Does the US Have an Exit Tax?

Does the US Have an Exit Tax?

You may be leaving the United States, but you cannot relinquish your tax liabilities.  In an effort to discourage US citizens from renouncing citizenship for tax avoidance purposes, the Internal Revenue Service imposes upon expatriates a tax known as the expatriation tax, or exit tax.  It doesn’t matter if you’re a US expatriate living in Lebanon, Greece, Singapore, Switzerland, or anywhere else in the world – you must comply with exit tax requirements if you wish to avoid penalization. Who is Subject to Exit Tax? In 1966, Congress passed legislation permitting for taxation of former US citizens under IRC Section 877, which provides that former citizens may be taxed for up to a decade following renunciation of citizenship.  IRC Section 877 was amended in 1996 by the Reed Amendment, and once more in 2004 by the American Jobs Creation Act (AJCA).   The current version of the exit tax was revised in 2008. The provisions of IRC Section 877 apply to two groups of taxpayers: “US citizens who have renounced their citizenship” (i.e. expatriates). “Long-term residents who have ended their US resident status for federal tax purposes.” This refers to green card visa holders who terminate residency after holding a green card for at least eight out of the past 15 tax years. If you belong to either of these categories, you are subject to exit tax. Put simply, exit tax is an income tax.  Assets held by an expatriate (or green card holder) will be treated as though they were sold the day before the individual renounced his or her citizenship or US resident status.  Profits resulting from the...