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How U.S. Expats Can Get Off The Tax Hook When They Renounce Their Citizenship

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According Journalofaccountancy.com Native-born and naturalized US citizens may relinquish their citizenship in terms of the procedures listed at 8 USC Section 148(a).

The IRS announced Friday on its website that some expatriates from the United States may obtain relief from the exit tax of Section 877A and other tax liabilities under new procedures announced in News Release IR-2019-151.

 

The relief will apply to taxpayers who will relinquish their citizenship after March 18th, 2010 and meet the following criteria:

  1. The taxpayer must comply with all federal tax requirements for the year of expatriation as well as for the five years immediately preceding.
    • The taxpayer’s property is deemed as sold for its fair market value one day before the day of expatriation and any resulting net gains beyond $725,000 (2019) is included in their income.
  2. The taxpayer had an average net annual income tax liability during the five years preceding the date of expatriation, of more than the specified amount – which is $168,000 for 2019.
  3. The taxpayer has a net worth of more than $2 million.
  4. Or – believe it or not – the taxpayer cannot certify (under penalty of perjury) that he or she has met all applicable tax requirements for the preceding five tax years or fails to submit evidence of the same. This can be certified with Form 8854, Initial and Annual Expatriation Statement.
  5. Any failure to file the required tax returns and pay the required taxes and penalties for the above mentioned years must not have been due to the taxpayer’s willful conduct.
  6. The taxpayer must have no filing history as a US citizen or resident.
  7. The taxpayer must meet the stated tax liability limits for covered expatriates for the period of five years preceding the date of expatriation and meet the $2 million-net-worth limit at the time of expatriation and when applying for relief.
  8. Should not have an aggregate tax liability of more than $25,000 for the six tax years at issue.
  9. Must agree to complete and submit all required federal tax returns for the six years at issue, including all required schedules and information returns.

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So even those who do not qualify, those with income tax liabilities and net worth’s below the threshold, can still qualify!

Under Friday’s notice, individuals who meet the “specified requirements” will not be deemed ‘covered expatriates’ for the purposes of Section 877A and will therefore not be liable for any unpaid taxes or penalties for the year of expatriation and previously.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

Tax Planning for U.S. Expats

We look forward to helping you get the most benefit from these tax law changes. Please contact us for more information, in FAS CPA & Consultants are ready to assist you with all of your offshore tax matters. You can call us or email at support@fascpaconsultants.com and request a free consultation that will answer your most pressing tax questions.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA is a Certified Public Accountant, specialized in Tax Planning for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution and Offshore Strategies. You can email him to fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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