II

104TH CONGRESS

2D SESSION S. 1637

To amend the Internal Revenue Code of 1986 to revise the tax rules on

expatriation, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 21, 1996

Mr. HARKIN introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to revise

the tax rules on expatriation, and for other purposes.

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 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Expatriation Tax Reform Act of 1996’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2. REVISION OF TAX RULES ON EXPATRIATION.

4 (a) IN GENERAL.—Subpart A of part II of sub5 chapter N of chapter 1 is amended by inserting after sec6 tion 877 the following new section:

7 ‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

8 ‘‘(a) GENERAL RULES.—For purposes of this sub9 title—

10 ‘‘(1) MARK TO MARKET.—Except as provided in

11 subsection (f), all property of a covered expatriate to

12 which this section applies shall be treated as sold on

13 the expatriation date for its fair market value.

14 ‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the

15 case of any sale under paragraph (1)—

16 ‘‘(A) notwithstanding any other provision

17 of this title, any gain arising from such sale

18 shall be taken into account for the taxable year

19 of the sale unless such gain is excluded from

20 gross income under part III of subchapter B,

21 and

22 ‘‘(B) any loss arising from such sale shall

23 be taken into account for the taxable year of

24 the sale to the extent otherwise provided by this
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1 title, except that section 1091 shall not apply

2 (and section 1092 shall apply) to any such loss.

3 ‘‘(3) EXCLUSION FOR CERTAIN GAIN.—The

4 amount which would (but for this paragraph) be in5 cludible in the gross income of any individual by rea6 son of this section shall be reduced (but not below

7 zero) by $600,000. For purposes of this paragraph,

8 allocable expatriation gain taken into account under

9 subsection (f)(2) shall be treated in the same man10 ner as an amount required to be includible in gross

11 income.

12 ‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS

13 UNITED STATES CITIZEN.—

14 ‘‘(A) IN GENERAL.—If an expatriate elects

15 the application of this paragraph—

16 ‘‘(i) this section (other than this para17 graph) shall not apply to the expatriate,

18 but

19 ‘‘(ii) the expatriate shall be subject to

20 tax under this title, with respect to prop21 erty to which this section would apply but

22 for such election, in the same manner as if

23 the individual were a United States citizen.

24 ‘‘(B) LIMITATION ON AMOUNT OF ESTATE,

25 GIFT, AND GENERATION-SKIPPING TRANSFER
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1 TAXES.—The aggregate amount of taxes im2 posed under subtitle B with respect to any

3 transfer of property by reason of an election

4 under subparagraph (A) shall not exceed the

5 amount of income tax which would be due if

6 the property were sold for its fair market value

7 immediately before the time of the transfer or

8 death (taking into account the rules of para9 graph (2)).

10 ‘‘(C) REQUIREMENTS.—Subparagraph (A)

11 shall not apply to an individual unless the indi12 vidual—

13 ‘‘(i) provides security for payment of

14 tax in such form and manner, and in such

15 amount, as the Secretary may require,

16 ‘‘(ii) consents to the waiver of any

17 right of the individual under any treaty of

18 the United States which would preclude as19 sessment or collection of any tax which

20 may be imposed by reason of this para21 graph, and

22 ‘‘(iii) complies with such other re23 quirements as the Secretary may prescribe.

24 ‘‘(D) ELECTION.—An election under sub25 paragraph (A) shall apply to all property to
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1 which this section would apply but for the elec2 tion and, once made, shall be irrevocable. Such

3 election shall also apply to property the basis of

4 which is determined in whole or in part by ref5 erence to the property with respect to which the

6 election was made.

7 ‘‘(b) ELECTION TO DEFER TAX.—

8 ‘‘(1) IN GENERAL.—If the taxpayer elects the

9 application of this subsection with respect to any

10 property—

11 ‘‘(A) no amount shall be required to be in12 cluded in gross income under subsection (a)(1)

13 with respect to the gain from such property for

14 the taxable year of the sale, but

15 ‘‘(B) the taxpayer’s tax for the taxable

16 year in which such property is disposed of shall

17 be increased by the deferred tax amount with

18 respect to the property.

19 Except to the extent provided in regulations, sub20 paragraph (B) shall apply to a disposition whether

21 or not gain or loss is recognized in whole or in part

22 on the disposition.

