New U.s. Exit Rulings

[ETC]

Received this in my monthly Immigration news letter, from my attorney, and thought it might be of some interest.

1. New “Exit Tax” Imposed on U.S. Citizens and Long-Term Permanent Residents

A new “exit tax” applies to U.S. citizens who expatriate and long-term permanent residents who lose their status (voluntarily or otherwise) on or after June 17, 2008. The exit tax includes a capital gains tax on the unrealized gain in a covered expatriate’s worldwide assets, and a transfer tax on all gifts and bequests from a covered expatriate to any U.S. person during the life or upon the death of the covered expatriate. A “covered expatriate” is a person who gives up U.S. citizenship or loses permanent resident status (having held it for at least eight of the past 15 years) and who: (1) has a net worth of more than $2 million; or (2) had average U.S. federal income tax liability of more than $139,000 over the past five years; or (3) fails to certify under penalty of perjury that he has complied with all federal tax obligations for the past five years. There are limited exceptions for dual citizens from birth and persons who expatriate before age 18½ years.

The exit tax is a major deterrent for wealthy individuals who are considering permanent resident status, and a potentially huge tax penalty for permanent residents who wish to leave the U.S. or have already done so. It is already prompting wealthy individuals who have held permanent resident status for less than eight years to surrender their green cards before they become subject to this tax. In such circumstances, there are several nonimmigrant visa options that permit long-term residence in the U.S. without exposure to the exit tax.

[taxout]

In a broad sense, nothing new here.

There's long been a form of "exit tax" for the wealthy who give up their US citizenship or green cards. The old exit tax with somewhat different rules was set out at Section 877 of the tax code and the new one's Section 877A. Some folks who give up citizenship or their green cards will do better under the new rules, some worse.