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104TH CONGRESS

1ST SESSION H. R. 1812

To amend the Internal Revenue Code of 1986 to revise the income, estate,

and gift tax rules applicable to individuals who lose United States citizenship.

IN THE HOUSE OF REPRESENTATIVES

JUNE 9, 1995

Mr. ARCHER (for himself and Mrs. JOHNSON of Connecticut) introduced the

following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to revise

the income, estate, and gift tax rules applicable to individuals who lose United States citizenship.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Expatriation Tax Act

5 of 1995’’.
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1 SEC. 2. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON

2 INDIVIDUALS WHO LOSE UNITED STATES

3 CITIZENSHIP.

4 (a) IN GENERAL.—Subsection (a) of section 877 of

5 the Internal Revenue Code of 1986 is amended to read

6 as follows:

7 ‘‘(a) TREATMENT OF EXPATRIATES.—

8 ‘‘(1) IN GENERAL.—Every nonresident alien in9 dividual who, within the 10-year period immediately

10 preceding the close of the taxable year, lost United

11 States citizenship, unless such loss did not have for

12 1 of its principal purposes the avoidance of taxes

13 under this subtitle or subtitle B, shall be taxable for

14 such taxable year in the manner provided in sub15 section (b) if the tax imposed pursuant to such sub16 section exceeds the tax which, without regard to this

17 section, is imposed pursuant to section 871.

18 ‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAV19 ING TAX AVOIDANCE PURPOSE.—For purposes of

20 paragraph (1), an individual shall be treated as hav21 ing a principal purpose to avoid such taxes if—

22 ‘‘(A) the average annual net income tax

23 (as defined in section 38(c)(1)) of such individ24 ual for the period of 5 taxable years ending be25 fore the date of the loss of United States citi26 zenship is greater than $100,000, or
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1 ‘‘(B) the net worth of the individual as of

2 such date is $500,000 or more.

3 In the case of the loss of United States citizenship

4 in any calendar year after 1996, such $100,000 and

5 $500,000 amounts shall be increased by an amount

6 equal to such dollar amount multiplied by the cost7 of-living adjustment determined under section

8 1(f)(3) for such calendar year by substituting ‘1994’

9 for ‘1992’ in subparagraph (B) thereof. Any in10 crease under the preceding sentence shall be round11 ed to the nearest multiple of $1,000.’’

12 (b) EXCEPTIONS.—

13 (1) IN GENERAL.—Section 877 of such Code is

14 amended by striking subsection (d), by redesignating

15 subsection (c) as subsection (d), and by inserting

16 after subsection (b) the following new subsection:

17 ‘‘(c) SECTION NOT TO APPLY TO CERTAIN INDIVID18 UALS.—

19 ‘‘(1) IN GENERAL.—Subsection (a)(2) shall not

20 apply to an individual if—

21 ‘‘(A) such individual is described in a sub22 paragraph of paragraph (2) of this subsection,

23 and

24 ‘‘(B) within the 1-year period beginning on

25 the date of the loss of United States citizenship,
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1 such individual submits a ruling request for the

2 Secretary’s determination as to whether such

3 loss has for 1 of its principal purposes the

4 avoidance of taxes under this subtitle or subtitle

5 B.

6 ‘‘(2) INDIVIDUALS DESCRIBED.—

7 ‘‘(A) DUAL CITIZENSHIP, ETC.—An indi8 vidual is described in this subparagraph if—

9 ‘‘(i) the individual became at birth a

10 citizen of the United States and a citizen

11 of another country and continues to be a

12 citizen of such other country, or

13 ‘‘(ii) the individual becomes (not later

14 than the close of a reasonable period after

15 loss of United States citizenship) a citizen

16 of the country in which—

17 ‘‘(I) such individual was born,

18 ‘‘(II) if such individual is mar19 ried, such individual’s spouse was

20 born, or

21 ‘‘(III) either of such individual’s

22 parents were born.

