Expatriate tax.

• Author: Laffie, Lesli S.

The Joint Committee on Taxation (JCT) released a report, Review of the Present-Law Tax and Immigration Treatment of Relinquishment of Citizenship and Termination of Long-arm Residency (JCS-2-03), which reviews the adequacy of current tax law on expatriate and former resident income.

Since 1966, the "alternative tax regime" (ATR) has been the principal mechanism by which the U.S. government has retained tax jurisdiction over expatriated U.S. citizens and former long-term residents. The ATR taxes a U.S. citizen's U.S.-source income at normal tax rates for 10 years following expatriation or termination of residency, if the principal purpose was tax avoidance.

Under the ATR regime, the presumption that tax avoidance is the principal reason for a revocation of citizenship or termination of residency arises if the citizen's U.S. tax liability averaged $100,000 annually for the five years preceding revocation or if, on the revocation date, his or her net worth is at least $500,000.

The taxpayer may request an IRS ruling to determine if the principal reason for expatriation or termination is tax avoidance. A citizen must also provide the IRS with tax information on the date of revocation, to aid in tracking the taxpayer, or face a penalty of the greater of $1,000 or 5% of the tax liability imposed under the ATR for the year in question. However, according to the JCT report, the IRS has yet to impose any penalties.

The report...