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IRS.gov Website
Publication 519
taxmap/pubs/p519-016.htm#en_us_publink1000222368

Expatriation Tax(p23)

rule
The expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their residency. The rules that apply are based on the dates of expatriation, which are described in the following sections.
taxmap/pubs/p519-016.htm#en_us_publink1000222369

Long-term resident defined.(p23)

rule
You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits.
taxmap/pubs/p519-016.htm#en_us_publink1000222370

Expatriation Before 
June 4, 2004(p23)

rule
If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U.S. taxes. Unless you received a ruling from the IRS that you did not expatriate to avoid U.S. taxes, you are presumed to have tax avoidance as a principal purpose if:
  1. Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or
  2. Your net worth on the date of your action was $500,000 or more.
The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1).
taxmap/pubs/p519-016.htm#en_us_publink1000222371

Reporting requirements.(p23)

rule
If you lost your U.S. citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended.
Your U.S. residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits.
taxmap/pubs/p519-016.htm#en_us_publink1000222372
Penalties.(p23)
If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect.
taxmap/pubs/p519-016.htm#en_us_publink1000222373

Expatriation tax.(p23)

rule
The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section.
taxmap/pubs/p519-016.htm#en_us_publink1000222375

Expatriation After 
June 3, 2004, and Before 
June 17, 2008(p23)

rule
If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply.
  1. Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than:
    1. $124,000 if you expatriated or terminated residency in 2004.
    2. $127,000 if you expatriated or terminated residency in 2005.
    3. $131,000 if you expatriated or terminated residency in 2006.
    4. $136,000 if you expatriated or terminated residency in 2007.
    5. $139,000 if you expatriated or terminated residency in 2008.
  2. Your net worth is $2 million or more on the date of your expatriation or termination of residency.
  3. You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency.
taxmap/pubs/p519-016.htm#en_us_publink1000222376

Exception for dual-citizens and certain minors.(p23)

rule
Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. However, they still must provide the certification required in (3).
taxmap/pubs/p519-016.htm#en_us_publink1000222377
Certain dual-citizens.(p23)
You may qualify for the exception described above if all of the following apply.
taxmap/pubs/p519-016.htm#en_us_publink1000222378
Certain minors.(p23)
You may qualify for the exception described above if you meet all of the following requirements.
taxmap/pubs/p519-016.htm#en_us_publink1000222379

Tax consequences of presence in the United States.(p23)

rule
The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you.
The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Instead, you are treated as a U.S. citizen or resident and taxed on your worldwide income for that tax year. You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms.
When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply.
  1. You have ties with other countries. You have ties with other countries if:
    1. You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and
    2. You became fully liable for income tax in that country.
  2. You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843.
taxmap/pubs/p519-016.htm#en_us_publink1000222381
Related employer.(p23)
If your employer in the United States is any of the following, then your employer is related to you. You must count any days you performed services in the United States for that employer as days of presence in the United States.
taxmap/pubs/p519-016.htm#en_us_publink1000222382

Date of tax expatriation.(p24)

rule
For purposes of U.S. tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions.
taxmap/pubs/p519-016.htm#en_us_publink1000222383
Annual return.(p24)
If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. You must file this form even if you owe no U.S. tax.
taxmap/pubs/p519-016.htm#en_us_publink1000222384
Penalty.(p24)
If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect.
taxmap/pubs/p519-016.htm#en_us_publink1000222385

How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008)(p24)

rule
If the expatriation tax applies to you, you are generally subject to tax on your U.S. source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U.S. trade or business.
taxmap/pubs/p519-016.htm#en_us_publink1000245950
Table 4-1. Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004
IF you expatriated during . . . THEN the rules outlined on this page apply if . . .
  Your 5-year average annual net income tax was more than ...ORYour net worth equaled or exceeded ...
1999  110,000  552,000
2000  112,000  562,000
2001  116,000  580,000
2002 120,000 599,000
2003 122,000 608,000
2004 (before June 4)* 124,000 622,000
*If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008.
For this purpose, U.S. source gross income (defined in chapter 2) includes gains from the sale or exchange of:
U.S. source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The income or gain is considered U.S. source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above.
Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U.S. source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19.
taxmap/pubs/p519-016.htm#en_us_publink1000222386