23 ‘‘(B) LONG-TERM FOREIGN RESIDENTS.—

24 An individual is described in this subparagraph

25 if, for each year in the 10-year period ending on
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1 the date of loss of United States citizenship, the

2 individual was present in the United States for

3 30 days or less. The rule of section

4 7701(b)(3)(D)(ii) shall apply for purposes of

5 this subparagraph.

6 ‘‘(C) RENUNCIATION UPON REACHING AGE

7 OF MAJORITY.—An individual is described in

8 this subparagraph if the individual’s loss of

9 United States citizenship occurs before such individual attains age 181 10 ⁄2.

11 ‘‘(D) INDIVIDUALS SPECIFIED IN REGULA12 TIONS.—An individual is described in this sub13 paragraph if the individual is described in a

14 category of individuals prescribed by regulation

15 by the Secretary.’’

16 (2) TECHNICAL AMENDMENT.—Paragraph (1)

17 of section 877(b) of such Code is amended by strik18 ing ‘‘subsection (c)’’ and inserting ‘‘subsection (d)’’.

19 (c) TREATMENT OF PROPERTY DISPOSED OF IN

20 NONRECOGNITION TRANSACTIONS; TREATMENT OF DIS21 TRIBUTIONS FROM CERTAIN CONTROLLED FOREIGN

22 CORPORATIONS.—Subsection (d) of section 877 of such

23 Code, as redesignated by subsection (b), is amended by

24 striking the last sentence and inserting the following new

25 paragraphs:
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1 ‘‘(3) PROPERTY EXCHANGED IN NONRECOGNI2 TION TRANSACTIONS.—

3 ‘‘(A) IN GENERAL.—Gain on any exchange

4 of property to which this paragraph applies, de5 termined as if such property had been sold for

6 its fair market value on the date of the ex7 change.

8 ‘‘(B) TRANSACTIONS TO WHICH PARA9 GRAPH APPLIES.—This paragraph shall apply

10 to any exchange during the 10-year period de11 scribed in subsection (a) if—

12 ‘‘(i) gain is not recognized on such ex13 change in whole or in part for purposes of

14 this subtitle,

15 ‘‘(ii) income derived from such prop16 erty was from sources within the United

17 States (or, if no income was so derived,

18 would have been from such sources), and

19 ‘‘(iii) income derived from the prop20 erty acquired in the exchange would be

21 from sources outside the United States.

22 ‘‘(C) EXCEPTION.—Subparagraph (A)

23 shall not apply if the individual enters into an

24 agreement with the Secretary which specifies

25 that any income or gain derived from the prop-
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1 erty acquired in the exchange (or any other

2 property which has a basis determined in whole

3 or part by reference to such property) during

4 such 10-year period shall be treated as from

5 sources within the United States. If the prop6 erty transferred in the exchange is disposed of

7 by the person acquiring such property, such

8 agreement shall terminate and any gain which

9 was not recognized by reason of such agreement

10 shall be recognized as of the date of such dis11 position.

12 ‘‘(D) SUBSTANTIAL DIMINISHING OF RISKS

13 OF OWNERSHIP.—For purposes of determining

14 whether this paragraph (and subsection (a)) ap15 plies to any property transferred by the individ16 ual in an exchange, the running of the 10-year

17 period described in subsection (a) shall be sus18 pended for any period during which the individ19 ual’s risk of loss with respect to the property is

20 substantially diminished by—

21 ‘‘(i) the holding of a put with respect

22 to such property (or similar property),

23 ‘‘(ii) the holding by another person of

24 a right to acquire the property, or
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1 ‘‘(iii) a short sale or any other trans2 action.

3 ‘‘(E) SECRETARY MAY EXTEND PERIOD.—

4 To the extent provided in regulations prescribed

5 by the Secretary, subparagraph (B) shall be ap6 plied by substituting the 15-year period begin7 ning 5 years before the loss of United States

8 citizenship for the 10-year period referred to

9 therein.

