US Expatriation & Its Tax Implications: The Webinar’s Transcript

US Expatriation & Its Tax Implications: The Webinar’s Transcript

Our November webinar on renouncing your US citizenship and all of its tax implications was a great success and now you can read about what was explained.

Please feel free to download the full transcript below and make sure to share it with your extended network.


A heartfelt thank you to Taxlinked members Virginia La Torre Jeker, Jimmy Sexton and Leonard Tuber for taking the time to answer your questions on US expatriation and dispelling several myths linked to this process.

If you have any follow-up questions for our panelists, please submit them in the relevant forum discussion below. They’d be happy to help!


Here are some of the event’s main highlights!

What is a covered expatriate and what does it mean if an individual is classified as one?

Virginia La Torre Jeker, J.D., US Tax Specialist, UAEVirginia La Torre Jeker, JD: “If you meet one of these three tests you are a covered expatriate...The first test is if the individual’s average annual net income tax for the five-year period ending before he expatriated or terminated residency is $162,000 for 2017. And that number goes up to $165,000 for 2018. And it's important to remember this is looking at what the average tax paid was over the five-year period. It's not how much income the person earned, it's how much tax he has paid.”

“The other test is if the individual has a net worth of $2,000,000 or more on the date of expatriation…Net worth means the fair market value of your worldwide assets on the day before you expatriate minus whatever liabilities you have worldwide. And that number, if it comes out to $2,000,000 or more, you are a covered expatriate.”

“The third way you can become a covered expatriate is if you fail to certify on a special form that you have complied with all of your U.S. Federal tax obligations for the five years preceding the date you expatriated. So you have to basically swear under penalties of perjury that you have met all of your tax obligations for the five years prior to the time you gave up your U.S. status.”

“What happens to a covered expatriate is that he's treated as if he has sold all of his assets in the entire world. It's a pretend sale of everything and he has to pay what's called an exit tax on the gain. There is an exemption amount for a certain portion of it but he has to pay tax on that. The other thing that can happen to him or her is that any U.S. person to whom the covered expatriate gives a gift later on, or leaves an inheritance or bequest, that U.S. recipient of the gift or the bequest is going to suffer certain tax consequences because he got the gift or the inheritance from a so-called covered expatriate.”

For expatriation purposes, there's a dual national exception contained in the U.S. tax law, meeting the exception permits the expatriated individual to escape treatment as a so-called covered expatriate. How does this exception work?

Jimmy SextonJimmy Sexton: “Basically, there's an exception that says that if you're born a dual national—so a citizen of two countries—and at the time you expatriate you're still a citizen of that other country and taxed as a resident of that foreign country, then you can avoid the net worth and the average income tax liability tests to becoming a covered expatriate.”

“For example, if you were born a dual national with the United States and Germany, and at the time you expatriate you're still a German citizen and you're a resident of Germany and paying taxes there, then you could avoid the net worth and the average income tax liability tests. Meaning you can have a net worth of over $2,000,000 and still not be a covered expatriate. You can have an average income tax liability over $162,000 and not be a covered expatriate. It does not, however, exempt you from the tax compliance test, which is that third test.”

“You still have to certify that you've been tax compliant for the five years prior to expatriation in order to qualify for that dual national exception. But as long as you've been tax compliant for the five years prior and you meet the other requirements of the dual national exception, then you can have a net worth of over $2,000,000 and an income tax liability of over the $162,000. So that's something that's been very useful to people.”

Virginia La Torre Jeker, JD: “In addition to being a dual national at birth and remaining a citizen of and taxed as a resident of the other country, you can't have been resident in the U.S. for a certain time period. So you have to say, ‘I was not resident there for more than ten years during the fifteen-year period before expatriation.’ And that's a matter of counting days of physical presence in the U.S.”

Can the expatriation rules apply to a green card holder who gives up a green card, or are these rules only applied to U.S. citizens who give up their citizenship?

Leonard TuberLeonard Tuber: “The expatriation rules can apply to a green card holder if the green card holder is considered a long-term resident. A long-term resident is defined under section 877E2 of the Internal Revenue Code as any individual other than a citizen of the United States who is a lawful permanent resident of the United States. Lawful permanent resident simply means, in this case, someone who is a green card holder in at least eight taxable years during the period of fifteen taxable years and ending within the taxable year for the event described in subparagraph A or B.”

“Basically, that means that, if at the date of your renunciation of U.S. citizenship, you look back at the past fifteen tax years and if in any eight of those fifteen years you were a green card holder, then you would be considered a long-term resident—not just a permanent resident—and the covered expatriate rules would apply.”

Make sure to download the full transcript HERE.

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