Presentation to: The 1818 Society on The U.S. Exit Tax Dale Mason, CPA The Wolf Group The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA 22033 Tel: (703) 502-9500
Disclaimer Any U.S. tax issues addressed in the body of this presentation is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. The U.S. tax law is very complex, please seek professional tax assistance based on your specific situation.
The Exit Tax Agenda History Overview Applicable Provisions / Compliance Issues Planning 2013 The Wolf Group
Exit Tax History Prior law: Generally a 10 year alternative tax regime First enacted 1966 Strengthened in 1996 to include long-term residents Presumptive tax avoidance if assets/income thresholds reached 2004 law eliminated subjectivity & increased asset/income thresholds
Exit Tax History New IRC Section 877A Exit tax provisions applicable to persons who relinquish their U.S. citizenship or terminate their long-term residency status after June 16, 2008 2013 The Wolf Group
Exit Tax History More than 3,000 people expatriated in 2013 FATCA probably will cause further rise IRS amnesty provisions Increase in U.S. federal tax rates beginning in 2013
U.S. Tax Residency U.S. Citizens and green card holders: U.S. income taxation on a worldwide basis U.S. gift and estate taxation on a worldwide basis Foreign financial asset reporting Nonresident aliens: U.S. income taxation limited to U.S. sources U.S. capital gains from sale of securities generally not taxed U.S. estate and gift taxation generally only applies to U.S. situs property
What is the Exit Tax? Applies only to Covered Expatriates Mark-to-Market tax on deemed property gains exceeding $690,000 (2015) Deemed distribution of certain deferred compensation Deemed distribution of certain specified tax-deferred accounts Gift and estate tax issues 2013 The Wolf Group
What is the Exit Tax? Imposition of a tax at the highest gift or estate tax rates on receipt by a U.S. person of a covered gift or bequest from a covered expatriate Recipient pays the tax Compliance requirements: Form 8854 and W-8CE 2013 The Wolf Group
Provisions IRC Section 877A IRS Notice 2009-85 IRS Notice 97-19 Form 8854 and Instructions Form W-8CE and Instructions No regulations yet! 2013 The Wolf Group
Covered Expatriate U.S. citizens who relinquish U.S. citizenship Termination of Long-term residency Green card holders who cease to be lawful permanent residents o8 out of 15 years ocounting of years important orevoked or abandoned (not simply expired) otreaty tie-breaker provision Failure to file Form 8854 5 year tax compliance requirement 2013 The Wolf Group
Net Worth Test $2,000,000 or more of net worth Global assets minus global liabilities Value of assets determined under gift tax principles (appraisals not required) Present value of pensions is included in net worth calculation
Net Worth Test Cont. Present value of World Bank pension is included in net worth test Actual calculation should be made by an actuary 2013 The Wolf Group
Net Income Tax Test Average annual net income (5 years) $160,000 (2015) Test applies to each taxpayer for joint liability 2013 The Wolf Group
Q & A The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA 22033 Tel: (703) 502-9500
Mark-to-Market Tax $690,000 exclusion amount allocated pro rata to all assets having built-in gain Green card holders are deemed to have basis in assets equal to FMV of assets on date first became resident Gains/income included in final U.S. resident tax return 2013 The Wolf Group
Tax on Deferred Compensation Not part of Mark-to-Market tax calculation Deferred compensation U.S. and foreign retirement plans Eligible deferred compensation Applicable to payments of deferred compensation made by U.S. payors Payor must deduct and withhold 30% withholding tax 2013 The Wolf Group
Tax on Deferred Compensation Ineligible deferred compensation Non-U.S. payor who fails to make the election to become U.S. payor Present value of the covered expatriate s accrued benefit is treated as being received on the day before expatriation W-8CE presented to payor. Payor should provide the amount of the PV of accrued benefit within 60 days (Rev. Proc. 2004-37 or Prop. Reg 1.409A-4) 2013 The Wolf Group
Tax on Deferred Compensation Present value of accrued benefit does not include ineligible deferred compensation attributable to services performed outside the U.S. before the person became a U.S. citizen or green card holder 2013 The Wolf Group
Specified Tax Deferred Accounts Not included in the Mark-to-Market tax Specified Tax Deferred Account: Individual Retirement Accounts 529 Plans Deemed distributed on the day before expatriation date No early withdrawal penalty 2013 The Wolf Group
Compliance Issues Dual status tax return required for year of expatriation File Form 1040NR in subsequent years Form 8854 Must certify compliance with all U.S. tax obligations for past 5 years (otherwise will automatically be considered a covered expatriate ) File the Form 8854 by the due date of tax return Penalty for failure to timely file is $10,000 Form W-8CE 2013 The Wolf Group
