IRS Rule regarding renouncing U S Citizenship Best answer on the web
Author:
anonym
07 29th, 2010 in
xn--00t609f.com
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I would like to know the following; if a naturalized U S Citizen renounces his citizenship and goes back to Mexico, how long must he live in Mexico to avoid payment of U S federal income tax (especially the death tax).
Yes, the rule is that if you have a net worth of $2 million or more OR pay more than $124,000 a year (adjusted for inflation) in taxes, you are assumed to be moving for tax reasons and you still have to pay US taxes for the next 10 years. Net worth includes everything that you have, so even money in the bank that you never touch would count. There is a loophole I found which could help you in these circumstances.
US Transfer and Tax Rules
http://d2d.ali-aba.org/_files/thumbs/course_materials/SL032-CH02_thumb.pdf
"Except as provided in 3. below, an expatriate will be subject to tax under
§ 877(b) for the 10-year period after expatriation if as of the date of
expatriation he had a net worth of at least $2,000,000 or an average net
income tax for the five years prior to the expatriation of more than
$124,000, or he fails to certify under penalties of perjury that he has met
all U.S. tax obligations for the 5 preceding taxable years or fails to submit
such evidence of compliance as the Treasury Secretary may require. The
$124,000 limit is subject to a cost of living adjustment for years after
2004."
As far as I can tell, this does include the estate tax (death tax):
"To the extent that an individual meets the criteria stated above, (s)he will be deemed to have renounced citizenship or surrendered his/her greencard for tax avoidance purposes.
In this case, US income (as well as estate and gift) taxes will be imposed on broader categories of US source income and US situs assets. This will continue for 10 years from the time of expatriation." http://www.pwcservices.com/PwC_Serv/IAS/IASMARKETING.NSF/10086696c9bcd74585256ab2006f7162/d06a57336da3f6fc86256cbe005eeea9?OpenDocument
There is a possible loophole that you should definitely check out, but whether a ruling would be in your favor or not, I don't know. If you are going back to the country of your birth, you may be able to get out of the taxation clause.
"The current rules do allow for certain individuals to apply for a ruling to gain exemption from these regulations if it can be shown that: 1. The expatriation does not have as "one of its principal purposes" the avoidance of US tax. 2. If the individual is expatriating to the country of his/her birth (or that of his/her spouse or parents).
Note: Expatriation to the country of birth does not automatically result in exemption from Sec. 877 rules. Rulings against the taxpayer in such circumstances have occurred."
Search terms:
irc 877 estate tax
If you need any additional clarification, let me know and I'll be happy to help.
--keystroke-ga
--keystroke-ga
Thank you for your question. The answer depends on the level of the person's income. From what I can tell, if a person pays less in taxes than $124,000 a year or have less than $2 million in the bank, as long as the IRS' reporting requirements are followed one would be safe from taxes starting for the first year that citizenship is not held.
IRS -- Expatriation Tax
http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html
If the renouncer has a high income, he will be assessed and possibly still have to pay tax for up to 10 years after citizenship is renounced. Anyone else will have to notify the Department of State or Department of Homeland Security that they have renounced citizenship or continue to be taxed.
"Amended IRC 877 eliminates the tax avoidance criteria for imposition of the expatriation tax on certain types of income for 10 years following expatriation, and creates objective criteria to impose the tax on individuals with an average income tax liability of $124,000 for the 5 prior years or a net worth of $2,000,000 on the date of expatriation. In addition, it requires individuals to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation and requires annual information reporting for each taxable year during which an individual is subject to the rules of IRC 877. Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer. Finally, even if they do not meet the monetary thresholds for imposition of the IRC 877 expatriation tax, the new law provides that individuals will continue to be treated as U.S. citizens or long-term residents for U.S. tax purposes until they have notified the Secretary of the Department of State or of Homeland Security of expatriation or termination of residency."
If a person has not paid his or her taxes promptly and accurately for the past five years, he or she would still be subject to the same rules that wealthy people are as listed above.
"If all federal tax requirements have not been satisfied for the 5 years prior to expatriation, even if the individual does not meet the monetary thresholds in IRC 877, the individual will be subject to the IRC 877 expatriation tax provisions."
If one does not fill out the form notifying the IRS of the situation, one would be subject to a $10,000 fine.
"The Internal Revenue Service reminds practitioners that anyone who has expatriated or terminated his U.S. residency status must file Form 8854, Initial and Annual Expatriation Information Statement (PDF). Form 8854 must also be filed to comply with the annual information reporting requirements of Internal Revenue Code section 6039G, if the person is subject to tax under Section 877 of the Code. A $10,000 penalty may be imposed for failure to file Form 8854 when required."
Search terms:
renounce citizenship taxation
citizenship renounced tax purposes
If you need any additional clarification, let me know and I'll be glad to assist you.
--keystroke-ga
Are you saying that since my Estate is worth over two million dollars I would still be subject to IRS tax payment (including Estate Tax) for a period of ten years after I renounce my U S Citizenship and move back to Mexico?
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