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(3) CONFORMING AMENDMENT.—The table of sec-
tions for part II of subchapter B of chapter 1 is 
amended by adding at the end the following new item: 
‘‘Sec. 91. Punitive damages compensated by insurance or otherwise’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to damages paid or incurred on or after 
the date of the enactment of this Act. 
SEC. 534. DENIAL OF DEDUCTION FOR CERTAIN FINES, PEN-
ALTIES, AND OTHER AMOUNTS. 
(a) IN GENERAL.—Subsection (f) of section 162 (relat-
ing to trade or business expenses) is amended to read as 
follows: 
‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), no deduction otherwise allowable shall be 
allowed under this chapter for any amount paid or 
incurred (whether by suit, agreement, or otherwise) 
to, or at the direction of, a government or entity de-
scribed in paragraph (4) in relation to— 
‘‘(A) the violation of any law, or 
‘‘(B) an investigation or inquiry into the 
potential violation of any law which is initiated 
by such government or entity. 
‘‘(2) EXCEPTION
FOR
AMOUNTS
CONSTITUTING 
RESTITUTION OR PAID TO COME INTO COMPLIANCE 
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WITH LAW.—Paragraph (1) shall not apply to any 
amount which— 
‘‘(A) the taxpayer establishes— 
‘‘(i) constitutes restitution (or remedi-
ation of property) for damage or harm 
caused by, or which may be caused by, the 
violation of any law or the potential viola-
tion of any law, or 
‘‘(ii) is paid to come into compliance 
with any law which was violated or in-
volved in the investigation or inquiry, and 
‘‘(B) is identified as an amount described 
in clause (i) or (ii) of subparagraph (A), as the 
case may be, in the court order or settlement 
agreement, except that the requirement of this 
subparagraph shall not apply in the case of any 
settlement agreement which requires the taxpayer 
to pay or incur an amount not greater than 
$1,000,000. 
A taxpayer shall not meet the requirements of sub-
paragraph (A) solely by reason an identification 
under subparagraph (B). This paragraph shall not 
apply to any amount paid or incurred as reimburse-
ment to the government or entity for the costs of any 
investigation or litigation unless such amount is paid 
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or incurred for a cost or fee regularly charged for any 
routine audit or other customary review performed by 
the government or entity. 
‘‘(3) EXCEPTION
FOR
AMOUNTS
PAID
OR
IN-
CURRED
AS
THE
RESULT
OF
CERTAIN
COURT
OR-
DERS.—Paragraph (1) shall not apply to any 
amount paid or incurred by order of a court in a suit 
in which no government or entity described in para-
graph (4) is a party. 
‘‘(4) CERTAIN NONGOVERNMENTAL REGULATORY 
ENTITIES.—An entity is described in this paragraph 
if it is— 
‘‘(A) a nongovernmental entity which exer-
cises self-regulatory powers (including imposing 
sanctions) in connection with a qualified board 
or exchange (as defined in section 1256(g)(7)), or 
‘‘(B) to the extent provided in regulations, 
a nongovernmental entity which exercises self- 
regulatory powers (including imposing sanc-
tions) as part of performing an essential govern-
mental function. 
‘‘(5) EXCEPTION FOR TAXES DUE.—Paragraph 
(1) shall not apply to any amount paid or incurred 
as taxes due.’’. 
(b) REPORTING OF DEDUCTIBLE AMOUNTS.— 
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(1) IN GENERAL.—Subpart B of part III of sub-
chapter A of chapter 61 is amended by inserting after 
section 6050V the following new section: 
‘‘SEC. 6050W. INFORMATION WITH RESPECT TO CERTAIN 
FINES, PENALTIES, AND OTHER AMOUNTS. 
‘‘(a) REQUIREMENT OF REPORTING.— 
‘‘(1) IN GENERAL.—The appropriate official of 
any government or entity which is described in sec-
tion 162(f)(4) which is involved in a suit or agree-
ment described in paragraph (2) shall make a return 
in such form as determined by the Secretary setting 
forth— 
‘‘(A) the amount required to be paid as a 
result of the suit or agreement to which para-
graph (1) of section 162(f) applies, 
‘‘(B) any amount required to be paid as a 
result of the suit or agreement which constitutes 
restitution or remediation of property, and 
‘‘(C) any amount required to be paid as a 
result of the suit or agreement for the purpose of 
coming into compliance with any law which was 
violated or involved in the investigation or in-
quiry. 
‘‘(2) SUIT OR AGREEMENT DESCRIBED.— 
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‘‘(A) IN GENERAL.—A suit or agreement is 
described in this paragraph if— 
‘‘(i) it is— 
‘‘(I) a suit with respect to a viola-
tion of any law over which the govern-
ment or entity has authority and with 
respect to which there has been a court 
order, or 
‘‘(II) an agreement which is en-
tered into with respect to a violation of 
any law over which the government or 
entity has authority, or with respect to 
an investigation or inquiry by the gov-
ernment or entity into the potential 
violation of any law over which such 
government or entity has authority, 
and 
‘‘(ii) the aggregate amount involved in 
all court orders and agreements with respect 
to the violation, investigation, or inquiry is 
$600 or more. 
