What Happens After You Expatriate: U.S. Taxes & Immigration

What Happens After You Expatriate: Tax and Immigration

What Happens After You Expatriate: Tax and Immigration

For many U.S. taxpayers who previously expatriated from the United States, although they are no longer U.S. persons for tax purposes, they still have a continuing obligation to pay certain U.S. income, gift, or estate taxes. While the expatriate may no longer be taxed by the IRS on their worldwide income, they are still subject to U.S. taxes.  One of the key issues in determining what happens after someone expatriates from the United States is to determine whether they were a ‘covered expatriate’ at the time they formally expatriated. If the taxpayer was not a covered expatriate, then the overall tax and reporting implications are (generally) not too bad. Alternatively, If the taxpayer was a covered expatriate at the time that they expatriated, there may be more complex post-expatriation tax issues, including withholding reduction limitations and taxes due on certain gifts made to US persons. Let’s walk through the basics of what happens after expatriation.

Immigration and Taxes

After a person expatriates from the United States, there are two key U.S. components they may have to contend with — immigration and taxes.

Let’s start with immigration:

Immigration

The main issue with immigration is whether the former U.S. person intends to visit the U.S. in the future and/or become a resident.

Applying for a U.S. Visa

Once a person has formally expatriated from the U.S., they can still visit the U.S. — and if they are glutton for tax punishment, they are still able to become a US person again in the future if they want to (noting, having a visa does not count toward the 8 of 15 LTR rule). Typically, taxpayers will try to plan around becoming a U.S. person for tax purposes if they can.

There are many different types of visas that a post-expatriate can obtain, such as:

• • • B1/B2 travel visa,

    • EB5 investment visa,

    • F1 student visa, or

    • L-1 work transfer visa.

Regaining LPR Status

If a person decides that they are going to become a lawful permanent resident again, it is important to note that the eight of the past 15-year LTR rule does not reset, and getting a new LPR status does not restart the clock. For example, if a person had their green card for six of the past 10 years and then became a green card holder for two more years,  then they may now be considered a long-term resident and possibly covered expatriate.

*If a former US person was a covered expatriate and used a portion of their exclusion bucket, it is important to note that the bucket does not refill with each expatriation – taxpayers get one bucket, no matter how many times they expatriate.

Post-Expatriation U.S. Taxes

The key issue with U.S. taxes is whether the taxpayers were covered or not when they expatriated.

If the Taxpayer was NOT Covered

When it comes to U.S. taxes and reporting for expatriates, one of the key issues is whether they were a covered expatriate or not. When an expatriate is not a covered expatriate, then typically there are not too many complex U.S. tax issues to contend with. The general withholding on most types of passive income (non-EIC income) is 30% (FDAP), but if the Taxpayer lives in a treaty country, they may qualify to reduce or eliminate the withholding on certain types of income. If the former U.S. person still owns US real estate that generates rental income, they may be able to elect to treat FDAP income (30% withholding) as EIC — and be taxed on the progressive tax rate (including using expenses associated with the property to reduce the net income). And while FIRPTA can make selling US real property after no longer being a US person a headache, it is typically manageable, if not simply annoying, for the former US person.

If the Taxpayer was Covered

If the taxpayer was a covered expatriate at the time that they renounced their US citizenship or terminated their lawful permanent status, then it can be more complicated, and they may be subject to different taxes that a non-covered expatriate can avoid

Gifts/Bequests to Non-Spouses

First, other than certain exceptions that are allowable to spouses, most gifts and bequests to U.S. persons are subject to a large gift tax on the transfer. Payment is due at the time the gift is made, and additional reporting may be required (pending the publishing of Form 708)

401K

At the time the covered expatriate files their initial Form 8854, they typically must make an irrevocable waiver of treaty withholding benefits for 401K distributions. In other words, if the taxpayer resides in a country with the withholding is reduced from 30% to 10% or 15%, they cannot take advantage of that benefit because they irrevocably waived the right when they expatriated.

Other Income

In general, FDAP income will be taxed at 30% because they are considered non-resident aliens, but they may be able to reduce the amount of withholding or possibly make an EIC election of applicable (restrictions may apply).

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

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