which includes the repeal of the US Estate & Gift taxes.

This may be a realistic possibility considering that this is in line with some of the proposals in the Republican House Ways & Means Committee Report of June 24, 2016 and especially when you consider that now the Republican's Control both the Senate and the Congress.

There are some differences that will need to be ironed out, including that Trump’s proposal would still allow the step-up in basis for estates under USD10 million but the Republican Party's proposal would simply abolish the tax without allowing step-up.

However, our Estate Tax Counsel, Robert S Blumenfeld, Esq., would like to point out that
dating back to the 1960s, an ongoing battle has been waged between Republicans and Democrats over the concept of the Federal Estate Tax.  During this fifty-year plus battle, Republicans have sought to eliminate or at least emasculate the FET while the Democrats fought to increase the impact of the FET on larger estates. The upshot of this is been best while there is a much larger credit shelter, $5.5 million dollars ($11 million for a husband and wife) today than  the $60,000 credit shelter extent in the 1960s, the number of devices or gimmicks available to lessen the impact of the FET has been legislatively reduced or eliminated.

One of Donald Trump's chief campaign promises is the elimination of the FET. That he is supported by a majority in both houses of Congress would seem to give some impetus to his idea. Unfortunately, the concept proposed by POTUS does not seem fully thought through.  The Federal Estate Tax is not a one-dimensional tax; it is an interlinking conglomerate of The Estate Tax, The Gift Tax, The Capital Gains Tax, and the Generation Skipping Tax. None of these taxes stands on its own; each is interdependent on the implementation of at least two of the other three taxes. This void does not seem to have been addressed by the POTUS in much detail.


President Trump will be opposed by three very powerful opponents; the Democratic Party, the insurance lobby, and the lobbies composed  of various charities. In addition, since his inauguration, Pres. Trump has done little to assuage the concerns of many Republicans Congressman and may not be able to count on complete backing by every Republican Sen. or member of the House of Representatives.
This whole scenario gives us great angst when we try to create estate plans for families of wealth. No one really knows where this is going to lead. Everyone has a theory but most of these theories are diverse; there does not seem to be a common thread of agreement. The next five months will be very interesting in terms of the overall tax structuring; unfortunately, we tax planners can only sit on the sidelines and wait for some finality or resolution which should appear by August, 2017.

Have an Estate Tax Problem?




Estate Tax Problems Require
an Experienced Estate Tax Attorney


Contact the Tax Lawyers at


Marini & Associates, P.A.
 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).
Robert S. Blumenfeld  - 
 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.






Read more at: Tax Times blog