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

This practice note discusses the current version of what is referred to as the "expatriation tax," which covers expatriations that are effective on or after June 17, 2008. The Internal Revenue Code (I.R.C. or Code), in Sections 877 and 877A, imposes the 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 U.S. Unlike some other areas of federal taxation, the Code 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 taxing the U.S. source income and gains following a U.S. citizen's expatriation.