Expatriation Tax Planning

Under sections 877 and 877A of the Internal Revenue Code, certain expatriation taxes may apply to individuals who have renounced their U.S. citizenship. The specifics of these tax rules vary depending on expatriation dates and other factors, so it is critical that you retain a knowledgeable and experienced tax attorney to help determine your unique tax obligations. Call the Law Offices of Shannon P. McNulty at (212) 431-7526, or contact us online to arrange for a consultation.

Who Expatriation Tax Rules Effect

If you have either:

  1. become a U.S. citizen; or
  2. held a green card for eight of the preceding 15 years

then if you decide to give up your citizenship or legal permanent resident visa, certain tax rules may be triggered. These tax rules rules apply only if:

  1. your average annual U.S. income tax liability for the past five years exceeds $155,000 (as of 2013, indexed for inflation);
  2. your net worth exceeds $2 million, as of the date of your expatriation; or
  3. you fail to certify that you have complied with all your U.S. tax obligations for the preceding five years.

If you fall into one of these three categories, you will be subject to the U.S. expatriation tax rules.

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U.S. Expatriation Tax Rules

Under these rules, the expatriate is deemed to sell all of his or her assets, triggering a capital gains tax, and to withdraw all tax-deferred retirement funds, triggering ordinary income. There is an exemption from the tax of the first $663,000 (as of 2013, indexed for inflation). This income will be able to be included in the taxable year of expatriation.

Unfortunately, even paying the expatriation tax does not fully release an expatriate from the U.S. tax regime, as any assets gifted to U.S. beneficiaries or left to U.S. beneficiaries in the expatriate’s estate will be subject to U.S. Estate Tax at the highest rate.

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Expatriation tax rules can be confusing and complex. Before making any definitive decisions about giving up your citizenship or green card, it is in your best financial interests to consult with a professional to evaluate the tax implications for yourself and your family. Contact the law offices of Shannon P. McNulty online, or call (212) 431-7526 to arrange a consultation.