II 

108TH CONGRESS 

1ST SESSION S. 260

To amend the Internal Revenue Code of 1986 to prevent the continued 

use of renouncing United States citizenship as a device for avoiding 

United States taxes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 30, 2003

Mr. HARKIN (for himself and Ms. STABENOW) 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 prevent 

the continued use of renouncing United States citizenship 

as a device for avoiding United States taxes.

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

3 SECTION 1. REVISION OF TAX RULES ON EXPATRIATION. 

4 (a) IN GENERAL.—Subpart A of part II of sub5 chapter N of chapter 1 of the Internal Revenue Code of 

6 1986 is amended by inserting after section 877 the fol7 lowing new section: 
2

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

2 ‘‘(a) GENERAL RULES.—For purposes of this sub3 title—

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

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

6 whom this section applies shall be treated as sold on 

7 the day before the expatriation date for its fair mar8 ket value. 

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

10 case of any sale under paragraph (1)—

11 ‘‘(A) notwithstanding any other provision 

12 of this title, any gain arising from such sale 

13 shall be taken into account for the taxable year 

14 of the sale, and 

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

16 be taken into account for the taxable year of 

17 the sale to the extent otherwise provided by this 

18 title, except that section 1091 shall not apply to 

19 any such loss. 

20 Proper adjustment shall be made in the amount of 

21 any gain or loss subsequently realized for gain or 

22 loss taken into account under the preceding sen23 tence. 

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

25 amount which would (but for this paragraph) be in26 cludible in the gross income of any individual by rea-
3

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1 son of this section shall be reduced (but not below 

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

3 allocable expatriation gain taken into account under 

4 subsection (f)(2) shall be treated in the same man5 ner as an amount required to be includible in gross 

6 income. 

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 treated as sold by reason of subsection (a), 

11 the payment of the additional tax attributable to 

12 such property shall be postponed until the due date 

13 of the return for the taxable year in which such 

14 property is disposed of (or, in the case of property 

15 disposed of in a transaction in which gain is not rec16 ognized in whole or in part, until such other date as 

17 the Secretary may prescribe). 

18 ‘‘(2) DETERMINATION OF TAX WITH RESPECT

19 TO PROPERTY.—For purposes of paragraph (1), the 

20 additional tax attributable to any property is an 

21 amount which bears the same ratio to the additional 

22 tax imposed by this chapter for the taxable year 

23 solely by reason of subsection (a) as the gain taken 

24 into account under subsection (a) with respect to 

25 such property bears to the total gain taken into ac-
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1 count under subsection (a) with respect to all prop2 erty to which subsection (a) applies. 

3 ‘‘(3) TERMINATION OF POSTPONEMENT.—No 

4 tax may be postponed under this subsection later 

5 than the due date for the return of tax imposed by 

6 this chapter for the taxable year which includes the 

7 date of death of the expatriate (or, if earlier, the 

8 time that the security provided with respect to the 

9 property fails to meet the requirements of paragraph 

10 (4), unless the taxpayer corrects such failure within 

11 the time specified by the Secretary). 

12 ‘‘(4) SECURITY.—

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

14 made under paragraph (1) with respect to any 

15 property unless adequate security is provided 

16 with respect to such property. 

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

18 of subparagraph (A), security with respect to 

19 any property shall be treated as adequate secu20 rity if—

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

22 to the deferred tax amount under para23 graph (2)(A) for the property, or 
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1 ‘‘(ii) the taxpayer otherwise estab2 lishes to the satisfaction of the Secretary 

3 that the security is adequate.

4 ‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec5 tion may be made under paragraph (1) unless the 

6 taxpayer consents to the waiver of any right under 

7 any treaty of the United States which would pre8 clude assessment or collection of any tax imposed by 

9 reason of this section. 

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

11 (1) shall only apply to property described in the elec12 tion and, once made, is irrevocable. An election may 

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

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

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

16 ‘‘(7) INTEREST.—For purposes of section 6601, 

17 the last date for the payment of tax shall be deter18 mined without regard to the election under this sub19 section. 

