On June 17, 2008, President Bush signed into law the Heroes Earnings Assistance and Relief Tax Act (“HEART Act”) of 2008. As part of the revenue offsets for the Act’s benefits for military service members, the Act significantly alters the U.S.federal tax treatment of expatriating U.S.citizens and long-term permanent residents (i.e., green card holders), imposing a so-called "Exit Tax" on U.S. expatriation. The Act is effective for expatriations on or after June 17, 2008, and gifts and bequests made on or after June 17, 2008.
July2012 by Admin
Mark-to-Market Regime. Tax is imposed, subject to a possible deferral election, on the net unrealized gain of property upon expatriation, as if the property had been sold for fair market value with a $651,000 exemption (2012).
Deferred Compensation and Tax Deferred Accounts. A 30 percent withholding tax is imposed on payments of eligible deferred compensation; the present value of non-eligible deferred compensation and specified tax deferred accounts is deemed distributed and taxable immediately prior to expatriation.
Grantor Trusts. The mark-to-market regime applies to property held in grantor trusts.
Nongrantor Trusts. A 30 percent withholding tax is imposed on distributions to expatriates and nongrantor trusts recognize gain on distributions of appreciated property to expatriates.
Estate and Gift Tax. A transfer tax is imposed on U.S citizens or residents acquiring property by bequest or gift from an expatriate.
July 2012 by Admin
The HEART Act continues prior law by applying the expatriation regime to a former U.S. citizen or former long-term resident (“covered expatriate”) who (1) has an average annual net income tax liability for the five preceding years ending before the date of the loss of U.S. citizenship or residency termination that exceeds $151,000 (2012, as adjusted for inflation); (2) has a net worth of $2 million or more on such date; or (3) fails to certify under penalties of perjury that he or she has complied with all U.S. Federal tax obligations for the preceding five years or fails to submit such evidence of compliance as the Secretary may require.
The Act retains the definition of long-term resident as any individual who has been a lawful permanent resident (i.e., green card holder) in at least eight out of the last 15 taxable years ending with the year in which the individual ceases to be a lawful permanent resident or commences to be treated as a resident of a foreign country under a tax treaty and does not waive the benefits of that treaty.
The Act contains two exceptions, which are broader than those contained in previous law. An individual is not a ‘covered expatriate’ if he certifies compliance with US federal tax obligations and:
(i) he was at birth a citizen of the U.S. and another country, provided that (a) as of the expatriation he continues to be a citizen of, and a tax resident of, such other country, and (b) he has been a resident of the U.S. for no more than 10 of the 15 taxable years ending with the taxable year of expatriation; or
(ii) he relinquished U.S. citizenship before reaching the age of 18 ½, provided that he was a resident of the U.S. for not more than 10 taxable years before relinquishment.
August 2010 by Admin
The HEART Act added a new chapter (Chapter 15) to the Code titled Gifts and Bequests from Expatriates. This new chapter imposes a tax, at the highest applicable gift or estate tax rates, on a U.S. person receiving a covered gift or bequest. A covered gift is defined as a direct or indirect gift from a "covered expatriate". The tax is intended to be paid by the gift recipient and not the grantor, but the tax can be reduced by the amount of any foreign gift or estate tax paid on the transfer. The section provides for an exclusion ($13,000 in 2010) under the annual gift exclusion.
There is no time limitation to this provision a person who expatriated could make a gift 30 years after expatriation out of newly acquired assets to a U.S. citizen, and the tax would be imposed on the U.S. citizen.
Gifts or bequests made to a U.S. spouse or a qualified charity are not subject to the tax. In the case of a covered gift or bequest made to a U.S. trust, the tax applies as if the trust were a U.S. citizen, and the trust is required to pay the tax. In the case of a covered gift or bequest made to a foreign trust, the tax applies to any distribution, whether from income or corpus, made from such trust to a recipient that is a U.S. citizen or resident in the same manner as if such distribution were a covered gift or bequest.