10 ‘‘(4) INCOME OR GAIN DERIVED FROM CON11 TROLLED FOREIGN CORPORATION.—Any income or

12 gain derived from stock in a foreign corporation but

13 only—

14 ‘‘(A) if the individual losing United States

15 citizenship owned (within the meaning of sec16 tion 958(a)), or is considered as owning (by ap17 plying the ownership rules of section 958(b)), at

18 any time during the 2-year period ending on the

19 date of the loss of United States citizenship,

20 more than 50 percent of—

21 ‘‘(i) the total combined voting power

22 of all classes of stock entitled to vote of

23 such corporation, or

24 ‘‘(ii) the total value of the stock of

25 such corporation, and
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1 ‘‘(B) to the extent such income or gain

2 does not exceed the earnings and profits earned

3 or accumulated before the loss of citizenship

4 and during periods that the ownership require5 ments of subparagraph (A) are met.’’

6 (d) CREDIT FOR FOREIGN TAXES IMPOSED ON UNIT7 ED STATES SOURCE INCOME.—Subsection (b) of section

8 877 of such Code is amended by adding at the end the

9 following new sentence: ‘‘The tax imposed solely by reason

10 of this section shall be reduced (but not below zero) by

11 the amount of any income, war profits, and excess profits

12 taxes (within the meaning of section 903) paid to any for13 eign country or possession of the United States on any

14 income on which tax is imposed solely by reason of this

15 section.’’

16 (e) COMPARABLE ESTATE AND GIFT TAX TREAT17 MENT.—

18 (1) ESTATE TAX.—

19 (A) IN GENERAL.—Subsection (a) of sec20 tion 2107 of such Code is amended to read as

21 follows:

22 ‘‘(a) TREATMENT OF EXPATRIATES.—

23 ‘‘(1) RATE OF TAX.—A tax computed in accord24 ance with the table contained in section 2001 is

25 hereby imposed on the transfer of the taxable estate,
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1 determined as provided in section 2106, of every de2 cedent nonresident not a citizen of the United States

3 if, within the 10-year period ending with the date of

4 death, such decedent lost United States citizenship,

5 unless such loss did not have for 1 of its principal

6 purposes the avoidance of taxes under this subtitle

7 or subtitle A.

8 ‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAV9 ING TAX AVOIDANCE PURPOSE.—

10 ‘‘(A) IN GENERAL.—For purposes of para11 graph (1), an individual shall be treated as hav12 ing a principal purpose to avoid such taxes if

13 such individual is so treated under section

14 877(a)(2).

15 ‘‘(B) EXCEPTION.—Subparagraph (A)

16 shall not apply to a decedent meeting the re17 quirements of section 877(c)(1).’’

18 (B) CREDIT FOR FOREIGN DEATH

19 TAXES.—Subsection (c) of section 2107 of such

20 Code is amended by redesignating paragraph

21 (2) as paragraph (3) and by inserting after

22 paragraph (1) the following new paragraph:

23 ‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—

24 ‘‘(A) IN GENERAL.—The tax imposed by

25 subsection (a) shall be credited with the amount
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1 of any estate, inheritance, legacy, or succession

2 taxes actually paid to any foreign country in re3 spect of any property which is included in the

4 gross estate solely by reason of subsection (b).

5 ‘‘(B) LIMITATION ON CREDIT.—The credit

6 allowed by subparagraph (A) for such taxes

7 paid to a foreign country shall not exceed the

8 lesser of—

9 ‘‘(i) the amount which bears the same

10 ratio to the amount of such taxes actually

11 paid to such foreign country in respect of

12 property included in the gross estate as the

13 value of the property included in the gross

14 estate solely by reason of subsection (b)

15 bears to the value of all property subjected

16 to such taxes by such foreign country, or

17 ‘‘(ii) such property’s proportionate

18 share of the excess of—

19 ‘‘(I) the tax imposed by sub20 section (a), over

21 ‘‘(II) the tax which would be im22 posed by section 2101 but for this

23 section.

24 ‘‘(C) PROPORTIONATE SHARE.—For pur25 poses of subparagraph (B), a property’s propor-
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1 tionate share is the percentage which the value

2 of the property which is included in the gross

3 estate solely by reason of subsection (b) bears

4 to the total value of the gross estate.’’