23 ‘‘(2) DEFERRED TAX AMOUNT.—

24 ‘‘(A) IN GENERAL.—For purposes of para25 graph (1), the term ‘deferred tax amount’
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1 means, with respect to any property, an amount

2 equal to the sum of—

3 ‘‘(i) the difference between the

4 amount of tax paid for the taxable year de5 scribed in paragraph (1)(A) and the

6 amount which would have been paid for

7 such taxable year if the election under

8 paragraph (1) had not applied to such

9 property, plus

10 ‘‘(ii) an amount of interest on the

11 amount described in clause (i) determined

12 for the period—

13 ‘‘(I) beginning on the 91st day

14 after the expatriation date, and

15 ‘‘(II) ending on the due date for

16 the taxable year described in para17 graph (1)(B),

18 by using the rates and method applicable

19 under section 6621 for underpayments of

20 tax for such period.

21 For purposes of clause (ii), the due date is the

22 date prescribed by law (determined without re23 gard to extension) for filing the return of the

24 tax imposed by this chapter for the taxable

25 year.
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1 ‘‘(B) ALLOCATION OF LOSSES.—For pur2 poses of subparagraph (A), any losses described

3 in subsection (a)(2)(B) shall be allocated rat4 ably among the gains described in subsection

5 (a)(2)(A).

6 ‘‘(3) SECURITY.—

7 ‘‘(A) IN GENERAL.—No election may be

8 made under paragraph (1) with respect to any

9 property unless adequate security is provided

10 with respect to such property.

11 ‘‘(B) ADEQUATE SECURITY.—For purposes

12 of subparagraph (A), security with respect to

13 any property shall be treated as adequate secu14 rity if—

15 ‘‘(i) it is a bond in an amount equal

16 to the deferred tax amount under para17 graph (2)(A) for the property, or

18 ‘‘(ii) the taxpayer otherwise estab19 lishes to the satisfaction of the Secretary

20 that the security is adequate.

21 ‘‘(4) WAIVER OF CERTAIN RIGHTS.—No elec22 tion may be made under paragraph (1) unless the

23 taxpayer consents to the waiver of any right under

24 any treaty of the United States which would pre-
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1 clude assessment or collection of any tax imposed by

2 reason of this section.

3 ‘‘(5) DISPOSITIONS.—For purposes of this sub4 section, a taxpayer making an election under this

5 subsection with respect to any property shall be

6 treated as having disposed of such property—

7 ‘‘(A) immediately before death if such

8 property is held at such time, and

9 ‘‘(B) at any time the security provided

10 with respect to the property fails to meet the

11 requirements of paragraph (3) and the taxpayer

12 does not correct such failure within the time

13 specified by the Secretary.

14 ‘‘(6) ELECTIONS.—An election under paragraph

15 (1) shall only apply to property described in the elec16 tion and, once made, is irrevocable. An election may

17 be under paragraph (1) with respect to an interest

18 in a trust with respect to which gain is required to

19 be recognized under subsection (f)(1).

20 ‘‘(c) COVERED EXPATRIATE.—For purposes of this

21 section—

22 ‘‘(1) IN GENERAL.—The term ‘covered expatri23 ate’ means an expatriate—

24 ‘‘(A) whose average annual net income tax

25 (as defined in section 38(c)(1)) for the period
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1 of 5 taxable years ending before the expatria2 tion date is greater than $100,000, or

3 ‘‘(B) whose net worth as of such date is

4 $500,000 or more.

5 If the expatriation date is in a calendar year after

6 1996, the $100,000 and $500,000 amounts shall

7 each be increased by an amount equal to such dollar

8 amount multiplied by the cost-of-living adjustment

9 determined under section 1(f)(3) for such calendar

10 year by substituting ‘1995’ for ‘1992’ in subpara11 graph (B) thereof. Any increase under the preceding

12 sentence shall be rounded to the nearest multiple of

13 $1,000.

