Insidious New Exit Tax May Cost Expats Dearly!
By Mark Nestmann
March 2007
Congress is on the verge of passing an outrageous law that would impose the first-ever "exit tax" on expatriates (former U.S. citizens or long-term residents).
If it passes, it could include a little-known provision, which demands that expatriates pay a tax on all unrealized gains of their worldwide estate. The gains will be assessed based on the fair market value of the expatriate's assets and the tax due within 90 days of expatriation.
This exit tax applies to assets held in retirement plans and trusts, both domestic and foreign. The only thing it doesn't apply to is U.S. real estate investments, which remain subject to U.S. tax under existing law.
Presumably, the phantom gain would be taxed as ordinary income (at rates as high as 35%) or capital gains (at either a 15% or 25% rate), as provided under current law. When the assets are actually sold, no further U.S. tax will be due (although the gain might be taxed again by the country in which the expatriate resides, leading to double taxation on the same income).
Also, expatriates who must withdraw assets from retirement plan to pay this tax, and are under 59-1/2 years old, will be hit with a 10% penalty tax on top of the exit tax. And finally, when distributions are actually made, the country where the expat resides could tax those distributions a second time. Talk about legislative overkill!
In all cases, the first US$600,000 of gains will excluded from the exit tax (US$1.2 million in the case of married individuals filing a joint return, both of whom relinquish citizenship or terminate long-term residence).
http://www.escapeartist.com/efam/89/Exit_tax.html
By Mark Nestmann
March 2007
Congress is on the verge of passing an outrageous law that would impose the first-ever "exit tax" on expatriates (former U.S. citizens or long-term residents).
If it passes, it could include a little-known provision, which demands that expatriates pay a tax on all unrealized gains of their worldwide estate. The gains will be assessed based on the fair market value of the expatriate's assets and the tax due within 90 days of expatriation.
This exit tax applies to assets held in retirement plans and trusts, both domestic and foreign. The only thing it doesn't apply to is U.S. real estate investments, which remain subject to U.S. tax under existing law.
Presumably, the phantom gain would be taxed as ordinary income (at rates as high as 35%) or capital gains (at either a 15% or 25% rate), as provided under current law. When the assets are actually sold, no further U.S. tax will be due (although the gain might be taxed again by the country in which the expatriate resides, leading to double taxation on the same income).
Also, expatriates who must withdraw assets from retirement plan to pay this tax, and are under 59-1/2 years old, will be hit with a 10% penalty tax on top of the exit tax. And finally, when distributions are actually made, the country where the expat resides could tax those distributions a second time. Talk about legislative overkill!
In all cases, the first US$600,000 of gains will excluded from the exit tax (US$1.2 million in the case of married individuals filing a joint return, both of whom relinquish citizenship or terminate long-term residence).
http://www.escapeartist.com/efam/89/Exit_tax.html
