40 Pages Posted: 9 Nov 2008
Date Written: October 23, 2008
Internal Revenue Code Sections 877A and 2801 were created by the HEART Act to impose a mark-to-market exit tax on citizens wishing to expatriate, and to impose a wealth transfer tax upon U.S. gift recipients of an expatriate's wealth. The idea is for expatriating citizens to pay their taxes, take their money, and run. However, the new provisions imposed by the HEART Act do not make things that simple. The prior expatriate tax regime applies to U.S. citizens or residents expatriating prior to June 16, 2008, while the new exit tax regime applies to U.S. citizens or residents effecting their expatriation after June 16, 2008. Any person expatriating from the United States must carefully consider the applicable tax provisions.
This paper discusses the impact of the HEART Act provisions on what has been called the "ultimate estate plan," expatriation to minimize or avoid U.S. income, estate, and gift tax. Initially, I will discuss why citizens or permanent residents choose to expatriate, the federal tax burdens considered, and examples of high profile American expatriates. Second, this paper will explain the former tax regime under I.R.C. Section 877 for expatriates and its tax effects. Third, I will explain the HEART Act and the application of current internal revenue code sections 877A and 2801 to expatriates, followed by an analysis of the administration and workability of an exit tax. Finally, this paper will look at planning considerations and options for those currently seeking to expatriate from the United States.
Keywords: expatriate, tax, federal, income, estate, gift
JEL Classification: E61, E62, E63
Suggested Citation: Suggested Citation
Macaulay, Kathleen, Take the Money and Run - The Impact of the HEART Act on the Ultimate Estate Plan: Expatriation to Avoid U.S. Income, Estate and Gift Tax (October 23, 2008). Available at SSRN: https://ssrn.com/abstract=1288770 or http://dx.doi.org/10.2139/ssrn.1288770