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

21 section—

22 ‘‘(1) IN GENERAL.—The term ‘covered expa23 triate’ means an expatriate who meets the require24 ments of subparagraph (A) or (B) of section 

25 877(a)(2). 
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1 ‘‘(2) EXCEPTIONS.—An individual shall not be 

2 treated as a covered expatriate if—

3 ‘‘(A) the individual—

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

5 United States and a citizen of another 

6 country and, as of the expatriation date, 

7 continues to be a citizen of, and is taxed 

8 as a resident of, such other country, and 

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

10 States (as defined in section 

11 7701(b)(1)(A)(ii)) for not more than 8 tax12 able years during the 15-taxable year pe13 riod ending with the taxable year during 

14 which the expatriation date occurs, or 

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

16 United States citizenship occurs before such individual attains age 181 17 ⁄2, and 

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

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

20 than 5 taxable years before the date of relin21 quishment. 

22 ‘‘(d) SECTION NOT TO APPLY TO CERTAIN PROP23 ERTY.—This section shall not apply to the following prop24 erty: 
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1 ‘‘(1) UNITED STATES REAL PROPERTY INTER2 EST.—Any United States real property interest (as 

3 defined in section 897(c)(1)), other than stock of a 

4 United States real property holding corporation 

5 which does not, on the day before the expatriation 

6 date, meet the requirements of section 897(c)(2). 

7 ‘‘(2) INTEREST IN CERTAIN RETIREMENT

8 PLANS.—

9 ‘‘(A) IN GENERAL.—Any interest in a 

10 qualified retirement plan (as defined in section 

11 4974(c)), other than any interest attributable to 

12 contributions which are in excess of any limita13 tion or which violate any condition for tax-fa14 vored treatment. 

15 ‘‘(B) FOREIGN PENSION PLANS.—

16 ‘‘(i) IN GENERAL.—Under regulations 

17 prescribed by the Secretary, interests in 

18 foreign pension plans or similar retirement 

19 arrangements or programs. 

20 ‘‘(ii) LIMITATION.—The value of prop21 erty which is treated as not sold by reason 

22 of this subparagraph shall not exceed 

23 $500,000. 

24 ‘‘(e) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) EXPATRIATE.—The term ‘expatriate’ 

2 means—

3 ‘‘(A) any United States citizen who relin4 quishes his citizenship, and 

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

6 States who—

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

8 resident of the United States (within the 

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

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

11 resident of a foreign country under the 

12 provisions of a tax treaty between the 

13 United States and the foreign country and 

14 who does not waive the benefits of such 

15 treaty applicable to residents of the foreign 

16 country. 

17 ‘‘(2) EXPATRIATION DATE.—The term ‘expa18 triation date’ means—

19 ‘‘(A) the date an individual relinquishes 

20 United States citizenship, or 

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

22 the United States, the date of the event de23 scribed in clause (i) or (ii) of paragraph (1)(B). 
9

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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 

13 United States nationality confirming the per14 formance of an act of expatriation specified in 

15 paragraph (1), (2), (3), or (4) of section 349(a) 

16 of the Immigration and Nationality Act (8 

17 U.S.C. 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-
10

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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.—The term ‘long5 term resident’ has the meaning given to such term 

6 by section 877(e)(2). 

7 ‘‘(f) SPECIAL RULES APPLICABLE TO BENE8 FICIARIES’ INTERESTS IN TRUST.—

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), if an individual is determined under para11 graph (3) to hold an interest in a trust on the day 

12 before the expatriation date—

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

14 having sold such interest, 

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

16 separate share in the trust, and 

17 ‘‘(C)(i) such separate share shall be treat18 ed as a separate trust consisting of the assets 

19 allocable to such share, 

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

21 having sold its assets on the day before the ex22 patriation date for their fair market value and 

23 as having distributed all of its assets to the in24 dividual as of such time, and 
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1 ‘‘(iii) the individual shall be treated as hav2 ing recontributed the assets to the separate 

3 trust. 

4 Subsection (a)(2) shall apply to any income, gain, or 

5 loss of the individual arising from a distribution de6 scribed in subparagraph (C)(ii). 

7 ‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI8 FIED TRUSTS.—

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

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

11 qualified trust—

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

13 shall not apply, and 

14 ‘‘(ii) in addition to any other tax im15 posed by this title, there is hereby imposed 

16 on each distribution with respect to such 

17 interest a tax in the amount determined 

18 under subparagraph (B). 

