What is the Exit Tax?
In June 2008, Congress enacted the “Exit Tax,” which applies to certain U.S. citizens and U.S. “long-term residents” who relinquish their U.S. citizenship or U.S. green card. These people are referred to as “covered expatriates” and are described in greater detail below.
Where the Exit Tax applies, the covered expatriate is required to calculate the taxable gain on all worldwide assets as if those assets were sold on the day before expatriation and pay an exit tax on the gain above a certain exclusion amount. Severe inheritance tax provisions and tax on deferred compensation may also apply.
Who is subject to the Exit Tax?
Generally, the Exit Tax may be imposed on a U.S. citizens or long-term residents who relinquish U.S. citizenship or long-term residency status if one of the following applies:
- The individual’s annual net income tax liability for the prior five years was greater than $155,000 (2013 amount), or
- The individual’s net worth (including the present value of any pension) on his expatriation date is $2,000,000 or more, or
- The individual fails to certify that he or she has met U.S. tax law requirements for the prior five-year period. This certification is done by filing IRS Form 8854.
How can we help?
The Wolf Group has been providing Exit Tax consulting and compliance services since the law was enacted and provides the following services:
- Exit Tax planning
- Exit Tax compliance
- Calculation of worldwide net worth and average five-year tax liability
- Verification that the client is fully compliant with U.S. tax law for the prior five years
- Preparation of Initial and Annual Expatriation Statement (Form 8854)
- Preparation of the U.S. tax return as a “dual status” taxpayer in the year of expatriation
- Referral to an experienced immigration attorney familiar with the Exit Tax
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