Hello,
A new law is likely to be passed this month that will institute an “exit” tax. This will apply to anyone who gives up US citizenship or a greencard held for at least 8 years. This law as it currently stands applies from the date the bill is signed by the President, which will probably be later this month. Persons who expatriated prior to that date are not affected.
The bill is H.R.2, The Fair Minimum Wage Act of 2007, and was passed by the House on 10 Jan 2007. The bill raises the national minimum wage, a law most Americans favour. When it got to the Senate, they wanted to add some breaks for small businesses that employ these minimum wage people, and yet they also wanted the bill to be revenue neutral. They added a number of clauses that were not part of the House of Representatives’ original vision for the bill.
Section 205 of the bill is the focus of this notice. Please read carefully if you are considering giving up your US citizenship or US greencard.
Section 205 creates a new “exit tax” on all persons who give up, renounce, and/or relinquish their US citizenship or greencard. For greencard holders, expatriation can and does happen involuntarily. It also applies to US citizenship (though no one can force you to give up US citizenship). You are deemed to have sold all your worldly goods on the date of expatriation. The first $600,000 is exempt, and the rest is taxed and due within 90 days of expatriation. There is no step-up in basis for arrival to the US, so for greencard holders this tax is also on gain incurred prior to moving to the US. US retirement plans are deemed distributed and taxed immediately. Taxpayers’ interests in foreign trusts are taxable, even if there is no legal access to the funds.
If a US person receives a gift or bequest from an expatriate, there is now an income tax on such gifts and bequests.
If anyone who gives up their greencard or US citizenship after the law is passed is noncompliant with this tax law, they are considered criminals and may never return to the US again.
Again, for anyone who gave up citizenship or greencard prior to this date, you are not affected by this new law.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.
Please do NOT reply on this email as your only source of information about this tax law. Speak with both a qualified expatriate tax advisor and a specialist expatriation lawyer prior to making any decision to expatriate.
All laws are subject to change; especially those that are still “just a bill”. By the time this bill becomes law, the exit tax may have been removed, or the effective date of the bill could be retroactively set to 1 Jan 2007. Since the exact final text is not yet known, proceed with caution.
