Expatriation Tax: The Tax Consequences of Renouncing U.S. Citizenship

Summary

This practice note discusses the current version of what is referred to as the "expatriation tax," which applies to expatriations that are effective on or after June 17, 2008. The Internal Revenue Code (I.R.C. or Code), primarily in Section 877A, imposes the current expatriation tax regime on certain U.S. citizens who relinquish their U.S. citizenship and on certain long-term U.S. residents who terminate their U.S. residency for federal tax purposes. Unlike some other areas of federal taxation, the Code can subject these "covered expatriates" to federal tax on net unrealized gain inherent in their property, despite the absence of an actual sale or other recognition transaction.