Expatriation Tax refers to a tax imposed on individuals who renounce their U.S. citizenship or terminate their long-term residency status. It is designed to ensure that individuals who are leaving the U.S. and may have significant assets or income do not avoid taxes on their wealth.
The tax applies to those who meet specific criteria, including having a net worth of $2 million or more, an average annual net income tax liability of $171,000 or more for the five years preceding expatriation, or failing to comply with U.S. tax obligations for the five years prior to expatriation.
The expatriation tax generally involves a mark-to-market regime, meaning that the individual’s worldwide assets are treated as if they were sold on the day before expatriation, and any unrealized gains are subject to tax. This can lead to significant tax liabilities for high-net-worth individuals who decide to expatriate.
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