February 2017 VOLUME 28 NUMBER 2 UN ITED STATES MARC J. STROHL, CPA GREEN CARD CHECKLIST his article provides a comprehen - LTR is defined as a legal permanent res - tion of tax motivation so the tax - T sive checklist for a U.S. person pri - ident (“green card holder”) whose sta - payer can no longer request a pri - or to renouncing U.S. citizenship or tus was held in at least any part of eight vate letter ruling to avoid the legal permanent residence. It is not of the last 15 tax years ending with the application of Section 877. Notice intended to teach the technical compe - year in which residency ends. 4 Not 2005-36, 2005-1 CB 1007, removed tence required for self-compliance but it counted is any tax year in which the tax - the presumption of tax avoidance will give the knowledge to determine if payer is treated as a tax resident of a for - by the introduction of the “net a U.S. tax preparer knows all that is nec - eign country that has an income tax worth” and “income tax test” and essary to provide technically competent treaty with the U.S. and the taxpayer did the filing of Form 8854. professional services. not waive treaty benefits. Taxpayers that meet these tests after If (1) or (2) above is met, the expa - June 16, 2008, are subject to the Section triation rules will apply and the tax - 877 and 877A expatriation provisions. Expatriation After June 16, 2008 payer will be deemed a “covered Effective June 16, 2008, the Section 877 expatriate”‘ if any of the following (Expatriation to avoid tax) and Form apply: Exceptions 8854 (Initial and Annual Expatriation 1. Average annual net income tax for Exception (effective June 3, 2004, for - Statement) reporting requirements the five years ending before the date ward) to the expatriation rules applies were amended and Section 877A (Tax of expatriation is more than for dual citizens and certain minors 6 responsibilities of expatriation) was $162,000 for 2017. 5 (however, the Form 8854 certification added to the Code. 1 Different rules 2. Net worth is $2 million or more on regarding U.S. federal tax compliance apply to expatriation (1) before June 4, the date of expatriation. for the last five years must still be sup - 2004; (2) between June 3, 2004, and 3. Effective June 3, 2004, forward, the plied). The exceptions are as follows: June 17, 2008; and (3) after June 16, taxpayer fails to certify on Form • Dual citizen. An individual who was 2008, in accordance with Notice 2009- 8854 that he has complied with all at birth a U.S. citizen, is a citizen of 85, 2009-45 IRB 598. 2 U.S. federal tax obligations for the another country and continues to be Expatriation applies to (1) U.S. citi - five years preceding the date of MARC J. STROHL, CPA, is a Principal at Protax Con - zens or (2) long-term residents (LTRs) expatriation. Effective June 3, 2004, sulting Services Inc. in New York (mstrohl@protaxconsult - 3 that have renounced respectively. An there no longer remains a presump - ing.com; www.protaxconsulting.com). 56 JOURNAL OF INTERNATIONAL TAXATION l FEBRUARY 2017 l DATELINE: U.S. a resident of that country, where he 2. They furnish the State Department treaty with the U.S. and the individ - is taxed as a resident, and was not a with a signed statement of voluntary ual filed Forms 8854 and 8833 U.S. resident for more than ten of the relinquishment of U.S. nationality (Treaty-Based Return Position Dis - last 15 years. (provided that this is followed by closure Under Section 6114 or • Minors. An individual who expatri - issuance of certificate of loss of 7701(b)). ates before 18 1/ years old and was a nationality). 2 resident of the U.S. for not more than 3. The State Department issues a cer - ten years prior to expatriation. tificate of loss of nationality. Expatriation Tax 4. A U.S. court cancels the certificate of Effective June 17, 2008, in accordance naturalization. with the Heroes Earnings Assistance Effective Date Former LTRs. Former LTRs are con - and Relief Tax Act of 2008 (P.L. 110- An individual is considered to have sidered to have terminated long-term 245, June 17, 2008), Section 877A was expatriated as of the later of the date residency as of the earliest of the fol - added to the Code to abolish the exist - that he relinquishes U.S. citizenship or lowing dates: ing expatriation rules with regard to fil - terminates long-term residency. Effec - 1. They voluntarily relinquish/aban - ing U.S. tax returns (Forms 8854 and tive after June 16, 2008, there is no don their green card by filing 1040NR (U.S. Nonresident Alien longer a requirement to file a Form Department of Homeland Security Income Tax Return) for