5 (C) EXPANSION OF INCLUSION IN GROSS

6 ESTATE OF STOCK OF FOREIGN CORPORA7 TIONS.—Paragraph (2) of section 2107(b) of

8 such Code is amended by striking ‘‘more than

9 50 percent of’’ and all that follows and insert10 ing ‘‘more than 50 percent of—

11 ‘‘(A) the total combined voting power of all

12 classes of stock entitled to vote of such corpora13 tion, or

14 ‘‘(B) the total value of the stock of such

15 corporation,’’.

16 (2) GIFT TAX.—

17 (A) IN GENERAL.—Paragraph (3) of sec18 tion 2501(a) of such Code is amended to read

19 as follows:

20 ‘‘(3) EXCEPTION.—

21 ‘‘(A) CERTAIN INDIVIDUALS.—Paragraph

22 (2) shall not apply in the case of a donor who,

23 within the 10-year period ending with the date

24 of transfer, lost United States citizenship, un25 less such loss did not have for 1 of its principal
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1 purposes the avoidance of taxes under this sub2 title or subtitle A.

3 ‘‘(B) CERTAIN INDIVIDUALS TREATED AS

4 HAVING TAX AVOIDANCE PURPOSE.—For pur5 poses of subparagraph (A), an individual shall

6 be treated as having a principal purpose to

7 avoid such taxes if such individual is so treated

8 under section 877(a)(2).

9 ‘‘(C) EXCEPTION FOR CERTAIN INDIVID10 UALS.—Subparagraph (B) shall not apply to a

11 decedent meeting the requirements of section

12 877(c)(1).

13 ‘‘(D) CREDIT FOR FOREIGN GIFT TAXES.—

14 The tax imposed by this section solely by reason

15 of this paragraph shall be credited with the

16 amount of any gift tax actually paid to any for17 eign country in respect of any gift which is tax18 able under this section solely by reason of this

19 paragraph.’’

20 (f) EFFECTIVE DATE.—

21 (1) IN GENERAL.—The amendments made by

22 this section shall apply to individuals losing United

23 States citizenship (within the meaning of section

24 877 of the Internal Revenue Code of 1986) on or

25 after February 6, 1995.
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1 (2) SPECIAL RULE.—

2 (A) IN GENERAL.—In the case of an indi3 vidual who performed an act of expatriation

4 specified in paragraph (1), (2), (3), or (4) of

5 section 349(a) of the Immigration and Nation6 ality Act (8 U.S.C. 1481(a)(1)–(4)) before Feb7 ruary 6, 1995, but who did not, on or before

8 such date, furnish to the United States Depart9 ment of State a signed statement of voluntary

10 relinquishment of United States nationality con11 firming the performance of such act, the

12 amendments made by this section shall apply to

13 such individual except that—

14 (i) the 10-year period described in

15 section 877(a) of such Code shall not ex16 pire before the end of the 10-year period

17 beginning on the date such statement is so

18 furnished, and

19 (ii) the 1-year period referred to in

20 section 877(c) of such Code, as amended

21 by this section, shall not expire before the

22 date which is 1 year after the date of the

23 enactment of this Act.

24 (B) EXCEPTION.—Subparagraph (A) shall

25 not apply if the individual establishes to the
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1 satisfaction of the Secretary that such loss of

2 United States citizenship occurred before Feb3 ruary 6, 1994.

4 SEC. 3. INFORMATION ON INDIVIDUALS LOSING UNITED

5 STATES CITIZENSHIP.

6 (a) IN GENERAL.—Subpart A of part III of sub7 chapter A of chapter 61 of the Internal Revenue Code of

8 1986 is amended by inserting after section 6039E the fol9 lowing new section:

10 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING

11 UNITED STATES CITIZENSHIP.

12 ‘‘(a) IN GENERAL.—Notwithstanding any other pro13 vision of law, any individual who loses United States citi14 zenship (within the meaning of section 877(a)) shall pro15 vide a statement which includes the information described

16 in subsection (b). Such statement shall be—

17 ‘‘(1) provided not later than the earliest date of

18 any act referred to in subsection (c), and

19 ‘‘(2) provided to the person or court referred to

20 in subsection (c) with respect to such act.

