May 29, 2008

Congress Enacts New Expatriation (Exit) Tax on US Citizens Renouncing US Citizenships and "Long-Term Residents" Surrendering Green Cards

On May 23rd the US Congress passed new "mark to market" legislation (H.R. 6081) applicable to certain expatriates (i.e. certain US citizens relinquishing US citizenship and certain green card holders that are "long-term residents"). The legislation is somewhat similar to Canada's "deemed disposition" rule on departure from Canada.

The revised rules generally apply only to individuals with a net worth of $2 million or more, or who had an average annual net income tax for the last 5 years exceeding $124,000 (adjusted by inflation after 2004). In addition there is generally an "exemption" on the first $600,000 of gain. Many other exceptions and special rules apply - please consult your tax advisor.

Another part of the legislation generally levies US gift tax on a US citizen or US resident that receives a gift or bequest from a so-called "covered expatiate".

Many other exceptions and special rules apply - please consult your tax advisor.

As of yesterday President Bush had not yet signed the legislation but is expected to do so.