Returning Home?- Beware the HEART Act!
In reviewing the potential impacts of relinquishing status as a lawful permanent resident (agreen carda holder), it is necessary to carefully examine the provisions contained in the Heroes Earnings Assistance and Relief Tax Act of 2008 (the "HEART Act"), which was signed into law on June 17, 2008, and which marks a dramatic change in the law for those individuals who choose to relinquish U.S. citizenship or LPR status. New Internal Revenue Code (IRC) 877A and 2801 applies to all individuals who commit an expatriating act on or after June 17, 2008.
The most notable changes resulting from the HEART Act under IRC Code 877A are as follows:
(1) Imposition of a new "mark-to-market" exit tax;
(2) Elimination of the 10-year alternate income, gift and estate tax regimes that formerly applied to expatriates; and
(3) Imposition of a new transfer tax payable by U.S. citizens and residents who receive gifts or bequests from expatriates.
The new law applies to so-called "covered expatriates," who are defined under new Code 877A as individuals whoare eitherU.S. citizens who relinquish U.S. citizenship orlong-term US residents (i.e., individuals holding a green card for at least 8 of the prior 15 years) who (1) terminate U.S. residency, and (2) fall within one of the following groups:
- Individuals whose 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 exceeds $139,000 (as indexed for inflation);
- Individuals whose net worth equals or exceeds $2,000,000 on such date; or
- Individuals who fail to certify that he or she has complied with all U.S. federal tax obligations for the preceding five years, or fail to submit such evidence of compliance as the Secretary may require.
To summarize, In reviewing the impact of relinquishing status as a Lawful Permanent Resident, you should carefully review with an internationally-oriented accountant the impact of being subject to the exit tax under IRC 877A, as well as the special rules also incorporated into the code under this section having to do with eligible and ineligible deferred compensation items, tax deferred accounts (interests in IRAs, 529 Plans, etc.), interests in grantor and non-grantor trusts, and transfer-tax obligations. Additional information on the HEART Act can be found by accessing the following online addresses:
http://pmstax.com/intl/hr6081enrSec301-080717.pdf
http://pmstax.com/intl/jcx4408pp36-46-080520.pdf
http://www.taxalmanac.org/index.php/Notice_2009-85
