Global Moves: Tax Planning for Permanent U.S. Expatriation

With multiple European and South American countries promising an affordable retirement, Americans are increasingly renouncing U.S. citizenship and expatriating, some gaining citizenship, outside the United States. Relinquishing U.S. citizenship (or green card status) means not being taxed on worldwide income. IRC Sections 877 and 877A impose an expatriation tax on certain U.S. citizens who relinquish their U.S. citizenship and on certain long-term U.S. residents who terminate their residencies in the United States. Unlike some other areas of federal taxation, the IRC subjects these “covered expatriates” to federal tax on the net unrealized gain inherent in their properties—despite the absence of any recognition transactions. In general, the expatriation tax aims to prevent tax avoidance by those who otherwise would take the taxing opportunity with them.  Bon voyage!

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