Expatriation for Citizens & Long-Term Residents
What is Expatriation for Citizen & Long-Term Residents? Expatriation is a simple, but complex undertaking. Oftentimes, when discussing the concept of expatriation and the IRS, there are very specific issues which need to be addressed, such as Long-Term Resident status, Covered Expatriate status, and Mark-to-Market elections. For purposes of this summary, we will introduce the basics of the process of expatriation, and which U.S. Citizens and Legal Permanent Residents who are “long-term residents” may be subject to exit tax.
What is Expatriation?
Expatriation is process of giving up or “relinquishing” U.S. status.
Expatriation impacts U.S. Citizens and Legal Permanent Residents, but not visa holders directly.
For example, when a person is a Visa Holder and subject to U.S. tax and reporting simply because they met the substantial presence test, they can avoid U.S. status simply by not meeting the Substantial Presence Test.
But, when a person has a more “permanent” U.S. status, such as a U.S. Citizens and certain Legal Permanent Residents, when they want to give-up their U.S. status, it is a form of expatriation that has certain requirements for completion.
Who is Subject to Expatriation?
Generally, expatriation is limited to U.S. Citizens and Legal Permanent Residents.
Planning for Expatriation
When a person is a U.S. citizen or Legal Permanent Resident, they should set their plan of expatriation in motion before they actually expatriate.
That is because once a person expatriates, the expatriating event is complete, and the covered expatriate analysis kicks in — without the opportunity to perform any “exit tax planning.”
How to Relinquish U.S. Status
There are various ways to relinquish U.S. Status.
The two simplest ways is for a Green Card Holder to file a Form I-407 (Voluntary Abandonment) or a U.S. Citizen to relinquish their Citizenship at the local consulate of the country they reside.
Once the process is complete, they will receive a certificate of loss of nationality.
*There are tax traps for LTRs who file 8833 after being an LPR for eight years (see below).
Who May be a Covered Expatriate?
There are really only two main categories of U.S. individuals who may even qualify as a Covered Expatriate.
Either a U.S. Citizen, or Legal Permanent Resident (LPR) who is a Long-Term Resident (LTR). An LTR is someone who has been an LPR for eight of the last 15-years.
What Happens to U.S. Citizens and LTRs?
When a Person is a U.S. Citizen or Long-Term Resident, they have to complete the Covered Expatriate analysis.
There are (3) three-ways to become a covered expatriate:
- Meet the “Net-Worth” Test; or
- Meet the “Net Income Tax Liability” Test; or
- Unable to Certify Tax Compliance for the past 5 years.
Do Covered Expatriates Pay Exit Tax?
Presuming that a person meets the Covered Expatriate Test, they then have to prepare the Form 8854 balance sheet involving the Mark-to-Market sale on unrealized gain.
For example, if Daniel wants to expatriate and is a covered expatriate, he must determine the basis of his properties and assets, along with the market values, and treat them as sold the day before expatriation.
There are many complex rules to this analysis.
For example, some items may be deemed distributed (ineligible deferred compensation plans), some items may be deferred (eligible deferred compensation plans) and other items may be excluded.
Moreover, the basis on some property held before the person became a U.S. Person may increase (step-up rules), and once the analysis is complete, an exclusion amount is applied to offset potential tax liability.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.