a period of ten 8854 to establish an effective expatria - Form I-407 (Record of Abandon - years, to be replaced by a one-time tion date. ment of Lawful Permanent Resident mark-to-market tax on the individual’s Former U.S. citizens. Former U.S. Status) with a U.S. consular or immi - net unrealized gain on property over a citizens are considered to have relin - gration officer. specified exemption limit, as of the day quished U.S. as of the earliest of the fol - 2. They became subject to a final before the expatriation date. lowing dates: administrative order for removal These new rules align the U.S. with 1. They renounce U.S. citizenship from the U.S. under the Immigration similar tax rules in other income tax before a U.S. diplomatic or consular and Nationality Act and actually left treaty countries. Accordingly, if individ - officer (provided that this is followed the U.S. uals meet the expatriation rules (“cov - by issuance of certificate of loss of 3. For a dual resident, the country of ered expatriates”), they will now be nationality). new residence has an income tax treated as if they sold (deemed sale) all DATELINE: U.S. l FEBRUARY 2017 l JOURNAL OF INTERNATIONAL TAXATION 57 of their property for fair market value Mark-to-market exceptions. These on the day prior to the expatriation include: date. The mark-to-market tax is • Eligible deferred compensation imposed on the property’s net unreal - items. ized gain to the extent that it exceeds • Ineligible deferred compensation $699,000 for 2017. 7 items. This exclusion amount must be allo - • Interests in nongrantor trusts. cated to all built-in gain property that is • Specified tax-deferred accounts. subject to the mark-to-market regime Eligible deferred compensation. Section that the covered expatriate owned on 219(g)(5). All basic work-related quali - the day before expatriation, regardless fied retirement plans are subject to 30% of whether the covered expatriate withholding at source and an irrevocable makes an election (see below) to defer waiver of any right to claim any reduction tax with respect to any property. The in withholding under any treaty with the exclusion first must be allocated pro U.S. These plans include profit-sharing rata to each of the built-in gain proper - plans, including Section 401(k)/403(b); ties by multiplying the exclusion by the annuity plans and contracts; simplified ratio of built-in gain per asset over total employee pension (SEP) plans; simple built-in gains of all assets. The allocat - retirement accounts; foreign pension ed exclusion may not exceed the per- plans; similar retirement arrangements or asset built in gain. If the built-in gains of programs; any item of qualified deferred all assets are less than the total exclu - compensation “substantially vested”; sion, the exclusion is limited to this total qualified or unqualified options; restrict - built-in gain amount. ed stock awards; stock appreciation The exclusion is once per lifetime. rights; and Section 83 property. However, any unused initial exclusion Ineligible deferred compensation. For (subject to a future-year’s inflation any item not covered under eligible adjustment) may be applied to a second deferred compensation, the individual expatriation. is treated as having received the present 1 Gains from the deemed sales must value of the accrued benefits the day Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L. 110-245, June 17, 2008), section 301(a). 2 be taken into account for the tax year of prior to expatriation. Heroes Earnings Assistance and Relief Tax Act of the deemed sale. Deemed losses are Interests in nongrantor trusts (domes - 2008 (P.L. 110-245, June 17, 2008) (expatriation treated under the existing Code and tic or foreign). These are subject to 30% after June 16, 2008); American Jobs Creation Act of 2004 (P.L. 108-357, October 22, 2004), section Regulations. withholding at source and an irrevoca - 804 (expatriation after June 3, 2004). See Liss and Basis step-up. For purposes of ble waiver of any right to claim any Basha, “Expatriation: Opportunities in a Mist of Uncertainty,” 25 JOIT 45 (December 2014). 3 determining the tax imposed, a stepped- reduction in withholding under any Sections 877(e)(2), 877A(g)(2). 4 up basis rule applies to property that an treaty with the U.S. Section 877(e)(2). 5 individual held on the date that he first Specified tax-deferred accounts. For $161,000 for 2016, $160,000 for 2015, $157,000 became a U.S. resident alien (within the these accounts, the individual is treat - for 2014, $155,000 for 2013, $151,000 for 2012, $147,000 for 2011, $145,000 for 2010.