19 ‘‘(B) AMOUNT OF TAX.—The amount of 

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

21 the lesser of—

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

23 section 1(e) for the taxable year which in24 cludes the day before the expatriation date, 
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1 multiplied by the amount of the distribu2 tion, or 

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

4 account immediately before the distribution 

5 determined without regard to any increases 

6 under subparagraph (C)(ii) after the 30th 

7 day preceding the distribution. 

8 ‘‘(C) DEFERRED TAX ACCOUNT.—For pur9 poses of subparagraph (B)(ii)—

10 ‘‘(i) OPENING BALANCE.—The open11 ing balance in a deferred tax account with 

12 respect to any trust interest is an amount 

13 equal to the tax which would have been im14 posed on the allocable expatriation gain 

15 with respect to the trust interest if such 

16 gain had been included in gross income 

17 under subsection (a). 

18 ‘‘(ii) INCREASE FOR INTEREST.—The 

19 balance in the deferred tax account shall 

20 be increased by the amount of interest de21 termined (on the balance in the account at 

22 the time the interest accrues), for periods 

23 after the 90th day after the expatriation 

24 date, by using the rates and method appli-
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1 cable under section 6621 for underpay2 ments of tax for such periods. 

3 ‘‘(iii) DECREASE FOR TAXES PRE4 VIOUSLY PAID.—The balance in the tax de5 ferred account shall be reduced—

6 ‘‘(I) by the amount of taxes im7 posed by subparagraph (A) on any 

8 distribution to the person holding the 

9 trust interest, and 

10 ‘‘(II) in the case of a person 

11 holding a nonvested interest, to the 

12 extent provided in regulations, by the 

13 amount of taxes imposed by subpara14 graph (A) on distributions from the 

15 trust with respect to nonvested inter16 ests not held by such person. 

17 ‘‘(D) ALLOCABLE EXPATRIATION GAIN.—

18 For purposes of this paragraph, the allocable 

19 expatriation gain with respect to any bene20 ficiary’s interest in a trust is the amount of 

21 gain which would be allocable to such bene22 ficiary’s vested and nonvested interests in the 

23 trust if the beneficiary held directly all assets 

24 allocable to such interests. 

25 ‘‘(E) TAX DEDUCTED AND WITHHELD.—
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1 ‘‘(i) IN GENERAL.—The tax imposed 

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

3 and withheld by the trustees from the dis4 tribution to which it relates. 

5 ‘‘(ii) EXCEPTION WHERE FAILURE TO

6 WAIVE TREATY RIGHTS.—If an amount 

7 may not be deducted and withheld under

8 clause (i) by reason of the distributee fail9 ing to waive any treaty right with respect 

10 to such distribution—

11 ‘‘(I) the tax imposed by subpara12 graph (A)(ii) shall be imposed on the 

13 trust and each trustee shall be person14 ally liable for the amount of such tax, 

15 and 

16 ‘‘(II) any other beneficiary of the 

17 trust shall be entitled to recover from 

18 the distributee the amount of such tax 

19 imposed on the other beneficiary. 

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

21 a qualified trust at any time, a covered expa22 triate disposes of an interest in a qualified 

23 trust, or covered expatriate holding an interest 

24 in a qualified trust dies, then, in lieu of the tax 
15

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1 imposed by subparagraph (A)(ii), there is here2 by imposed a tax equal to the lesser of—

3 ‘‘(i) the tax determined under para4 graph (1) as if the day before the expatria5 tion date were the date of such cessation, 

6 disposition, or death, whichever is applica7 ble, or 

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

9 account immediately before such date. 

10 Such tax shall be imposed on the trust and 

11 each trust shall be personally liable for the 

12 amount of such tax and any other beneficiary 

13 of the trust shall be entitled to recover from the 

14 covered expatriate or the amount of such tax 

15 imposed on the other beneficiary. 

