The consequences of expatriation from the United States include:
Income tax consequences. A covered expatriate is deemed to have sold, on the day before expatriating, all of his or her property, other than deferred compensation, at fair market value, incurring U.S. income tax on the resulting gain. A covered expatriate incurs a 30 percent withholding tax on any distribution received from a U.S.-based deferred compensation (retirement) plan. A covered expatriate is deemed to receive distribution of non-U.S.-based deferred compensation plans on the day before expatriating.
Some distributions from a non-U.S.-based deferred compensation plan are not a taxable by the United States. Consider, for example, Nigel, who worked for a period of years in his native United Kingdom before immigrating to the United States. While working in the U.K., Nigel accumulated an interest in a U.K.-based defined contribution pension plan. After Nigel immigrates to the U.S., he begins receiving distributions from his U.K. pension account. Distribution to Nigel of amounts representing contributions to the account before he immigrated to the United States, or of income accumulated in the account before that time, represent gross income realized before Nigel a citizen or resident of the U.S. (a “U.S. person”), and will never be subject to U.S. income tax. Distribution of other amounts from Nigel’s U.K.-based pension account may escape U.S. income taxation by virtue of the U.S.-U.K. Income Tax Treaty.
A “long-term resident” is any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 of the last 15 taxable years preceding abandonment of the individual’s lawful permanent resident status. For this purpose an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for that year under the provisions of a tax treaty between the United States and the foreign country, and such individual does not waive the benefits of such treaty.
A “covered expatriate” is an expatriate who meets any one of three tests:
Estate and gift tax consequences. There can be significant U.S. estate consequences for the estate of a noncitizen, nonresident of the U.S. who owns property situated in the U.S. An individual is a resident of the U.S. for this purpose if he or she is domiciled in the U.S.
A U.S. person’s gross estate wherever located is subject to U.S. estate tax. There is an unlimited deduction from the taxable estate for bequests to the decedent’s spouse who is a U.S. citizen.
A basic exclusion (“unified credit”) is available from the gross estate of a U.S. person. It is indexed annually for inflation. For decedents dying in 2025, the basic exclusion amount was $13,990,000.
The estate of a noncitizen, nonresident of the U.S. is subject to U.S. estate tax, but only to the extent of the decedent’s gross estate which is situated in the U.S. There is no marital deduction for property passing to a spouse who is not a citizen of the U.S. The basic exclusion amount of a noncitizen of the U.S. who did not reside in the U.S. at the time of his death is fixed at $60,000; this amount is not subject to indexing. These results may vary by treaty. For example, the Convention Between the United States of America And the Federal Republic of Germany For the Avoidance of Double Taxation With Respect to Taxes on Estates, Inheritances, and Gifts (1980), Article 10, Paragraph 5, provides that, in determining the estate tax imposed by the United States, the estate of a decedent (other than a citizen of the United States) who was domiciled in Germany at the time of his death shall be allowed a unified credit equal to the greater of:
a. The amount that bears the same ratio to the credit allowed to the estate of a United States citizen of under the laws of the United States as the value of the part of the decedent’s gross estate that at the time of the decedent’s death is situated in the United States bears to the value of the decedent’s entire gross estate wherever situated; or
b. The unified credit allowed to the estate of a noncitizen, nonresident of the United States of under the laws of the United States of America. The amount of any unified credit otherwise allowable shall be reduced by the amount of any credit previously allowed with respect to any gift made by the decedent. For purposes of subparagraph a), the part of the decedent’s gross estate that is situated in the United States of America shall not exceed the part of the decedent’s gross estate that may be taxed by the United States of America in accordance with this Convention. A credit otherwise allowable under subparagraph a) shall be allowed only if all information necessary for the verification and computation of the credit is provided.
This provision is commonly found in U.S. bilateral estate and gift tax treaties. The U.S. currently has estate and gift tax treaties in effect with the following countries:
· Austria · Australia · Denmark · Germany · Greece · Ireland · Italy | · Japan · Netherlands · South Africa · Sweden · Switzerland · Ukraine · United Kingdom |
A U.S. citizen or resident is subject to U.S. gift or estate tax on covered gifts or bequests received during a calendar year, to the extent the covered gifts or bequests exceed the exclusion of Internal Revenue Code Section 2503(b). The IRC Section 2503(b) exclusion is indexed annually for inflation. For 2025 it was $19,000.
