Exit Tax for U.S. Expatriates to Become Law

September 11, 2008 by · Leave a Comment
Filed under: Economic News 

This is a pretty interesting development for anyone worth over $600,000 in asset and has the plan to leave the U.S. and renounce their citizenship.  It looks like it is close to becoming law (waiting for presidential signing) so you will be taxed on this event and even on other earning you may get later if they happened while you were a U.S. citizen.

Law Text:

New rules will impose tax on expatriates and withholding requirements on trustees

Giving up a U.S. passport will soon carry a steep price tag.  A new law passed by the U.S. Congress and sent to the President will subject certain individuals who expatriate or give up their green cards to immediate tax on the inherent gain on all of their worldwide assets and a tax on future gifts or bequests made to a U.S. citizen or resident.

Tax practitioners had been made to feel like the boy who cried wolf in recent months as the U.S. Congress repeatedly threatened to enact legislation aimed at U.S. citizens who expatriate.  Congress finally made good on those threats by unanimously passing the Heroes Earning Assistance and Relief Tax (HEART) Act (the ‘Act’), which provides tax relief for active duty military personnel and reservists.

The new tax regime applies to certain individuals who relinquish their US citizenship[1] and certain long-term U.S. residents (i.e., green card holders) who terminate their U.S. residence (hereafter referred to as ‘expatriates’).[2]  The so-called ‘mark-to-market’ tax will apply to the net unrealized gain on the expatriate’s worldwide assets as if such property were sold (the ‘deemed sale’) for its fair market value on the day before the expatriation date.  Any net gain on this deemed sale in excess of US$600,000 will be taxable.

In addition, trustees of non-grantor trusts[3] must withhold and pay over to the IRS 30 percent of the portion of any distribution (whether direct or indirect) that would have been taxable to the expatriate had he not expatriated.  Failure to withhold the tax could subject the trustee to direct liability for the unpaid U.S. tax.

The Act will become law when the President signs it, which is expected imminently.

Click Here to Read the Rest of the Law

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