Definition of Terms
BENEFITS AND BURDENS OF
RELINQUISHMENT (OR RENOUNCEMENT)
OF U.S. CITIZENSHIP OR TERMINATION OF
U.S. LONG-TERM RESIDENCY
U.S. Taxation of the Expatriate
ALTERNATIVE TAX REGIME. The term “Alternative Tax Regime” means the tax regime applicable to an individual for income tax purposes for the 10 taxable years ending after expatriation (see IRC Section 877), as follows:
(a) The individual is subject to tax on U.S. source income at the rates applicable to U.S. citizens rather than the rates applicable to other nonresident noncitizens (see IRC Section 877(b)).
(b) The scope of items treated as U.S. source income for section 877 purposes is broader than under the general sourcing rules (see IRC Section 877(d)).
(c) The individual is taxed on exchanges of certain types of property that give rise to U.S. source income for property that gives rise to foreign-source income (see IRC Section 877(d)(2)).
(d) The individual is taxed on certain income or gain derived from stock in a closely-held foreign corporation (see IRC Section 877(d)(1)(C)).
(e) The individual is taxed on income or gain from certain property contributed to a controlled foreign corporation (see IRC Section 877(d)(4)).
(f) The individual will be required to file an annual statement (Form 8854) under amended IRC Section 6039G with the IRS to report world wide income, assets and liabilities for the year, the number of days of U.S. physical presence during the year and other personal information. A $10,000 penalty can be imposed for failure to file a timely statement in any year.
(g) If an expatriate controls (as specifically defined) a non-U.S. company which in turn owns U.S.-situs assets and if the expatriate makes a gift of the stock, gift tax may be imposed to the extent that the company owns U.S.-situs assets.
(h) An individual will be reclassified as a resident for income tax, estate tax, gift tax and GST tax for any calendar year (during 10-year period) in which the individual is physically present in the U.S. on more than 30 days (such period can be extended by up to 30 more days if the individual meets certain tests and visits the U.S. on business trips for a qualifying employer).
ANNUAL NET INCOME TEST. The term “Annual Net Income Test” means an individual whose average annual net income tax for past 5 years preceding their expatriation is greater than $ 124,000.
CERTIFICATION PROCEDURES. The term “Certification Procedures” means an individual who certifies under penalty of perjury that he has complied with all U.S. federal tax obligations for 5 years preceding their expatriation and submits such evidence of such compliance as the Secretary may require.
LONG-TERM RESIDENT. The term “Long-Term Resident” means a resident who was a lawful permanent resident of the U.S. in at least 8 taxable years out of the preceding 15 taxable years.
NET WORTH TEST. The term “Net Worth Test” means an individual whose net worth (at the time of expatriation) is $ 2 million or more.