Other information.(p24)

rule
For more information on the expatriation tax provisions, including exceptions to the tax and special U.S. source rules, see section 877 of the Internal Revenue Code.
taxmap/pubs/p519-016.htm#en_us_publink1000222387

Expatriation Tax Return(p24)

rule
If you expatriated or terminated your U.S. residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Attach it to Form 1040NR if you are required to file that form. If you are present in the United States following your expatriation and are subject to tax as a U.S. citizen or resident, file Form 8854 with Form 1040.
taxmap/pubs/p519-016.htm#en_us_publink1000222390

Expatriation After 
June 16, 2008(p24)

rule
If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions.
  1. Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than:
    1. $139,000 if you expatriated or terminated residency in 2008.
    2. $145,000 if you expatriated or terminated residency in 2009 or 2010.
  2. Your net worth is $2 million or more on the date of your expatriation or termination of residency.
  3. You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
taxmap/pubs/p519-016.htm#en_us_publink1000222391

Exception for dual-citizens and certain minors.(p24)

rule
Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. However, they still must provide the certification required in (3) above.
taxmap/pubs/p519-016.htm#en_us_publink1000222392
Certain dual-citizens.(p24)
You may qualify for the exception described above if both of the following apply.
taxmap/pubs/p519-016.htm#en_us_publink1000222393
Certain minors.(p24)
You may qualify for the exception described earlier if you meet both of the following requirements.
taxmap/pubs/p519-016.htm#en_us_publink1000222394

Expatriation date.(p24)

rule
Your expatriation date is the date you relinquish U.S. citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U.S. resident).
taxmap/pubs/p519-016.htm#en_us_publink1000222395
Former U.S. citizen.(p25)
You are considered to have relinquished your U.S. citizenship on the earliest of the following dates.
  1. The date you renounced U.S. citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality).
  2. The date you furnished to the State Department a signed statement of voluntary relinquishment of U.S. nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality).
  3. The date the State Department issued a certificate of loss of nationality.
  4. The date that a U.S. court canceled your certificate of naturalization.
taxmap/pubs/p519-016.htm#en_us_publink1000222396
Former long-term resident.(p25)
You are considered to have terminated your long-term residency on earliest of the following dates.
  1. The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U.S. consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status.
  2. The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order.
  3. If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. See Effect of Tax Treaties in chapter 1 for more information about dual residents.
taxmap/pubs/p519-016.htm#en_us_publink1000222397

How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008)(p25)

rule
In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date ("mark-to-market tax"). This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. But see Exceptions, below.
Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U.S. internal revenue laws. Losses from deemed sales must be taken into account to the extent otherwise provided under U.S. internal revenue laws. However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. The net gain that you otherwise must include in your income is reduced (but not below zero) by:
  1. $600,000 if you expatriated or terminated residency before January 1, 2009.
  2. $626,000 if you expatriated or terminated residency in 2009.
  3. $627,000 if you expatriated or terminated residency in 2010.
taxmap/pubs/p519-016.htm#en_us_publink1000222398

Exceptions.(p25)

rule
The mark-to-market tax does not apply to the following.
  1. Eligible deferred compensation items.
  2. Ineligible deferred compensation items.
  3. Interests in nongrantor trusts.
  4. Specified tax deferred accounts.
Instead, items (1) and (3) may be subject to withholding at source. In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. See paragraphs (d), (e), and (f) of section 877A for more information.
taxmap/pubs/p519-016.htm#en_us_publink1000222399

Expatriation Tax Return(p25)

rule
If you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms.
taxmap/pubs/p519-016.htm#en_us_publink1000222400

Deferral of payment of mark-to-market tax.(p25)

rule
You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. If you make this election, the following rules apply.
  1. You can make the election on a property-by-property basis.
  2. The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property.
  3. Interest is charged for the period the tax is deferred.
  4. The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates.
    1. The due date of the return required for the year of death.
    2. The time that the security provided for the property fails to be adequate. See item (6) below.
  5. You make the election on Form 8854.
  6. You must provide adequate security (such as a bond).
  7. You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax.
For more information about the deferral of payment, see the Instructions for Form 8854.