Content
- 1 What is Expatriation?
- 3 Voluntary abandonment vs. Involuntary abandonment
- 4 Expatriate covered vs. Expatriate not covered
- 5 exceptions
- 6 Expatriation with IRS Extraterritorial Disclosure
- 7 Interested in US Expatriation?
What is expatriation?
What is Expatriation?
Departure tax requirements for covered expatriates (citizens and residents): Expatriation under US tax law is a very complex task. One of the most common misconceptions about expatriation in the United States and the IRSThe definition of expatriate is that it only involves US citizens and is only for wealthy people, but both assumptions are incorrect.Expatriation is the process of giving up American status. includes bothAmerican citizens,and Green Card Holders (also known as Legal Permanent Residents) who meet the definition of aLong Term Resident(LTR). The basic perspective is that the formal expatriation rules apply to: US Citizens and Lawful Permanent Residents. If a person does not fall into any of these categories, when he leaves the US, he is not considered an expatriate for tax purposes.
US citizens and permanent residents
Expatriation is the process of giving up a person's US status.
Expatriation rules don't just apply to the wealthy. Even if a person falls below the net worth test, if they meet the net income tax test and/or cannot certify that they have complied with US tax obligations for the last 5 years, will also qualify ascovered expat— and may be subject to US departure tax.
The most common example of an expatriate is when a person is a US citizen, either by birth or by naturalization, but with recent changes in tax laws, many more long-term residents are giving up their US status as well.
example of a US citizen
In the most common example, a person was born a US citizen.
Example:Michael grew up in the US and later began working abroad.
You started earning significant income in a foreign country with a lower tax rate.
Now that Michael has a high income, he has a dilemma. As a US citizen, he is subject to US taxes on his worldwide income.
In the foreign country where Michael lives and calls home, his tax rate is 20%. In the US, Michael's tax rate is 37%. Michael never visits the United States except for work and has no other ties to the United States.
As a result, Michael does not want to pay the hefty additional tax to the US and decides that he will renounce his US citizenship.
Green Card Example (Legal Permanent Resident)
This is becoming a growing problem as international tax and reporting rules continue to become more and more complex.
Example: Ingrid came to the US as an F-1 student and then as an H-1B student. A few years later, she is a green card holder and has been in the United States since 2003.
It is now 2020 and Ingrid wants to return to Peru, but she has accumulated significant assets.
Her children (and grandchildren) are now adults and Ingrid wants to enjoy her last years in her native country.
From a US tax perspective, Ingrid has been a green card holder for only 20 years.
If Ingrid wants to give up her green card, she must do more than just let her green card expire: she must complete a Form I-407 (or pursue other waiver options) and file a Form 8854.
Because?
Because Ingrid has had a green card for at least 8 of the last 15 years. Therefore, she is considered LTR (Long Term Resident) and must complete a Form 8854.
What happens if Ingrid's Green Card expires?
You may no longer be a valid green card holder, but thatNoeliminate your US tax liability.
Voluntary abandonment vs. Involuntary abandonment
To remove someone's US tax status, you need to do more than just let their green card expire. Instead, the person must take proactive action. In other words, the green card holder must take an affirmative step to remove the stain of US tax liability, even after the green card expires.
The simplest method is to complete a Form I-407.
Form I-407
Form I-407, Record of Abandonment of Lawful Permanent Resident Status, is designed to provide a simple procedure for submitting an individual's waiver of lawful permanent resident (LPR) status in the United States.
Use of Form I-407 also ensures that a person renouncing LPR status is informed of the right to a hearing before an immigration judge and that the person has knowingly, voluntarily, and affirmatively waived that right.
Form I-407 Language of Certification
Form I-407, Record of Abandonment of Lawful Permanent Resident Status, was created to provide a simple procedure for filing an abandonment of a person's lawful permanent resident status in the United States.
Use of Form I-407 also ensures that a person renouncing LPR status is informed of the right to a hearing before an immigration judge and that the person has knowingly, voluntarily, and affirmatively waived that right.
Form I-407, Record of Abandonment of Lawful Permanent Resident Status, was created to provide a simple procedure for filing an abandonment of a person's lawful permanent resident status in the United States.
Use of Form I-407 also ensures that a person renouncing LPR status is informed of the right to a hearing before an immigration judge and that the person has knowingly, voluntarily, and affirmatively waived that right.
Expatriate covered x Expatriate not covered
When it comes to evaluating expatriation, one of the most important determinations is whether or not the person expatriating qualifies as a covered expatriate.
To recap the process:
- First, the expatriate must determine if they are a US citizen or long-term resident.
- Then take the three different expat tests covered.
A. Net income tax liability
Your average annual net tax liability for the 5 tax years ending before your expatriation date is greater than the amount listed below.
The. $139,000 for 2008.
(Video) What is Expatriation? An Introduction to Covered vs. Uncovered Expat StatusB. $145,000 for 2009.
in. $145,000 pair 2010.
D. $147,000 for 2011.
It is $151,000 for 2012.
F. $155,000 for 2013.
gram. $157,000 for 2014.
there is $160,000 for 2015.
I. $161,000 for 2016.
j. $ 162.000 para 2017.
k. $165,000 for 2018.
I. $168,000 for 2019.
$171,000 for 2020.
$172,000 for 2021.
B. Equity Test
Your net worth was $2 million or more on the date of your expatriation.
C. 5-year tax certification
You have been unable to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years prior to the date of your expatriation.
exceptions
There are some exceptions to the covered expatriate status.
According to the IRS:
Dual citizenship and certain minors
Dual citizens and certain minors (defined below) will not be treated as covered expatriates (and therefore will not be subject to expatriation tax) solely because one or both of the statements in paragraph (1) or (2) above (under Covered Expatriate) applies.
However, these individuals will continue to be treated as covered expatriates unless they complete Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation, as required in paragraph (3). (under Covered Expatriate, above).
Certain dual citizens
You may qualify for the exception described above if you meet both of the following requirements.
You became a US citizen at birth and a citizen of another country, and as of the expatriation date, you continue to be a citizen and pay taxes as a resident of that other country.
Resided in the United States for not more than 10 years during the 15 fiscal year period ending with the fiscal year during which the expatriation occurred.
To determine US residency, use the substantial presence test described in Chapter 1 of Pub. 519.
certain minors
You may qualify for the exception described above if you meet both of the following requirements.
You were an expatriate before you turned 18 and a half years old.
You have resided in the United States for not more than 10 tax years before expatriation takes place.
To determine US residency, use the substantial presence test described in Chapter 1 of Pub. 519.
Expatriação com IRS Offshore Disclosure
A very common situation in recent years has been when a US citizen or long-term resident wants to expatriate but is out of compliance with international offshore reporting. In this scenario, the client cannot certify that she has been in compliance for 5 years.
Therefore, we have developed a strategy to place the client in offshore compliance and complete the expatriation process.
Interested in Expatriation from the United States?
our companyspecialize-exclusivelyin international taxation.
Contact our company todayfor help in achieving compliance.