14 ‘‘(2) EXCEPTIONS.—An individual shall not be

15 treated as a covered expatriate if—

16 ‘‘(A) the individual—

17 ‘‘(i) became at birth a citizen of the

18 United States and a citizen of another

19 country and, as of the expatriation date,

20 continues to be a citizen of, and is taxed

21 as a resident of, such other country, and

22 ‘‘(ii) has been a resident of the United

23 States (as defined in section

24 7701(b)(1)(A)(ii)) for not more than 8 tax25 able years during the 15-taxable year pe-
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1 riod ending with the taxable year during

2 which the expatriation date occurs, or

3 ‘‘(B)(i) the individual’s relinquishment of

4 United States citizenship occurs before such individual attains age 181 5 ⁄2, and

6 ‘‘(ii) the individual has been a resident of

7 the United States (as so defined) for not more

8 than 5 taxable years before the date of relin9 quishment.

10 ‘‘(d) PROPERTY TO WHICH SECTION APPLIES.—For

11 purposes of this section—

12 ‘‘(1) IN GENERAL.—Except as otherwise pro13 vided by the Secretary, this section shall apply to—

14 ‘‘(A) any interest in property held by a

15 covered expatriate on the expatriation date the

16 gain from which would be includible in the

17 gross income of the expatriate if such interest

18 had been sold for its fair market value on such

19 date in a transaction in which gain is recog20 nized in whole or in part, and

21 ‘‘(B) any other interest in a trust to which

22 subsection (f) applies.

23 ‘‘(2) EXCEPTIONS.—This section shall not

24 apply to the following property:
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1 ‘‘(A) UNITED STATES REAL PROPERTY IN2 TERESTS.—Any United States real property in3 terest (as defined in section 897(c)(1)), other

4 than stock of a United States real property

5 holding corporation which does not, on the ex6 patriation date, meet the requirements of sec7 tion 897(c)(2).

8 ‘‘(B) INTEREST IN CERTAIN RETIREMENT

9 PLANS.—

10 ‘‘(i) IN GENERAL.—Any interest in a

11 qualified retirement plan (as defined in

12 section 4974(c)), other than any interest

13 attributable to contributions which are in

14 excess of any limitation or which violate

15 any condition for tax-favored treatment.

16 ‘‘(ii) FOREIGN PENSION PLANS.—

17 ‘‘(I) IN GENERAL.—Under regu18 lations prescribed by the Secretary,

19 interests in foreign pension plans or

20 similar retirement arrangements or

21 programs.

22 ‘‘(II) LIMITATION.—The value of

23 property taken into account under

24 subclause (I) shall not exceed

25 $500,000.
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1 ‘‘(e) DEFINITIONS.—For purposes of this section—

2 ‘‘(1) EXPATRIATE.—The term ‘expatriate’

3 means—

4 ‘‘(A) any United States citizen who relin5 quishes his citizenship, or

6 ‘‘(B) any long-term resident of the United

7 States who—

8 ‘‘(i) ceases to be a lawful permanent

9 resident of the United States (within the

10 meaning of section 7701(b)(6)), or

11 ‘‘(ii) commences to be treated as a

12 resident of a foreign country under the

13 provisions of a tax treaty between the

14 United States and the foreign country and

15 who does not waive the benefits of such

16 treaty applicable to residents of the foreign

17 country.

18 ‘‘(2) EXPATRIATION DATE.—The term ‘expa19 triation date’ means—

20 ‘‘(A) the date an individual relinquishes

21 United States citizenship, or

22 ‘‘(B) in the case of a long-term resident of

23 the United States, the date of the event de24 scribed in clause (i) or (ii) of paragraph (1)(B).
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1 ‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A

2 citizen shall be treated as relinquishing his United

3 States citizenship on the earliest of—

4 ‘‘(A) the date the individual renounces his

5 United States nationality before a diplomatic or

6 consular officer of the United States pursuant

7 to paragraph (5) of section 349(a) of the Immi8 gration and Nationality Act (8 U.S.C.

9 1481(a)(5)),

10 ‘‘(B) the date the individual furnishes to

11 the United States Department of State a signed

12 statement of voluntary relinquishment of Unit13 ed States nationality confirming the perform14 ance of an act of expatriation specified in para15 graph (1), (2), (3), or (4) of section 349(a) of

16 the Immigration and Nationality Act (8 U.S.C.

17 1481(a)(1)–(4)),

18 ‘‘(C) the date the United States Depart19 ment of State issues to the individual a certifi20 cate of loss of nationality, or

21 ‘‘(D) the date a court of the United States

22 cancels a naturalized citizen’s certificate of nat23 uralization.

