EXPATRIATION

Given the ever increasing tax & informational reporting requirements imposed on US taxpayers who live abroad, or have financial interests abroad, many are making the decision to expatriate. The act of expatriation requires renouncing ones US citizenship, handing in ones Green Card or terminating long term residency in the United States. With the implementation of FATCA, and increased limitations on those foreign financial institutions that are even willing to work with Americans abroad, expatriation can become an attractive alternative. The act of expatriating will potentially trigger an “exit tax” for those taxpayers who have an average US tax liability of more than $151,000 or for those with a net worth of $2 million or more. For those “covered expatriates” Form 8854 Initial & Annual Expatriation Statement must be filed for the year of expatriation. Form 8854 consists of personal financial statements (income & balance sheet) and a gain/(loss) calculation whereby the expatriate must mark all of their assets to market (mark-to-market). There is an exclusion amount of $651,0001 so that net gains in excess of this amount are subject to tax at the rate applicable to that asset category i.e. for an asset that produces ordinary income such as royalty income the gain would be taxed at ordinary tax rates not preferential long term capital gains tax rates. The exclusion amount must be applied evenly amongst all gain property and so cannot be applied strictly to those asset classes with higher tax rates. In addition to the above, the expatriating taxpayer must sign Form 8854 under penalty of perjury that they are compliant with their US tax reporting requirements for the last 5 years preceding the date of expatriation. Lancaster & Reed has  assisted a significant number of high net worth clients complete the expatriation process over the last ten years  including preparing Form 8854 and filing or amending the preceding 5 years returns to accurately reflect offshore account activity. People expatriate for varied reasons some very personal. At Lancaster & Reed our objective is to streamline the process as much as possible and to ensure that the tax paid is only that which is absolutely required. Expatriation is not something to approach on a “one off” basis. Put our years of experience to work for you!