A covered gift is a gift from an individual who, immediately before the gift, was a covered expatriate. A covered bequest is a bequest from an individual who, immediately before such individual’s death, was a covered expatriate. Covered gifts or bequests exclude gifts to the donor’s spouse, bequests to the decedent’s surviving spouse, and gifts or bequests for public, charitable, or religious uses.
Benefits of Expatriation
Many individuals expatriate to shed the obligations the U.S. income tax system. But this objective may be illusory, for many reasons:
a. Gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
b. Gross income which is effectively connected with the conduct of a trade or business within the United States.
For this purpose, for 10 years after expatriating, a covered expatriate treats as income from sources within the U.S.
a. Gains on the sale or exchange of property (other than stock or debt obligations) located in the U.S.;
b. Gains on the sale or exchange of stock by a domestic corporation or debt obligations of U.S. persons or of the U.S., a state or political subdivision of a state, or the District of Columbia; and
c. Income or gain derived from certain controlled foreign corporations
A nonresident alien individual (an expatriate) reports such income to the IRS on Form 1040-NR, U.S. Nonresident Alien Individual Income Tax Return.
Who May Be a Good Candidate for Expatriation
Expatriation from the United States generally is not in an individual’s best interests. Who might be a good candidate for expatriation? One such individual is the “accidental American.” For example, a British couple comes to the U.S. to study and, when their studies are complete, they return to their native United Kingdom. While they are here they have a baby born in the U.S. By virtue of our Constitution their child is a U.S. citizen from birth. The child grows up and is living happily ever after with her family in the U.K. She intends never to return to the U.S. She wishes to be free of the obligation to file U.S. income tax returns and FinCEN Forms 114, Report of Foreign Bank and Financial Accounts. Expatriation from the U.S. would make sense for her.
As another example, consider a man who was born without the U.S. but lived and worked for a time in the U.S. and is a lawful permanent resident (“green card” holder). He now lives n his native Greece, and intends never to return to the U.S. It may make sense for him to abandon his green card relinquishing U.S. lawful permanent resident status.
Our Services
We advise clients on expatriation from the United States and, when it is in their best interests, help them expatriate.
We advise U.S. persons with beneficiaries or property located without the U.S. on estate planning, and perform estate planning services for them. Our estate planning services are comprehensive, and include
The consequences of expatriation from the United States include:
Income tax consequences. A covered expatriate is deemed to have sold, on the day before expatriating, all of his or her property, other than deferred compensation, at fair market value, incurring U.S. income tax on the resulting gain. A covered expatriate incurs a 30 percent withholding tax on any distribution received from a U.S.-based deferred compensation (retirement) plan. A covered expatriate is deemed to receive distribution of non-U.S.-based deferred compensation plans on the day before expatriating.
Some distributions from a non-U.S.-based deferred compensation plan are not a taxable by the United States. Consider, for example, Nigel, who worked for a period of years in his native United Kingdom before immigrating to the United States. While working in the U.K., Nigel accumulated an interest in a U.K.-based defined contribution pension plan. After Nigel immigrates to the U.S., he begins receiving distributions from his U.K. pension account. Distribution to Nigel of amounts representing contributions to the account before he immigrated to the United States, or of income accumulated in the account before that time, represent gross income realized before Nigel a citizen or resident of the U.S. (a “U.S. person”), and will never be subject to U.S. income tax. Distribution of other amounts from Nigel’s U.K.-based pension account may escape U.S. income taxation by virtue of the U.S.-U.K. Income Tax Treaty.
A “long-term resident” is any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 of the last 15 taxable years preceding abandonment of the individual’s lawful permanent resident status. For this purpose an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for that year under the provisions of a tax treaty between the United States and the foreign country, and such individual does not waive the benefits of such treaty.
A “covered expatriate” is an expatriate who meets any one of three tests:
Estate and gift tax consequences. There can be significant U.S. estate consequences for the estate of a noncitizen, nonresident of the U.S. who owns property situated in the U.S. An individual is a resident of the U.S. for this purpose if he or she is domiciled in the U.S.
A U.S. person’s gross estate wherever located is subject to U.S. estate tax. There is an unlimited deduction from the taxable estate for bequests to the decedent’s spouse who is a U.S. citizen.
A basic exclusion (“unified credit”) is available from the gross estate of a U.S. person. It is indexed annually for inflation. For decedents dying in 2025, the basic exclusion amount was $13,990,000.
