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Exit Tax & Exit Tax Planning

Frequently Asked Questions

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When contemplating new family plans or business projects, fully understanding their tax consequences in the short, medium, and long term is vital to their control, planning, and optimization. The process of renouncing U.S. citizenship or abandoning a U.S. green card may end at the U.S. embassy or consulate; however, the obligation to pay U.S. tax does not. If you meet the conditions of a “covered expatriate,” you are required to pay the exit tax unless an exception applies. The exit tax is built on a mark-to-market regime, under which the expatriate is deemed (1) to have sold all his/her assets for their fair market value and realized a gain or loss and (2) to have distributed the funds in his tax-deferred accounts, such as health savings accounts as of the day right before the expatriation date. To assess whether you are subject to the exit tax, you must understand who is a “covered expatriate.” A covered expatriate can be a U.S. citizen or a green card holder who has been a green-card holder during eight of the previous 15 years before expatriation and meet the following any of the three following tests:

  1. HThe Net Worth Test: The person has a net worth of $2 million or more on the date of expatriation.
  2. The Average Annual Income Liability Test: the person earns an average annual net income tax for the five years ending before the date of expatriation of more than a specified amount adjusted for inflation ($172,000 for 2021; $178,000 for 2022).
  3. Failure to Certify Tax Compliance: The person who fails to certify satisfaction of federal tax compliance to the Secretary of Treasury for five preceding taxable years or fails to submit supporting evidence of compliance as “may be required.”

However, even if you meet one of the three tests, you may still not be subject to the exit tax if an exception applies or your deemed sale gain is below a certain amount. There are many ways you can plan around your expatriation. A good strategy can make your expatriation smooth and efficient.

THEVOZ & Partners specializes in the area of Tax Law

This area of law is particularly complex and requires a high level of training. For this reason, our attorneys train continuously and hold a significant amount of experience in the field of tax law. THEVOZ & Partners is a law firm with offices in Austin and Lausanne specializing in the provision of tax and legal services to individuals and companies in the United States and Europe. We help clients navigate a litany of domestic and international tax issues ranging from compliance to planning and even litigation. We understand that each client has unique needs and goals, and we pride ourselves on taking a personalized approach to tailor our services to meet those needs.