24 Subparagraph (A) or (B) shall not apply to any indi25 vidual unless the renunciation or voluntary relin-
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1 quishment is subsequently approved by the issuance

2 to the individual of a certificate of loss of nationality

3 by the United States Department of State.

4 ‘‘(4) LONG-TERM RESIDENT.—

5 ‘‘(A) IN GENERAL.—The term ‘long-term

6 resident’ means any individual (other than a

7 citizen of the United States) who is a lawful

8 permanent resident of the United States in at

9 least 8 taxable years during the period of 15

10 taxable years ending with the taxable year dur11 ing which the expatriation date occurs. For pur12 poses of the preceding sentence, an individual

13 shall not be treated as a lawful permanent resi14 dent for any taxable year if such individual is

15 treated as a resident of a foreign country for

16 the taxable year under the provisions of a tax

17 treaty between the United States and the for18 eign country and does not waive the benefits of

19 such treaty applicable to residents of the for20 eign country.

21 ‘‘(B) SPECIAL RULE.—For purposes of

22 subparagraph (A), there shall not be taken into

23 account—
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1 ‘‘(i) any taxable year during which

2 any prior sale is treated under subsection

3 (a)(1) as occurring, or

4 ‘‘(ii) any taxable year prior to the tax5 able year referred to in clause (i).

6 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE7 FICIARIES’ INTERESTS IN TRUST.—

8 ‘‘(1) IN GENERAL.—Except as provided in para9 graph (2), if an individual is determined under para10 graph (3) to hold an interest in a trust—

11 ‘‘(A) the individual shall not be treated as

12 having sold such interest,

13 ‘‘(B) such interest shall be treated as a

14 separate share in the trust, and

15 ‘‘(C)(i) such separate share shall be treat16 ed as a separate trust consisting of the assets

17 allocable to such share,

18 ‘‘(ii) the separate trust shall be treated as

19 having sold its assets immediately before the ex20 patriation date for their fair market value and

21 as having distributed all of its assets to the in22 dividual as of such time, and

23 ‘‘(iii) the individual shall be treated as hav24 ing recontributed the assets to the separate

25 trust.
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1 Subsection (a)(2) shall apply to any income, gain, or

2 loss of the individual arising from a distribution de3 scribed in subparagraph (C)(ii).

4 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI5 FIED TRUSTS.—

6 ‘‘(A) IN GENERAL.—If the trust interest

7 described in paragraph (1) is an interest in a

8 qualified trust—

9 ‘‘(i) paragraph (1) and subsection (a)

10 shall not apply, and

11 ‘‘(ii) in addition to any other tax im12 posed by this title, there is hereby imposed

13 on each distribution with respect to such

14 interest a tax in the amount determined

15 under subparagraph (B).

16 ‘‘(B) AMOUNT OF TAX.—The amount of

17 tax under subparagraph (A)(ii) shall be equal to

18 the lesser of—

19 ‘‘(i) the highest rate of tax imposed by

20 section 1(e) for the taxable year in which

21 the expatriation date occurs, multiplied by

22 the amount of the distribution, or

23 ‘‘(ii) the balance in the deferred tax

24 account immediately before the distribution

25 determined without regard to any increases
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1 under subparagraph (C)(ii) after the 30th

2 day preceding the distribution.

3 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur4 poses of subparagraph (B)(ii)—

5 ‘‘(i) OPENING BALANCE.—The open6 ing balance in a deferred tax account with

7 respect to any trust interest is an amount

8 equal to the tax which would have been im9 posed on the allocable expatriation gain

10 with respect to the trust interest if such

11 gain had been included in gross income

12 under subsection (a).

13 ‘‘(ii) INCREASE FOR INTEREST.—The

14 balance in the deferred tax account shall

15 be increased by the amount of interest de16 termined (on the balance in the account at

17 the time the interest accrues), for periods

18 after the 90th day after the expatriation

19 date, by using the rates and method appli20 cable under section 6621 for underpay21 ments of tax for such periods.

22 ‘‘(iii) DECREASE FOR TAXES PRE23 VIOUSLY PAID.—The balance in the tax de24 ferred account shall be reduced—
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1 ‘‘(I) by the amount of taxes im2 posed by subparagraph (A) on any

3 distribution to the person holding the

4 trust interest, and

5 ‘‘(II) in the case of a person

6 holding a nonvested interest, to the

7 extent provided in regulations, by the

8 amount of taxes imposed by subpara9 graph (A) on distributions from the

10 trust with respect to nonvested inter11 ests not held by such person.