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

17 For purposes of this paragraph—

18 ‘‘(i) QUALIFIED TRUST.—The term 

19 ‘qualified trust’ means a trust—

20 ‘‘(I) which is organized under, 

21 and governed by, the laws of the 

22 United States or a State, and 

23 ‘‘(II) with respect to which the 

24 trust instrument requires that at least 

25 1 trustee of the trust be an individual 
16

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1 citizen of the United States or a do2 mestic corporation. 

3 ‘‘(ii) VESTED INTEREST.—The term 

4 ‘vested interest’ means any interest which, 

5 as of the day before the expatriation date, 

6 is vested in the beneficiary. 

7 ‘‘(iii) NONVESTED INTEREST.—The 

8 term ‘nonvested interest’ means, with re9 spect to any beneficiary, any interest in a 

10 trust which is not a vested interest. Such 

11 interest shall be determined by assuming 

12 the maximum exercise of discretion in 

13 favor of the beneficiary and the occurrence 

14 of all contingencies in favor of the bene15 ficiary. 

16 ‘‘(iv) ADJUSTMENTS.—The Secretary 

17 may provide for such adjustments to the 

18 basis of assets in a trust or a deferred tax 

19 account, and the timing of such adjust20 ments, in order to ensure that gain is 

21 taxed only once. 

22 ‘‘(3) DETERMINATION OF BENEFICIARIES’ IN23 TEREST IN TRUST.—

24 ‘‘(A) DETERMINATION UNDER PARAGRAPH

25 (1).—For purposes of paragraph (1), a bene-
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1 ficiary’s interest in a trust shall be based upon 

2 all relevant facts and circumstances, including 

3 the terms of the trust instrument and any letter 

4 of wishes or similar document, historical pat5 terns of trust distributions, and the existence of 

6 and functions performed by a trust protector or 

7 any similar advisor. 

8 ‘‘(B) OTHER DETERMINATIONS.—For pur9 poses of this section—

10 ‘‘(i) CONSTUCTIVE OWNERSHIP.—If a 

11 beneficiary of a trust is a corporation, 

12 partnership, trust, or estate, the share13 holders, partners, or beneficiaries shall be 

14 deemed to be the trust beneficiaries for 

15 purposes of this section. 

16 ‘‘(ii) TAXPAYER RETURN POSITION.—

17 A taxpayer shall clearly indicate on its in18 come tax return—

19 ‘‘(I) the methodology used to de20 termine that taxpayer’s trust interest 

21 under this section, and 

22 ‘‘(II) if the taxpayer knows (or 

23 has reason to know) that any other 

24 beneficiary of such trust is using a 

25 different methodology to determine 
18

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1 such beneficiary’s trust interest under 

2 this section. 

3 ‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the 

4 case of any covered expatriate, notwithstanding any other 

5 provision of this title—

6 ‘‘(1) any period during which recognition of in7 come or gain is deferred shall terminate on the day 

8 before the expatriation date, and 

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

10 shall cease to apply on the day before the expatria11 tion date and the unpaid portion of such tax shall 

12 be due and payable at the time and in the manner 

13 prescribed by the Secretary. 

14 ‘‘(h) REGULATIONS.—The Secretary shall prescribe 

15 such regulations as may be necessary or appropriate to 

16 carry out the purposes of this section.’’

17 (b) TAX ON GIFTS AND BEQUESTS RECEIVED BY

18 UNITED STATES CITIZENS AND RESIDENTS FROM EXPA19 TRIATES.—

20 (1) IN GENERAL.—Subtitle B of the Internal 

21 Revenue Code of 1986 (relating to estate and gift 

22 taxes) is amended by inserting after chapter 13 the 

23 following new chapter: 

24 ‘‘CHAPTER 13A—GIFTS AND BEQUESTS FROM EXPATRIATES

‘‘Sec. 2681. Imposition of tax.
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1 ‘‘SEC. 2681. IMPOSITION OF TAX. 

2 ‘‘(a) IN GENERAL.—If, during any calendar year, any 

3 United States citizen or resident receives any covered gift 

4 or bequest, there is hereby imposed a tax equal to the 

5 product of—

6 ‘‘(1) the highest rate of tax specified in the 

7 table contained in section 2001(c) as in effect on the 

8 date of such receipt (or, if greater, the highest rate 

9 of tax specified in the table applicable under section 

10 2502(a) as in effect on the date), and 

11 ‘‘(2) the value of such covered gift or bequest. 