21 ‘‘(b) INFORMATION TO BE PROVIDED.—Information

22 required under subsection (a) shall include—

23 ‘‘(1) the taxpayer’s TIN,

24 ‘‘(2) the mailing address of such individual’s

25 principal foreign residence,
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1 ‘‘(3) the foreign country in which such individ2 ual is residing,

3 ‘‘(4) the foreign country of which such individ4 ual is a citizen,

5 ‘‘(5) in the case of an individual having a net

6 worth of at least the dollar amount applicable under

7 section 877(a)(2)(B), information detailing the as8 sets and liabilities of such individual, and

9 ‘‘(6) such other information as the Secretary

10 may prescribe.

11 ‘‘(c) ACTS DESCRIBED.—For purposes of this sec12 tion, the acts referred to in this subsection are—

13 ‘‘(1) the individual’s renunciation of his United

14 States nationality before a diplomatic or consular of15 ficer of the United States pursuant to paragraph (5)

16 of section 349(a) of the Immigration and Nationality

17 Act (8 U.S.C. 1481(a)(5)),

18 ‘‘(2) the individual’s furnishing to the United

19 States Department of State a signed statement of

20 voluntary relinquishment of United States national21 ity confirming the performance of an act of expatria22 tion specified in paragraph (1), (2), (3), or (4) of

23 section 349(a) of the Immigration and Nationality

24 Act (8 U.S.C. 1481(a)(1)–(4)),
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1 ‘‘(3) the issuance by the United States Depart2 ment of State of a certificate of loss of nationality

3 to the individual, or

4 ‘‘(4) the cancellation by a court of the United

5 States of a naturalized citizen’s certificate of natu6 ralization.

7 ‘‘(d) PENALTY.—Any individual failing to provide a

8 statement required under subsection (a) shall be subject

9 to a penalty for each year (of the 10-year period beginning

10 on the date of loss of United States citizenship) during

11 any portion of which such failure continues in an amount

12 equal to the greater of—

13 ‘‘(1) 5 percent of the tax required to be paid

14 under section 877 for the taxable year ending during

15 such year, or

16 ‘‘(2) $1,000,

17 unless it is shown that such failure is due to reasonable

18 cause and not to willful neglect.

19 ‘‘(e) INFORMATION TO BE PROVIDED TO SEC20 RETARY.—Notwithstanding any other provision of law,

21 any person which collects (or is required to collect) the

22 statement under subsection (a) shall—

23 ‘‘(1) provide any such statement to the Sec24 retary, and
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1 ‘‘(2) provide to the Secretary the name (and

2 any other identifying information) of any individual

3 refusing to comply with the provisions of subsection

4 (a).

5 ‘‘(f) EXEMPTION.—The Secretary may by regulations

6 exempt any class of individuals from the requirements of

7 this section if he determines that applying this section to

8 such individuals is not necessary to carry out the purposes

9 of this section.’’

10 (b) CLERICAL AMENDMENT.—The table of sections

11 for such subpart A is amended by inserting after the item

12 relating to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals losing United States citizenship.’’

13 (c) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to individuals who lose United

15 States citizenship (within the meaning of section 877 of

16 the Internal Revenue Code of 1986) after the date of the

17 enactment of this Act.

18 SEC. 4. REPORT ON TAX COMPLIANCE BY UNITED STATES

19 CITIZENS AND RESIDENTS LIVING ABROAD.

20 Not later than 90 days after the date of the enact21 ment of this Act, the Secretary of the Treasury shall pre22 pare and submit to the Committee on Ways and Means

23 of the House of Representatives and the Committee on

24 Finance of the Senate a report—
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1 (1) describing the compliance with subtitle A of

2 the Internal Revenue Code of 1986 by citizens and

3 lawful permanent residents of the United States

4 (within the meaning of section 7701(b)(6) of such

5 Code) residing outside the United States, and

6 (2) recommending measures to improve such

7 compliance (including improved coordination be8 tween executive branch agencies).

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