12 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—

13 For purposes of this paragraph, the allocable

14 expatriation gain with respect to any bene15 ficiary’s interest in a trust is the amount of

16 gain which would be allocable to such bene17 ficiary’s vested and nonvested interests in the

18 trust if the beneficiary held directly all assets

19 allocable to such interests.

20 ‘‘(E) TAX DEDUCTED AND WITHHELD.—

21 ‘‘(i) IN GENERAL.—The tax imposed

22 by subparagraph (A)(ii) shall be deducted

23 and withheld by the trustees from the dis24 tribution to which it relates.
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1 ‘‘(ii) EXCEPTION WHERE FAILURE TO

2 WAIVE TREATY RIGHTS.—If an amount

3 may not be deducted and withheld under

4 clause (i) by reason of the distributee fail5 ing to waive any treaty right with respect

6 to such distribution—

7 ‘‘(I) the tax imposed by subpara8 graph (A)(ii) shall be imposed on the

9 trust and each trustee shall be person10 ally liable for the amount of such tax,

11 and

12 ‘‘(II) any other beneficiary of the

13 trust shall be entitled to recover from

14 the distributee the amount of such tax

15 imposed on the other beneficiary.

16 ‘‘(F) DISPOSITION.—If a trust ceases to be

17 a qualified trust at any time, a covered expatri18 ate disposes of an interest in a qualified trust,

19 or a covered expatriate holding an interest in a

20 qualified trust dies, then, in lieu of the tax im21 posed by subparagraph (A)(ii), there is hereby

22 imposed a tax equal to the lesser of—

23 ‘‘(i) the tax determined under para24 graph (1) as if the expatriation date were
20

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1 the date of such cessation, disposition, or

2 death, whichever is applicable, or

3 ‘‘(ii) the balance in the tax deferred

4 account immediately before such date.

5 Such tax shall be imposed on the trust and

6 each trustee shall be personally liable for the

7 amount of such tax and any other beneficiary

8 of the trust shall be entitled to recover from the

9 covered expatriate or the estate the amount of

10 such tax imposed on the other beneficiary.

11 ‘‘(G) DEFINITIONS AND SPECIAL RULE.—

12 For purposes of this paragraph—

13 ‘‘(i) QUALIFIED TRUST.—The term

14 ‘qualified trust’ means a trust—

15 ‘‘(I) which is organized under,

16 and governed by, the laws of the

17 United States or a State, and

18 ‘‘(II) with respect to which the

19 trust instrument requires that at least

20 1 trustee of the trust be an individual

21 citizen of the United States or a do22 mestic corporation.

23 ‘‘(ii) VESTED INTEREST.—The term

24 ‘vested interest’ means any interest which,

25 as of the expatriation date, is vested in the
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1 beneficiary. Such interest shall be deter2 mined by assuming the maximum exercise

3 of discretion in favor of the beneficiary and

4 the occurrence of all contingencies in favor

5 of the beneficiary.

6 ‘‘(iii) NONVESTED INTEREST.—The

7 term ‘nonvested interest’ means, with re8 spect to any beneficiary, any interest in a

9 trust which is not a vested interest.

10 ‘‘(iv) ADJUSTMENTS.—The Secretary

11 may provide for such adjustments to the

12 bases of assets in a trust or a deferred tax

13 account, and the timing of such adjust14 ments, in order to ensure that gain is

15 taxed only once.

16 ‘‘(3) DETERMINATION OF BENEFICIARIES’ IN17 TEREST IN TRUST.—

18 ‘‘(A) DETERMINATIONS UNDER PARA19 GRAPH (1).—For purposes of paragraph (1), a

20 beneficiary’s interest in a trust shall be based

21 upon all relevant facts and circumstances, in22 cluding the terms of the trust instrument and

23 any letter of wishes or similar document, histor24 ical patterns of trust distributions, and the ex-
22

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1 istence of and functions performed by a trust

2 protector or any similar advisor.