12 ‘‘(b) TAX TO BE PAID BY RECIPIENT.—The tax im13 posed by subsection (a) on any covered gift or bequest 

14 shall be paid by the person receiving such gift or bequest. 

15 ‘‘(c) EXCEPTION FOR CERTAIN GIFTS.—Subsection 

16 (a) shall apply only to the extent that the covered gifts 

17 and bequests received during the calendar year exceed 

18 $10,000. 

19 ‘‘(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE

20 TAX.—The tax imposed by subsection (a) on any covered 

21 gift or bequest shall be reduced by the amount of any gift 

22 or estate tax paid to a foreign country with respect to such 

23 covered gift or bequest. 

24 ‘‘(e) COVERED GIFT OR BEQUEST.—

25 ‘‘(1) IN GENERAL.—For purposes of this chap26 ter, the term ‘covered gift or bequest’ means—
20

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1 ‘‘(A) any property acquired by gift directly 

2 or indirectly from an individual who, at the 

3 time of such acquisition, was an expatriate, and 

4 ‘‘(B) any property acquired by bequest, de5 vise, or inheritance directly or indirectly from 

6 an individual who, at the time of death, was an 

7 expatriate. 

8 ‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE

9 SUBJECT TO ESTATE OR GIFT TAX.—Such term shall 

10 not include—

11 ‘‘(A) any property shown on a timely filed 

12 return of tax imposed by chapter 12 which is a 

13 taxable gift by the expatriate, and 

14 ‘‘(B) any property shown on a timely filed 

15 return of tax imposed by chapter 11 of the es16 tate of the expatriate. 

17 ‘‘(3) TRANSFERS IN TRUST.—Any covered gift 

18 or bequest which is made in trust shall be treated 

19 as made to the beneficiaries of such trust in propor20 tion to their respective interests in such trust (as de21 termined under section 877A(f)(3)). 

22 ‘‘(f) EXPATRIATE.—For purposes of this section, the 

23 term ‘expatriate’ has the meaning given to such term by 

24 section 877A(e)(1).’’
21

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1 (2) CLERICAL AMENDMENT.—The table of 

2 chapters for subtitle B of such Code is amended by 

3 inserting after the item relating to chapter 13 the 

4 following new item:

‘‘CHAPTER 13A. Gifts and bequests from expatriates’’.

5 (c) DEFINITION OF TERMINATION OF UNITED

6 STATES CITIZENSHIP.—Section 7701(a) of such Code is 

7 amended by adding at the end the following new para8 graph: 

9 ‘‘(48) TERMINATION OF UNITED STATES CITI10 ZENSHIP.—

11 ‘‘(A) IN GENERAL.—An individual shall 

12 not cease to be treated as a United States cit13 izen before the date on which the individual’s 

14 citizenship is treated as relinquished under sec15 tion 877A(e)(3). 

16 ‘‘(B) DUAL CITIZENS.—Under regulations 

17 prescribed by the Secretary, subparagraph (A) 

18 shall not apply to an individual who became at 

19 birth a citizen of the United States and a cit20 izen of another country.’’

21 (d) CONFORMING AMENDMENT.—Paragraph (1) of 

22 section 6039G(d) of such Code is amended by inserting 

23 ‘‘or 877A’’ after ‘‘section 877’’. 

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

25 for subpart A of part II of subchapter N of chapter 1 
22

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1 of such Code is amended by inserting after the item relat2 ing to section 877 the following new item:

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

3 (f) EFFECTIVE DATE.—

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

5 subsection, the amendments made by this section 

6 shall apply to expatriates (within the meaning of 

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

8 1986, as added by this section) whose expatriation 

9 date (as so defined) occurs on or after the date of 

10 action on this Act by the Committee on Finance of 

11 the Senate. 

12 (2) GIFTS AND BEQUESTS.—Chapter 13A of 

13 the Internal Revenue Code of 1986 (as added by 

14 subsection (b)) shall apply to covered gifts and be15 quests (as defined in section 2681 of such Code, as 

16 so added) received on or after the date of action on 

17 this Act by the Committee on Finance of the Senate, 

18 regardless of when the transferor expatriated.

Æ