Expatriation Tax – Definition

Cite this article as:"Expatriation Tax – Definition," in The Business Professor, updated November 16, 2018, last accessed October 19, 2020, https://thebusinessprofessor.com/lesson/expatriation-tax/.


Expatriation Tax Definition

An expatriation tax is a rate of tax or fee that is charged on the property or estate of citizens who has renounced citizenship. This tax is enacted and charged on property located in the United States. The expatriation tax is laid down under section 877 and section 877 A of Internal Revenue Code (IRC) which is applicable to the value of the property of U.S citizens and long term citizens who have given up citizenship to avoid federal taxes. However, different rules are applied when calculating an expatriation tax of a person who has been expatriated.

 A Little More on What is Expatriation Tax

An expatriation tax is applied to those citizens of the USA who give up resident ship or citizenship and settle in some other foreign country after June 17, 2008. An expatriation tax is imposed on any person who expatriates and owns over $2 million estate. The expatriation amount varies from time to time which is usually based on the inflation rate. However, the rate was $160,000 in the year 2015.
An expatriation tax is not levied in every part of the world. Practices of states vary and few countries across the globe impose expatriation tax. For instance, the USA and Eritrea impose income tax on their citizens who abandoned residence and settle in other foreign countries. However, Canada levy departure tax on those citizens who immigrate to other parts of the world but this is not identical to expatriation tax.

How Does Expatriation Tax Work

An expatriation tax is charged on the values of an individual’s property located in the USA, it is charged before they expatriate. The Internal Revenue System (IRS) is the authority responsible for calculating and imposing taxes on individuals and firms located in the USA. Internal Revenue System (IRS) while calculating expatriation tax, IRS considers the market value of an individual’s property as though individuals are going to liquidate assets on the same day.

Net gain under tax can be calculated by subtracting the historical cost from the market value of the taxpayer’s property. Similarly, losses are taking into account while calculating expatriation tax. The expatriation tax is applied to the net gained over $680,000. However, the amount is adjusted for inflation. The IRS may impose more taxes on those who tried to evade tax liability. However, individuals may be exempted from expatriation tax if they convince Secretary of Treasury that their reason for expatriation is not to evade taxes. Also, the IRS imposes penalties on those who do not submit expatriation form 8854 and the penalty of not filing expatriation form is $10,000.

Expatriation Tax References


Academic Research on Expatriation Tax

‚󏬆¬†¬†¬†¬† The Proposed¬†Expatriation Tax‚ÄĒA Human Rights Violation?, Vagts, D. F. (1995).¬†American Journal of International Law,¬†89(3), 578-580. This paper investigates the enactment of the expatriates tax and its effect on citizens who have or are on the edge of abolishing their United States citizenship. Major study is given to the numerous complaints of the expatriation tax as a human rights violation.

‚󏬆¬†¬†¬†¬† Firm valuation effects of the¬†expatriation¬†of US corporations to¬†tax-haven countries, Cloyd, C. B., Mills, L. F., & Weaver, C. D. (2003).¬†Journal of the American Taxation Association,¬†25(s-1), 87-109. This study analyses the political opinion on firms which organize outside the US to prevent the corporate expatriation tax imposed by the government. In this study, we investigate whether the share prices of expatriating firms react positively to initial announcements of intentions to expatriate to tax haven countries.

‚󏬆¬†¬†¬†¬† Expatriation¬†and Return: An Examination of¬†Tax¬†Drivien¬†Expatriation¬†by United States Citizens, and Reform Proposals, Westin, R. A. (2000). Va. Tax Rev.,¬†20, 75. This article examines the tendencies toward expatriation by US Citizens motivated by US tax policy.

‚󏬆¬†¬†¬†¬† Corporate¬†expatriation, inversions, and mergers:¬†Tax¬†issues, Marples, D. J., & Gravelle, J. G. (2014). This article examines the tendencies toward expatriation, mergers, and consolidations¬† by US Companies motivated by US tax policy.

‚󏬆¬†¬†¬†¬† Ten Facts About¬†Tax Expatriation, Wood, R. W. (2010). Ten Facts About Tax Expatriation. This article explores some commonly misunderstood or unknown facts about individual company expatriation based upon US Tax policy.

‚󏬆¬†¬†¬†¬† Expatriation, Double Taxation, and Treaty Override: Who Is Eating Crow Now?, Agnew, C. L. (1996). The University of Miami Inter-American Law Review, 69-94. This article examines the expatriation effects of double taxation and the effect of treaty on this effect.

‚󏬆¬†¬†¬†¬† Tax¬†Management, McCann, J. D., & Kleinberg, K. (1992). Tax Management. This article explores pre-expatriation compliance, pre-expatriation gifts, post expatriation estate planning, the treatment of deferred compensation, and other issues. The main aim is to provide advice to citizens who wish to expatriate, or have already expatriated on filing tax returns.

‚󏬆¬†¬†¬†¬† Simplfying the Transition to a (Progressive) Consumption¬†Tax, Engler, M. L., & Knoll, M. S. (2003). SMUL Rev.,¬†56, 53. This paper studies the consumption tax, and proposes it as a substitute for the personal tax income. This article discusses how a recently-proposed new form of consumption taxation significantly alleviates the transitional difficulties in shifting from the current tax to a consumption tax.

‚󏬆¬†¬†¬†¬† Is the Nation of Immigrants Punishing Its Emigrants: A Critical Review of the¬†Expatriation¬†Rules Revised by the American Jobs Creation Act of 2004, Farkas-DiNardo, E. (2005). Immigr. & Nat’lity L. Rev.,¬†26, 407. This article analyses the effect of the amendment of expatriation tax on US citizens who has renounced their citizenship.

‚󏬆¬†¬†¬†¬† The¬†Tax¬†Regime for Individual Expatriates: Whom to Impress, Walker, A. (2004). Tax Law.,¬†58, 555. This article examines the effects of the JOBs Act on the expatriation tax regime.

‚󏬆¬†¬†¬†¬† ¬†Comparison of the New US¬†Expatriation Tax¬†and the Canadian Departure¬†Tax, Gelardi, A. M. (2009).¬†The ATA Journal of Legal Tax Research,¬†7(1), 76-89. This paper analyses the new US expatriation rules in comparison to the Canadian rule used to tax expatriating citizens.

‚󏬆¬†¬†¬†¬† Corporate¬†Expatriation: A Case Analysis, Goldman, S. H. (2008). ¬†Fla. Tax Rev.,¬†9, 71. This article provides an analysis of corporate expatriation through case analysis.

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