3 ‘‘(B) OTHER DETERMINATIONS.—For pur4 poses of this section—

5 ‘‘(i) CONSTRUCTIVE OWNERSHIP.—If

6 a beneficiary of a trust is a corporation,

7 partnership, trust, or estate, the sharehold8 ers, partners, or beneficiaries shall be

9 deemed to be the trust beneficiaries for

10 purposes of this section.

11 ‘‘(ii) TAXPAYER RETURN POSITION.—

12 A taxpayer shall clearly indicate on its in13 come tax return—

14 ‘‘(I) the methodology used to de15 termine that taxpayer’s trust interest

16 under this section, and

17 ‘‘(II) if the taxpayer knows (or

18 has reason to know) that any other

19 beneficiary of such trust is using a

20 different methodology to determine

21 such beneficiary’s trust interest under

22 this section.

23 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the

24 date any property held by an individual is treated as sold
23

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1 under subsection (a), notwithstanding any other provision

2 of this title—

3 ‘‘(1) any period during which recognition of in4 come or gain is deferred shall terminate, and

5 ‘‘(2) any extension of time for payment of tax

6 shall cease to apply and the unpaid portion of such

7 tax shall be due and payable at the time and in the

8 manner prescribed by the Secretary.

9 ‘‘(h) IMPOSITION OF TENTATIVE TAX.—

10 ‘‘(1) IN GENERAL.—If an individual is required

11 to include any amount in gross income under sub12 section (a) for any taxable year, there is hereby im13 posed, immediately before the expatriation date, a

14 tax in an amount equal to the amount of tax which

15 would be imposed if the taxable year were a short

16 taxable year ending on the expatriation date.

17 ‘‘(2) DUE DATE.—The due date for any tax im18 posed by paragraph (1) shall be the 90th day after

19 the expatriation date.

20 ‘‘(3) TREATMENT OF TAX.—Any tax paid under

21 paragraph (1) shall be treated as a payment of the

22 tax imposed by this chapter for the taxable year to

23 which subsection (a) applies.

24 ‘‘(4) DEFERRAL OF TAX.—The provisions of

25 subsection (b) shall apply to the tax imposed by this
24

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1 subsection to the extent attributable to gain includ2 ible in gross income by reason of this section.

3 ‘‘(i) COORDINATION WITH ESTATE AND GIFT

4 TAXES.—If subsection (a) applies to property held by an

5 individual for any taxable year and—

6 ‘‘(1) such property is includible in the gross es7 tate of such individual solely by reason of section

8 2107, or

9 ‘‘(2) section 2501 applies to a transfer of such

10 property by such individual solely by reason of sec11 tion 2501(a)(3),

12 then there shall be allowed as a credit against the addi13 tional tax imposed by section 2101 or 2501, whichever is

14 applicable, solely by reason of section 2107 or 2501(a)(3)

15 an amount equal to the increase in the tax imposed by

16 this chapter for such taxable year by reason of this sec17 tion.

18 ‘‘(j) REGULATIONS.—The Secretary shall prescribe

19 such regulations as may be necessary or appropriate to

20 carry out the purposes of this section, including regula21 tions—

22 ‘‘(1) to prevent double taxation by ensuring

23 that—

24 ‘‘(A) appropriate adjustments are made to

25 basis to reflect gain recognized by reason of
25

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1 subsection (a) and the exclusion provided by

2 subsection (a)(3), and

3 ‘‘(B) any gain by reason of a deemed sale

4 under subsection (a) of an interest in a corpora5 tion, partnership, trust, or estate is reduced to

6 reflect that portion of such gain which is attrib7 utable to an interest in a trust which a share8 holder, partner, or beneficiary is treated as

9 holding directly under subsection (f)(3)(B)(i),

10 and

11 ‘‘(2) which provide for the proper allocation of

12 the exclusion under subsection (a)(3) to property to

13 which this section applies.

14 ‘‘(k) CROSS REFERENCE.—

‘‘For income tax treatment of individuals who terminate United States citizenship, see section

7701(a)(47).’’

15 (b) INCLUSION IN INCOME OF GIFTS AND INHERIT16 ANCES FROM COVERED EXPATRIATES.—Section 102 (re17 lating to gifts, etc. not included in gross income) is amend18 ed by adding at the end the following new subsection:

19 ‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX20 PATRIATES.—Subsection (a) shall not exclude from gross

21 income the value of any property acquired by gift, bequest,

22 devise, or inheritance from a covered expatriate after the

23 expatriation date. For purposes of this subsection, any

24 term used in this subsection which is also used in section
26

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1 877A shall have the same meaning as when used in section

2 877A.’’.

