26 U.S. Code § 877A - Tax responsibilities of expatriation
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(a) General rules
For purposes of this subtitle—
(1) Mark to market
All property of a covered expatriate shall be treated as sold on the day before the expatriation date for its fair market value.
(2) Recognition of gain or loss
In the case of any sale under paragraph (1)—
(A)notwithstanding any other provision of this title, any gain arising from such sale shall be taken into account for the taxable year of the sale, and
(B)any loss arising from such sale shall be taken into account for the taxable year of the sale to the extent otherwise provided by this title, except that section 1091 shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence, determined without regard to paragraph (3).
(3) Exclusion for certain gain
(A) In general
The amount which would (but for this paragraph) be includible in the gross income of any individual by reason of paragraph (1) shall be reduced (but not below zero) by $600,000.
(B) Adjustment for inflation
(i)In general In the case of any taxable year beginning in a calendar year after 2008, the dollar amount in subparagraph (A) shall be increased by an amount equal to—
(b) Election to defer tax
(1) In general
If the taxpayer elects the application of this subsection with respect to any property treated as sold by reason of subsection (a), the time for payment of the additional tax attributable to such property shall be extended until the due date of the return for the taxable year in which such property is disposed of (or, in the case of property disposed of in a transaction in which gain is not recognized in whole or in part, until such other date as the Secretary may prescribe).
(2) Determination of tax with respect to property
For purposes of paragraph (1), the additional tax attributable to any property is an amount which bears the same ratio to the additional tax imposed by this chapter for the taxable year solely by reason of subsection (a) as the gain taken into account under subsection (a) with respect to such property bears to the total gain taken into account under subsection (a) with respect to all property to which subsection (a) applies.
(3) Termination of extension
The due date for payment of tax may not be extended under this subsection later than the due date for the return of tax imposed by this chapter for the taxable year which includes the date of death of the expatriate (or, if earlier, the time that the security provided with respect to the property fails to meet the requirements of paragraph (4), unless the taxpayer corrects such failure within the time specified by the Secretary).
(A) In general
No election may be made under paragraph (1) with respect to any property unless adequate security is provided with respect to such property.
(B) Adequate security
For purposes of subparagraph (A), security with respect to any property shall be treated as adequate security if—
(i)it is a bond which is furnished to, and accepted by, the Secretary, which is conditioned on the payment of tax (and interest thereon), and which meets the requirements of section 6325, or
(5) Waiver of certain rights
No election may be made under paragraph (1) unless the taxpayer makes an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of any tax imposed by reason of this section.
An election under paragraph (1) shall only apply to property described in the election and, once made, is irrevocable.
For purposes of section 6601, the last date for the payment of tax shall be determined without regard to the election under this subsection.
(c) Exception for certain property
Subsection (a) shall not apply to—
(d) Treatment of deferred compensation items
(1) Withholding on eligible deferred compensation items
(A) In general
In the case of any eligible deferred compensation item, the payor shall deduct and withhold from any taxable payment to a covered expatriate with respect to such item a tax equal to 30 percent thereof.
(B) Taxable payment
For purposes of subparagraph (A), the term “taxable payment” means with respect to a covered expatriate any payment to the extent it would be includible in the gross income of the covered expatriate if such expatriate continued to be subject to tax as a citizen or resident of the United States. A deferred compensation item shall be taken into account as a payment under the preceding sentence when such item would be so includible.
(2) Other deferred compensation items
In the case of any deferred compensation item which is not an eligible deferred compensation item—
(i)with respect to any deferred compensation item to which clause (ii) does not apply, an amount equal to the present value of the covered expatriate’s accrued benefit shall be treated as having been received by such individual on the day before the expatriation date as a distribution under the plan, and
(3) Eligible deferred compensation items
For purposes of this subsection, the term “eligible deferred compensation item” means any deferred compensation item with respect to which—
(A)the payor of such item is—
(4) Deferred compensation item
For purposes of this subsection, the term “deferred compensation item” means—
Paragraphs (1) and (2) shall not apply to any deferred compensation item to the extent attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.
(6) Special rules
(A) Application of withholding rules
Rules similar to the rules of subchapter B of chapter 3 shall apply for purposes of this subsection.
(B) Application of tax
Any item subject to the withholding tax imposed under paragraph (1) shall be subject to tax under section 871.
(e) Treatment of specified tax deferred accounts
(1) Account treated as distributed
In the case of any interest in a specified tax deferred account held by a covered expatriate on the day before the expatriation date—
(A)the covered expatriate shall be treated as receiving a distribution of his entire interest in such account on the day before the expatriation date,
(2) Specified tax deferred account
For purposes of paragraph (1), the term “specified tax deferred account” means an individual retirement plan (as defined in section 7701(a)(37)) other than any arrangement described in subsection (k) or (p) ofsection 408, a qualified tuition program (as defined in section 529), a Coverdell education savings account (as defined in section 530), a health savings account (as defined in section 223), and an Archer MSA (as defined in section 220).
(f) Special rules for nongrantor trusts
(1) In general
In the case of a distribution (directly or indirectly) of any property from a nongrantor trust to a covered expatriate—
(A)the trustee shall deduct and withhold from such distribution an amount equal to 30 percent of the taxable portion of the distribution, and
(2) Taxable portion
For purposes of this subsection, the term “taxable portion” means, with respect to any distribution, that portion of the distribution which would be includible in the gross income of the covered expatriate if such expatriate continued to be subject to tax as a citizen or resident of the United States.
(3) Nongrantor trust
For purposes of this subsection, the term “nongrantor trust” means the portion of any trust that the individual is not considered the owner of under subpart E of part I of subchapter J. The determination under the preceding sentence shall be made immediately before the expatriation date.
(4) Special rules relating to withholding
For purposes of this subsection—
(B)the covered expatriate shall be treated as having waived any right to claim any reduction under any treaty with the United States in withholding on any distribution to which paragraph (1)(A) applies unless the covered expatriate agrees to such other treatment as the Secretary determines appropriate.
(g) Definitions and special rules relating to expatriation
For purposes of this section—
(1) Covered expatriate
(A) In general
An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if—
(I)became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
(C) Covered expatriates also subject to tax as citizens or residents
In the case of any covered expatriate who is subject to tax as a citizen or resident of the United States for any period beginning after the expatriation date, such individual shall not be treated as a covered expatriate during such period for purposes of subsections (d)(1) and (f) andsection 2801.
The term “expatriate” means—
(3) Expatriation date
The term “expatriation date” means—
(4) Relinquishment of citizenship
A citizen shall be treated as relinquishing his United States citizenship on the earliest of—
(A)the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
(B)the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)–(4)),
(C)the date the United States Department of State issues to the individual a certificate of loss of nationality, or
(D)the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.
(5) Long-term resident
(h) Other rules
(1) Termination of deferrals, etc.
In the case of any covered expatriate, notwithstanding any other provision of this title—
(A)any time period for acquiring property which would result in the reduction in the amount of gain recognized with respect to property disposed of by the taxpayer shall terminate on the day before the expatriation date, and
(2) Step-up in basis
Solely for purposes of determining any tax imposed by reason of subsection (a), property which was held by an individual on the date the individual first became a resident of the United States (within the meaning of section 7701(b)) shall be treated as having a basis on such date of not less than the fair market value of such property on such date. The preceding sentence shall not apply if the individual elects not to have such sentence apply. Such an election, once made, shall be irrevocable.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
 See References in Text note below.
Source(Added Pub. L. 110–245, title III, § 301(a),June 17, 2008, 122 Stat. 1638.)
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under section 1 of this title.
References in Text