U.S. Gift/Estate Tax Consequences U.S. citizen or resident receives property either by gift or bequest from a covered expatriate Transfer of the property is subject to tax $14,000 (2015) annual exclusion applies Exception: Generally to U.S. citizen spouse Equal to the value of the property multiplied by the highest rate of tax for federal estate tax or gift tax The tax is payable by the recipient 2013 The Wolf Group
Simple Exit Tax Planning Hold on to long-term resident status Surrender green card before becoming a long-term resident (less than 8 year threshold) and obtain nonimmigrant visa Surrender green card before income tax/asset thresholds met and obtain non-immigrant visa Become a U.S. citizen! File U.S. taxes forever 2013 The Wolf Group
Q & A The Wolf Group, PC 4401 Fair Lakes Court, Suite 310, Fairfax, VA 22033 Tel: (703) 502-9500
Contact Us Pooja Kaur New Client Liaison pkaur@thewolfgroup.com Tel: (703) 502-9500 x141 1875 I Street, NW (International Square), Suite 500, Washington, DC 20006 4401 Fair Lakes Court, Suite 310, Fairfax, VA 22033 www.thewolfgroup.com
26 U.S. Immigration Basics
Biographical Information Eliot Norman Partner- International Williams Mullen Washington, D.C. T. 001.804.420.6213 Cell. 001.803.721.7851 enorman@williamsmullen.com www.williamsmullen.com Eliot Norman advises U.S. and Foreign Multinationals on how to deal effectively with their global mobility issues. Mr. Norman is an International Practice Partner with Williams Mullen, a 250 lawyer national and international commercial law firm, with offices in Washington, D.C., Virginia and North Carolina. Eliot graduated from Yale College and Boston College Law School and served with the U.S. Department of Justice before entering private practice. He is listed in Best Lawyers in America for Immigration. He speaks French fluently and obtained a Certificate from the Institut d etudes politiques, Paris, France. Mr. Norman regularly travels to Europe to meet with clients concerning investment projects and operations in the United States and to speak to industry trade groups and chambers of commerce. 27
GREEN CARDS LA PYRAMIDE DE VISAS AMÉRICAINS EB-1 Multinational Managers/Executives & EB-1 Extraordinary Ability and Outstanding Researchers; EB2/3 PERM Labor Certifications for professionals, skilled workers leading to Green Cards; EB2 Green Cards for National Interest Waivers, FAMILY SPONSORSHIP (marriage to U.S. Citizen or, Green Card Holder; Diversity Lottery. EB-5: $500,000 Investors 28 L-1A/L-1B, E1/E2 Investors/ Treaty Traders TN, H-1B/O-1 B-1/ F-1/J-1/H-3, H-2B 90 Day ESTA Visa Waivers B-1 Business Visitors (B/2) (tourists) 6693462 EXECUTIVES, MANAGERS, Specialists and Essential- Skills Employees for U.S. Offices of International Companies PROFESSIONALS; Extraordinary Ability Scholars & Scientists TRAINEES & FOREIGN STUDENTS Research Scholars & Specialists; Temporary workers, VIE, Interns. BUSINESS VISITORS: Negotiate Contracts, Consult; Trainees, Install Equipment if Purchased Overseas; Visa Waiver B-1 au lieu de H-1B: 6 month project requiring professional services.
U.S. Immigration Basics: Green Card Holders Overseas Who is an expatriate? Green Card Holders: a Definition Their Value to your Company The Doctrine of Abandonment Consequences of Abandonment Tips to avoid Abandonment Myths and Reality Practical Solutions One size does not fit all 29
U.S. Immigration Basics: Reentry or Travel Permits Filing of I-131 Must be in the USA at the time of filing Biometrics and your expatriate s travel schedule Effect: not a panacea or absolute guarantee Subsequent Travel Permits: up to 5 or 6 years total in 1 year increments Use as a planning tool and success rate 30
U.S. Immigration Basics: Nonimmigrants Some definitions Basic Rules Advantages/Disadvantages Practical Problems Practical Solutions 31
U.S. Immigration Basics: Obtaining U.S. Citizenship The Path to Citizenship: Naturalization Prerequisite: Must be a Green Card Holder First Basic Procedures to be Naturalized Some Definitions and Concepts: The waiting game: 3 and 5 years physical presence test 50% of the 3 or 5 years continuous residence tests The Technicalities definition of continuously reside 90 day test: reside in state where application if filed: Must continuously reside in USA from date of natz application until obtain citizenship Dangers of Disruption of Residency when Green Card holders are sent to overseas assignments 32
U.S. Immigration Basics; preserving continuous residence for naturalization Practical Solutions: Preserving Residency for Expatriates on the Path to U.S. Citizenship The N-470: Don t leave home without filing it basic eligibility: 1 year continuous uninterrupted physical presence after obtaining permanent residence and BEFORE being sent overseas N-470 preserves continuous residency while working overseas for U.S. company. How defined? Practical Examples: How it works Additional exemption for foreign Green Card spouse who accompanies U.S. citizen overseas to work Final Pointers 33