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Expatriation rules

I am in the process of researching the rules about expatriation when a person renounces US citizenship. Since, in all my years of working with expats, I have never come across this situation I am looking for any experiences that other posters may have had. My client is a US citizen because his father was a US citizen. His mother was French and he was born in South Africa. He is now 31 years old and has lived only 4 or 5 years, between the ages of 5 and 9, in the US. He has two children but cannot obtain US citizenship for them because he did not live in the US for at least 2 years after he was 16. He draws a salary from a non-US employer and pays all Thai taxes. He files a US tax return each year. He owns shares in the non-US company which has recently gone public. These shares pay very substantial dividends and are worth a fortune. He has no assets in the US, receives no income from US sources, and has no known relatives in the US. Now, if he renounces his US citizenship, can we argue that his motives are not tax based? He is a US citizen because of his father's decision to register his birth. He was not born in the US, for all intents and purposes has not lived in the US, and probably never will. He has not paid into Social Security and will probably never qualify for benefits. This is a new client, he just came to me yesterday, and I've just started my research. I'm not looking for book answers or comments. I would like to know if any one on MTM has had any experience with the expatriation rules and what those experiences were. Any help would be much appreciated.

Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

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Reply to
L K Williams
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Are you sure he really is a U.S. Citizen? The person best qualified to answer this question is: Director - Overseas Citizens Services Room 4817 N.S. Department of State 2201 C Street N.W. Washington, D.C. 20520

Sorry, no email address was found.

Is he paying U.S. taxes at this time other than just filing forms?

Dick

Reply to
Dick Adams

One of the key's too getting a ruling from the IRS that expatriation is not for tax motivated reasons is demonstrating a closer connection to a foreign country - as in birth, cultural and political relationship, etc. I am in the process of planning for the same issue. I am a tax attorney in Florida. snipped-for-privacy@gmail.com

Reply to
Ryan

What are the non-tax reasons for renouncing?

In Furstenberg v. Commissioner, 83 T.C. 755 (1984) the Tax Court said that "principal purpose" means one of the main purposes. Just because it's a purpose doesn't make it a primary purpose. Stu

Reply to
Stuart A. Bronstein

The issue of your client's subjective motivation for expatriation is irrelevant to whether Section 877 applies to him. The Jobs Act of 2004 amended 877 to remove the reference to expatriation for the purpose of tax avoidance and instead inserted an objective test for application of Section 877, and two exceptions based on objective criteria. The Sec. 877 expatriation regime therefore will apply to your client regardless of his motives for renouncing US citizenship unless he fails to satisfy one or more of the three objective criteria in Sec. 877(a)(2) (he most likely won't qualify for the dual citizen exception, the only one potentially available, because he was most likely a US resident for several years as a child; however, you might consider whether he could meet the "closer connection" exception to the substantial presence test under Sec.

7701(b)). If you bring up the motivation issue, you may get some tea and sympathy from the IRS, but you won't get an exception to the expatriation tax.
Reply to
Shyster1040

Shyster is correct. The expatriation rules are no longer subjective. If your client has a net worth less than $2 million, had an average US tax liability less than $127 thousand for the past three years, and can certify that he has filed his U.S. taxes, then he can avoid the section 877 expatriation rules. Either way, he will need to file Form

8854 and I-407. Until he files these forms, he will be taxed as a U.S. citizen. The good news is that even if he cannot avoid the expatriation rules, he will probably not owe additional U.S. tax. He will have to file (I think Form 8854) for 10 years. He would only owe U.S. tax if he has U.S. source income. The sourcing rules for this purpose are broader than the normal sourcing rules and include income from CFCs that were earned prior to expatriation (you should check to see if the company he owns part of was ever a CFC - he may have already had a section 1248 inclusion if the entity went from being a CFC to a Non-CFC). Also, if he comes back to the U.S. for a 30 day period during the 10 year expatriation period, he will be treated as a resident of the U.S. for that year. Lastly, it is theortically possible that he could be denied a visa to enter the U.S., but apparently the government has not yet done this.
Reply to
jmail7

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