The estate of a noncitizen, nonresident of the U.S. is subject to U.S. estate tax, but only to the extent of the decedent’s gross estate which is situated in the U.S. There is no marital deduction for property passing to a spouse who is not a citizen of the U.S. The basic exclusion amount of a noncitizen of the U.S. who did not reside in the U.S. at the time of his death is fixed at $60,000; this amount is not subject to indexing. These results may vary by treaty. For example, the Convention Between the United States of America And the Federal Republic of Germany For the Avoidance of Double Taxation With Respect to Taxes on Estates, Inheritances, and Gifts (1980), Article 10, Paragraph 5, provides that, in determining the estate tax imposed by the United States, the estate of a decedent (other than a citizen of the United States) who was domiciled in Germany at the time of his death shall be allowed a unified credit equal to the greater of:
a. The amount that bears the same ratio to the credit allowed to the estate of a United States citizen of under the laws of the United States as the value of the part of the decedent’s gross estate that at the time of the decedent’s death is situated in the United States bears to the value of the decedent’s entire gross estate wherever situated; or
b. The unified credit allowed to the estate of a noncitizen, nonresident of the United States of under the laws of the United States of America. The amount of any unified credit otherwise allowable shall be reduced by the amount of any credit previously allowed with respect to any gift made by the decedent. For purposes of subparagraph a), the part of the decedent’s gross estate that is situated in the United States of America shall not exceed the part of the decedent’s gross estate that may be taxed by the United States of America in accordance with this Convention. A credit otherwise allowable under subparagraph a) shall be allowed only if all information necessary for the verification and computation of the credit is provided.
This provision is commonly found in U.S. bilateral estate and gift tax treaties. The U.S. currently has estate and gift tax treaties in effect with the following countries:
|
· Austria · Australia · Denmark · Germany · Greece · Ireland · Italy |
· Japan · Netherlands · South Africa · Sweden · Switzerland · Ukraine · United Kingdom |
A U.S. citizen or resident is subject to U.S. gift or estate tax on covered gifts or bequests received during a calendar year, to the extent the covered gifts or bequests exceed the exclusion of Internal Revenue Code Section 2503(b). The IRC Section 2503(b) exclusion is indexed annually for inflation. For 2025 it was $19,000.
A covered gift is a gift from an individual who, immediately before the gift, was a covered expatriate. A covered bequest is a bequest from an individual who, immediately before such individual’s death, was a covered expatriate. Covered gifts or bequests exclude gifts to the donor’s spouse, bequests to the decedent’s surviving spouse, and gifts or bequests for public, charitable, or religious uses.
Benefits of Expatriation
Many individuals expatriate to shed the obligations the U.S. income tax system. But this objective may be illusory, for many reasons:
a. Gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
b. Gross income which is effectively connected with the conduct of a trade or business within the United States.
For this purpose, for 10 years after expatriating, a covered expatriate treats as income from sources within the U.S.
a. Gains on the sale or exchange of property (other than stock or debt obligations) located in the U.S.;
b. Gains on the sale or exchange of stock by a domestic corporation or debt obligations of U.S. persons or of the U.S., a state or political subdivision of a state, or the District of Columbia; and
c. Income or gain derived from certain controlled foreign corporations
A nonresident alien individual (an expatriate) reports such income to the IRS on Form 1040-NR, U.S. Nonresident Alien Individual Income Tax Return.
Who May Be a Good Candidate for Expatriation
Expatriation from the United States generally is not in an individual’s best interests. Who might be a good candidate for expatriation? One such individual is the “accidental American.” For example, a British couple comes to the U.S. to study and, when their studies are complete, they return to their native United Kingdom. While they are here they have a baby born in the U.S. By virtue of our Constitution their child is a U.S. citizen from birth. The child grows up and is living happily ever after with her family in the U.K. She intends never to return to the U.S. She wishes to be free of the obligation to file U.S. income tax returns and FinCEN Forms 114, Report of Foreign Bank and Financial Accounts. Expatriation from the U.S. would make sense for her.
As another example, consider a man who was born without the U.S. but lived and worked for a time in the U.S. and is a lawful permanent resident (“green card” holder). He now lives n his native Greece, and intends never to return to the U.S. It may make sense for him to abandon his green card relinquishing U.S. lawful permanent resident status.
Our Services
We advise clients on expatriation from the United States and, when it is in their best interests, help them expatriate.
We advise U.S. persons with beneficiaries or property located without the U.S. on estate planning, and perform estate planning services for them. Our estate planning services are comprehensive, and include
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