3 (c) DEFINITION OF TERMINATION OF UNITED

4 STATES CITIZENSHIP.—Section 7701(a) is amended by

5 adding at the end the following new paragraph:

6 ‘‘(47) TERMINATION OF UNITED STATES CITI7 ZENSHIP.—An individual shall not cease to be treat8 ed as a United States citizen before the date on

9 which the individual’s citizenship is treated as relin10 quished under section 877A(e)(3).’’

11 (d) CONFORMING AMENDMENTS.—

12 (1) Section 877 is amended by adding at the

13 end the following new subsection:

14 ‘‘(f) APPLICATION.—This section shall not apply to

15 any individual who relinquishes (within the meaning of

16 section 877A(e)(3)) United States citizenship on or after

17 February 6, 1995.’’

18 (2) Section 2107(c) is amended by adding at

19 the end the following new paragraph:

20 ‘‘(3) CROSS REFERENCE.—For credit against

21 the tax imposed by subsection (a) for expatriation

22 tax, see section 877A(i).’’

23 (3) Section 2501(a)(3) is amended by adding at

24 the end the following new flush sentence:
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1 ‘‘For credit against the tax imposed under this sec2 tion by reason of this paragraph, see section

3 877A(i).’’

4 (4) Paragraph (10) of section 7701(b) is

5 amended by adding at the end the following new

6 sentence: ‘‘This paragraph shall not apply to any

7 long-term resident of the United States who is an

8 expatriate (as defined in section 877A(e)(1)).’’

9 (e) CLERICAL AMENDMENT.—The table of sections

10 for subpart A of part II of subchapter N of chapter 1

11 is amended by inserting after the item relating to section

12 877 the following new item:

‘‘Sec. 877A. Tax responsibilities of expatriation.’’

13 (f) CITIZENS BECOMING COVERED EXPATRIATES TO

14 BE TAXED AS RESIDENTS UPON RETURN TO UNITED

15 STATES.—Paragraph (3) of section 7701(b) is amended

16 by adding at the end the following new subparagraph:

17 ‘‘(E) SPECIAL RULE FOR COVERED EXPA18 TRIATES.—Notwithstanding any other provision

19 of this paragraph, in the case of an individual

20 who is treated as a covered expatriate under

21 section 877A by reason of relinquishing the in22 dividual’s United States citizenship, such indi23 vidual shall be treated as meeting the substan24 tial presence test of this paragraph with respect

25 to any calendar year if the individual is present
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1 in the United States for more than 30 days

2 during the calendar year. The preceding sen3 tence shall not apply to the extent that the Sec4 retary determines its application would con5 travene any treaty of the United States.’’

6 (g) EFFECTIVE DATES.—

7 (1) IN GENERAL.—Except as provided in this

8 subsection, the amendments made by this section

9 shall apply to expatriates (within the meaning of

10 section 877A(e) of the Internal Revenue Code of

11 1986, as added by this section) whose expatriation

12 date (as so defined) occurs on or after February 6,

13 1995.

14 (2) GIFTS AND BEQUESTS.—Section 102(d) of

15 the Internal Revenue Code of 1986 (as added by

16 subsection (b)) shall apply to amounts received from

17 expatriates (as so defined) whose expatriation date

18 (as so defined) occurs on and after February 6,

19 1995.

20 (3) SPECIAL RULES RELATING TO CERTAIN

21 ACTS OCCURRING BEFORE FEBRUARY 6, 1995.—In

22 the case of an individual who took an act of expa23 triation specified in paragraph (1), (2), (3), or (4)

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

25 Act (8 U.S.C. 1481(a)(1)–(4)) before February 6,
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1 1995, but whose expatriation date (as so defined)

2 occurs after February 6, 1995—

3 (A) the amendment made by subsection (c)

4 shall not apply,

5 (B) the amendment made by subsection

6 (d)(1) shall not apply for any period prior to

7 the expatriation date, and

8 (C) the other amendments made by this

9 section shall apply as of the expatriation date.

