If a taxpayer has been a legal permanent resident of the United States in eight of the last 15 years, then such taxpayer must inquire if he is subject to the expatriation tax regimes upon relinquishment of their “Green Card.”
The main threshold amounts to being subjected to the expatriation tax regimes are (1) if such taxpayer had income tax liabilities in the last five years that exceeded an inflation adjusted sum ($155,000 in 2013) or (2) if the worldwide assets of such taxpayer exceeded $2,000,000.00.
Many times taxpayers do not exceed the income tax or asset threshold that would lead them to being subject to the expatriation tax regimes but fail to satisfy the final requirement and thus become trapped in the intricacies of the expatriation tax regimes anyway:
The Internal Revenue Code requires that an expatriate provide a statement to the Internal Revenue Service on Form 8854 in the year that the expatriate terminates their residency. On this Form, the expatriate certifies that he has been in compliance with the Internal Revenue Code for the last 5 years. Failure to provide such a statement on Form 8854 in the year of termination of residency, leads to the expatriate being subjected to the expatriation tax regimes, regardless of whether he meets the threshold amounts discussed above.
The expatriation taxes, in the most simplistic terms, are calculated as follows:
The expatriate is treated as if he had sold all of his assets at the fair market value on the day before he terminated his residency in the US. Any gain that exceeds an inflation adjusted exemption ($663,000 in 2013) is then subject to taxation in the year of termination of US residency.
Please Note: Even if an expatriate exceed the threshold amounts outlined above, there are many planning opportunities to minimize the impact of the expatriation tax regimes, especially if the spouse remains a US-Resident.
Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.