Legislation seeking to institute an exit tax on the property of U.S. citizens and green card holders, who renounce permanent residency or citizenship to move abroad, was dropped from the final version of the tax reduction act that passed in May.
But the concept of an exit tax, aimed at raising tax revenue, remains on the political agenda, warned Henry Alden, director of KPMG‘s global wealth services, who spoke recently to members of Atlanta‘s British American Business Group and the Indian Professionals Network.
Legislation supporting the establishment of an exit tax has been considered in various forms in both the U.S. House and Senate in the last two years.
And while neither has yet taken the initiative to reconcile differences in House and Senate legislation on the topic, passage of a bill by Congress authorizing an exit tax in the next few years remains possible, Mr. Alden said.
Specifically, the tax would treat property of an expatriate as sold at its fair market value the day prior to expatriation and any gain or loss would be included in the tax year of the deemed sale, he explained.
He added that the exit tax would apply to “tax-motivated expatriates,” which includes U.S. citizens whose net worth at expatriation exceeds $500,000 or whose average, annual net income tax in the five years prior to expatriation exceeded $100,000. The same standards would apply for green card holders who have maintained permanent residency in the U.S. for eight of the last 15 taxable years.
The legislation would replace the current expatriate “trailing” tax system, which imposes income, estate and gift tax rules on tax motivated expatriates for 10 years following their departure from the U.S.
Mr. Alden encouraged companies that employ foreign nationals and cultural groups, such as the British American Business Group and Indian Professionals Network, to keep abreast of the situation and make their position on the exit tax known to Congress.
Contact Mr. Alden at halden@kpmg.com