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Services for US Expatriation

Many American citizens who have lived outside the United States for a number of years find it increasingly difficult to reconcile paying and reporting taxes on worldwide income to the US.

For personal or financial reasons, an individual may therefore decide to renounce their US citizenship. Under certain circumstances, the US may then impose an expatriate tax or “exit tax” at the time of expatriation.

Exit Tax triggers

The US Exit Tax is imposed if any of the following criteria are met:

  • The individual’s net worth is in excess of $2 million (value of all assets including house, pensions, deferred compensation, etc.)
  • The taxpayer has not complied with his or her US tax obligations (reporting and paying) for the last 5 years
  • The individual’s average tax liability for the last five years exceeds $165,000 (adjusted for inflation)

Dual Citizen Exception

If the expatriate was a dual citizen at birth, the $2 million trigger does not apply; provided the individual is resident in the country of the dual citizenship.

Green Card Holders

The US exit tax also applies to Green Card holders who have held their Green Card during eight of the last 15 years preceding expatriation (referred to as Long-Term Residents). Green Card holders remain liable for US taxes until they formally give up their Green Card or it is determined to be administratively or judicially abandoned. The fact that the Green Card may no longer support US residence is not determinative. In other words, just throwing the card in the drawer and forgetting about it does not relieve the individual of their US tax obligations. It is possible for a Green Card holder who left the United States years ago to still be subject not only to US income tax, but to the exit tax if they decide to formally revoke the Green Card.

Need help calculating the Exit Tax?

The US exit tax is based on the assumption that the expatriate sells all of their assets and receives all of his or her deferred compensation (including all pension plans) immediately before the expatriation date. The gain on the sale of the assets is reduced by $713,000 (in 2018—adjusted annually).

This exclusion only applies to the gain realised on the deemed sale of the individual’s assets. There is no reduction for the pension and deferred compensation amounts subject to the tax.

Voluntary disclosure and getting into compliance

For those who have not complied with their US tax obligations for the last five years, we can help bring them into compliance. Read more about voluntary disclosure options here.

Advice from the experts – plan ahead

There also planning opportunities that may help reduce the taxpayer’s net worth below the $2 million trigger. We have handled many cases of expatriation, so please get in touch if you have any questions. If expatriation is not in the cards right now, let us help you with your overall tax planning – it is never too late or too early to update income tax and estate plans.

Last steps, Form 8854

Form 8854 must be filed to establish the fact that the taxpayer has expatriated.

The form also confirms that you are tax compliant for the five years prior to expatriation; and lists the assets and the value of such assets the taxpayer owned immediately prior to expatriation. This amount determines whether an Exit Tax is owed.

The form is filed with your income tax return for the year in which you expatriate. For example, if expatriation occurred in July 2018, the 2018 income tax return (including Form 8854) would be due on the 15th of April 2019. A separate copy of the form must be sent to the Department of Treasury.

Failure to file Form 8854 may result in a penalty of $10,000.

Did you Know?

  • Fact Seven

    Thanks to FATCA banks must disclose their American account holders to the IRS or local tax authority.
  • Fact Six

    The IRS is actively looking for non compliant US persons.
  • Fact Five

    It takes an average of 16 hours to do IRS Form 1040.
  • Fact Four

    There are over 500 IRS tax forms.
  • Fact Three

    Since 1916, illegal income has been taxable.
  • Fact Two

    US persons must file tax
    returns no matter where they live and work.
  • Text One

    7 million Americans abroad
    only 500,000 compliant