The Final State Of Expatriation?

This article will be presented at Advanced ALI-ABA Course of Study: International Trust and Estate Planning on July 31-August 1, 2008, Santa Fe, New Mexico, USA.

Introduction And Background

Section 301 of the Heroes Earnings Assistance and Relief Tax Act of 2008 ("HEART" or the "Act")¹ dramatically alters the playing field for individuals who relinquish their U.S. citizenship or terminate their long-term U.S. residence (i.e., U.S. persons who "expatriate"). It does this by adding new sections 877A and 2801 to the Code,² which, respectively, impose "mark-to-market" and "succession tax" regimes on such individuals.

Prior to HEART's enactment, expatriates generally were subject to a 10-year "alternative tax" regime on U.S.-source income, as defined, that was first introduced by the Foreign Investors Tax Act of 1966 ("FITA").³ These rules were contained principally in sections 877, 2107 and 2501 of the Code.