U.S. Expatriation and Exit Tax Explained
U.S. Expatriation and Exit Tax Explained: Expatriation is the process of relinquishing or renouncing your U.S. status. For some people such as U.S. citizens, it can be a very complex (and exhaustive) process, and may involve a detailed tax analysis to submit to the IRS. For some Legal Permanent Residents (aka Green Card Holders) who are considered LTR (Long-Term Residents), it may also be complicated/ We wanted to try to dispel some of the inaccuracies, and provide a basic summary to assist you in the process.
Taxes & Expatriation: Common Questions & Answers
Here are some common questions we receive on expatriation and taxes:
Are You Even Subject to Possible Exit Tax?
In order to determine if you are a covered expatriate (see item 2. below), you must meet the threshold requirements of whether you may even qualify as a Covered Expatriate. Generally, a to potentially qualify as a covered expatriate you must first be either:
- A U.S. Citizen; and
- A Legal Permanent Resident (LPR), who has been an LPR for 8 of the last 15-years. This is referred to as an LTR (Long-Term Resident)
*There are exceptions for certain dual-citizens, minors, and those who (properly) claimed non-resident status during the compliance period.
Who is a Covered Expatriate?
There are 3-categories of covered expatriates:
- Net Worth Test ($2M) – remember it is “NET” not “Gross Value”
- Net Income Tax Test – Foreign Tax Credits will offset NITT
- Unable to show 5-years of IRS tax compliance
If you meet any of these three requirements, you may subject to Exit Tax.
What is a Mark-to-Market Sale?
If you qualify as a covered expatriate, you then have to conduct a “Sale” of your items on paper. For example, if you own stock you purchased for $300K, which is now worth $900K, that is a $600K gain. You are allowed a certain amount of automatic gain reduction of $725,000 (Adjusted annually for inflation).
Are all My Assets Included in the Paper Sale?
No. Not all Assets are Included in the sale. Some assets are deemed distributed at the time of expatriation. Other assets are not deemed distributed until they are actually distributed, with a 30% withholding tax applied.
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 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 Offshore 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.