The expatriation tax provisions under the Internal Revenue Code apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. resident status for federal tax purposes. Different rules apply according to the date upon which you expatriated.
Generally, for persons who renounced their U.S. citizenship or terminated their resident status after January 16, 2008, all of their property is deemed sold for its fair market value on the day before the expatriation date. Any gain arising from the deemed sale is taken into account for the taxable year of the deemed sale notwithstanding any other provisions of the Code. Any loss from the deemed sale is taken into account for the taxable year of the deemed sale to the extent otherwise provided in the Code, subject to a number of exceptions. The amount that would otherwise be includible in gross income by reason of the deemed sale rule is reduced (but not to below zero) by $600,000, which amount is to be adjusted for inflation for calendar years after 2008. The remaining amount must be reported to the IRS and the requisite “exit tax” must be paid.
Further, individuals that renounced their U.S. citizenship or terminated their long-term resident status for tax purposes after June 3, 2004 are required to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation. Individuals that have expatriated should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. Moreover, each repatriating individual should also file Form 8854, Initial and Annual Expatriation Information Statement to comply with the annual information reporting requirements of Internal Revenue Code A $10,000 penalty may be imposed for failure to file Form 8854 when required.
There are legal means of minimizing the “exit tax” that can be utilized by expatriating individuals with the assistance of a tax attorney. Our experienced tax attorneys are able to provide you with guidance and assistance with the requisite filings to ensure your compliance with all relevant requirements.
Please contact the Law Offices of Daria S. Brovchenko to speak with a tax attorney.
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