10 (4) DUE DATE FOR TENTATIVE TAX.—The due

11 date under section 877A(h)(2) of such Code shall in

12 no event occur before the 90th day after the date of

13 the enactment of this Act.

14 SEC. 3. INFORMATION ON INDIVIDUALS EXPATRIATING.

15 (a) IN GENERAL.—Subpart A of part III of sub16 chapter A of chapter 61 is amended by inserting after sec17 tion 6039E the following new section:

18 ‘‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIAT19 ING.

20 ‘‘(a) REQUIREMENT.—

21 ‘‘(1) IN GENERAL.—Notwithstanding any other

22 provision of law, any expatriate (within the meaning

23 of section 877A(e)(1)) shall provide a statement

24 which includes the information described in sub25 section (b).
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1 ‘‘(2) TIMING.—

2 ‘‘(A) CITIZENS.—In the case of an expatri3 ate described in section 877(e)(1)(A), such

4 statement shall be—

5 ‘‘(i) provided not later than the expa6 triation date (within the meaning of sec7 tion 877A(e)(2)), and

8 ‘‘(ii) provided to the person or court

9 referred to in section 877A(e)(3).

10 ‘‘(B) NONCITIZENS.—In the case of an ex11 patriate described in section 877A(e)(1)(B),

12 such statement shall be provided to the Sec13 retary with the return of tax imposed by chap14 ter 1 for the taxable year during which the

15 event described in such section occurs.

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

17 required under subsection (a) shall include—

18 ‘‘(1) the taxpayer’s TIN,

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

20 principal foreign residence,

21 ‘‘(3) the foreign country in which such individ22 ual is residing,

23 ‘‘(4) the foreign country of which such individ24 ual is a citizen,
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1 ‘‘(5) in the case of an individual having a net

2 worth of at least the dollar amount applicable under

3 section 877A(c)(1)(B), information detailing the as4 sets and liabilities of such individual, and

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

6 may prescribe.

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

8 statement required under subsection (a) shall be subject

9 to a penalty for each year during any portion of which

10 such failure continues in an amount equal to the greater

11 of—

12 ‘‘(1) 5 percent of the additional tax required to

13 be paid under section 877A for such year, or

14 ‘‘(2) $1,000,

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

16 cause and not to willful neglect.

17 ‘‘(d) INFORMATION TO BE PROVIDED TO SEC18 RETARY.—Notwithstanding any other provision of law—

19 ‘‘(1) any Federal agency or court which collects

20 (or is required to collect) the statement under sub21 section (a) shall provide to the Secretary—

22 ‘‘(A) a copy of any such statement, and

23 ‘‘(B) the name (and any other identifying

24 information) of any individual refusing to com25 ply with the provisions of subsection (a),
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1 ‘‘(2) the Secretary of State shall provide to the

2 Secretary a copy of each certificate as to the loss of

3 American nationality under section 358 of the Immi4 gration and Nationality Act which is approved by

5 the Secretary of State, and

6 ‘‘(3) the Federal agency primarily responsible

7 for administering the immigration laws shall provide

8 to the Secretary the name of each lawful permanent

9 resident of the United States (within the meaning of

10 section 7701(b)(6)) whose status as such has been

11 revoked or has been administratively or judicially de12 termined to have been abandoned.

13 Notwithstanding any other provision of law, not later than

14 30 days after the close of each calendar quarter, the Sec15 retary shall publish in the Federal Register the name of

16 each individual relinquishing United States citizenship

17 (within the meaning of section 877A(e)(3)) with respect

18 to whom the Secretary receives information under the pre19 ceding sentence during such quarter.

20 ‘‘(e) EXEMPTION.—The Secretary may by regulations

21 exempt any class of individuals from the requirements of

22 this section if the Secretary determines that applying this

23 section to such individuals is not necessary to carry out

24 the purposes of this section.’’
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1 (b) CLERICAL AMENDMENT.—The table of sections

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

3 relating to section 6039E the following new item:

‘‘Sec. 6039F. Information on individuals expatriating.’’

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

5 this section shall apply to individuals to whom section

6 877A of the Internal Revenue Code of 1986 applies and

7 whose expatriation date (as defined in section 877A(e)(2))

8 occurs on or after February 6, 1995, except that no state9 ment shall be required by such amendments before the

10 90th day after the date of the enactment of this Act.

Æ