‘‘(B) ADJUSTMENT OF REPORTING THRESH-
OLD.—The Secretary may adjust the $600 
amount in subparagraph (A)(ii) as necessary in 
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order to ensure the efficient administration of the 
internal revenue laws. 
‘‘(3) TIME
OF
FILING.—The return required 
under this subsection shall be filed not later than— 
‘‘(A) 30 days after the date on which a 
court order is issued with respect to the suit or 
the date the agreement is entered into, as the 
case may be, or 
‘‘(B) the date specified by the Secretary. 
‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVIDUALS 
INVOLVED IN THE SETTLEMENT.—Every person required to 
make a return under subsection (a) shall furnish to each 
person who is a party to the suit or agreement a written 
statement showing— 
‘‘(1) the name of the government or entity, and 
‘‘(2) the information supplied to the Secretary 
under subsection (a)(1). 
The written statement required under the preceding sen-
tence shall be furnished to the person at the same time the 
government or entity provides the Secretary with the infor-
mation required under subsection (a). 
‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For purposes 
of this section, the term ‘appropriate official’ means the offi-
cer or employee having control of the suit, investigation, 
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or inquiry or the person appropriately designated for pur-
poses of this section.’’. 
(2) CONFORMING AMENDMENT.—The table of sec-
tions for subpart B of part III of subchapter A of 
chapter 61 is amended by inserting after the item re-
lating to section 6050V the following new item: 
‘‘Sec. 6050W. Information with respect to certain fines, penalties, and other 
amounts’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to amounts paid or incurred on or after 
the date of the enactment of this Act, except that such 
amendments shall not apply to amounts paid or incurred 
under any binding order or agreement entered into before 
such date. Such exception shall not apply to an order or 
agreement requiring court approval unless the approval 
was obtained before such date. 
SEC. 535. REVISION OF TAX RULES ON EXPATRIATION OF 
INDIVIDUALS. 
(a) IN GENERAL.—Subpart A of part II of subchapter 
N of chapter 1 is amended by inserting after section 877 
the following new section: 
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title— 
‘‘(1) MARK TO MARKET.—Except as provided in 
subsections (d) and (f), all property of a covered expa-
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triate to whom this section applies shall be treated as 
sold on the day before the expatriation date for its 
fair market value. 
‘‘(2) RECOGNITION OF GAIN OR LOSS.—In the 
case of any sale under paragraph (1)— 
‘‘(A) notwithstanding any other provision of 
this title, any gain arising from such sale shall 
be taken into account for the taxable year of the 
sale, and 
‘‘(B) any loss arising from such sale shall 
be taken into account for the taxable year of the 
sale to the extent otherwise provided by this title, 
except that section 1091 shall not apply to any 
such loss. 
Proper adjustment shall be made in the amount of 
any gain or loss subsequently realized for gain or loss 
taken into account under the preceding sentence. 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 
‘‘(A) IN GENERAL.—The amount which, but 
for this paragraph, would be includible in the 
gross income of any individual by reason of this 
section shall be reduced (but not below zero) by 
$600,000. For purposes of this paragraph, allo-
cable expatriation gain taken into account under 
subsection (f)(2) shall be treated in the same 
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manner as an amount required to be includible 
in gross income. 
‘‘(B) COST-OF-LIVING ADJUSTMENT.— 
‘‘(i) IN GENERAL.—In the case of an 
expatriation date occurring in any calendar 
year after 2007, the $600,000 amount under 
subparagraph (A) shall be increased by an 
amount equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjustment 
determined under section 1(f)(3) for 
such calendar year, determined by sub-
stituting ‘calendar year 2006’ for ‘cal-
endar year 1992’ in subparagraph (B) 
thereof. 
‘‘(ii) 
ROUNDING
RULES.—If 
any 
amount after adjustment under clause (i) is 
not a multiple of $1,000, such amount shall 
be rounded to the next lower multiple of 
$1,000. 
‘‘(4) ELECTION TO CONTINUE TO BE TAXED AS 
UNITED STATES CITIZEN.— 
‘‘(A) IN GENERAL.—If a covered expatriate 
elects the application of this paragraph— 
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‘‘(i) this section (other than this para-
graph and subsection (i)) shall not apply to 
the expatriate, but 
‘‘(ii) in the case of property to which 
this section would apply but for such elec-
tion, the expatriate shall be subject to tax 
under this title in the same manner as if 
the individual were a United States citizen. 
‘‘(B) REQUIREMENTS.—Subparagraph (A) 
shall not apply to an individual unless the indi-
vidual— 
‘‘(i) provides security for payment of 
tax in such form and manner, and in such 
amount, as the Secretary may require, 
‘‘(ii) consents to the waiver of any 
right of the individual under any treaty of 
the United States which would preclude as-
sessment or collection of any tax which may 
be imposed by reason of this paragraph, 
and 
‘‘(iii) complies with such other require-
ments as the Secretary may prescribe. 
‘‘(C) ELECTION.—An election under sub-
paragraph (A) shall apply to all property to 
which this section would apply but for the elec-
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tion and, once made, shall be irrevocable. Such 
election shall also apply to property the basis of 
which is determined in whole or in part by ref-
erence to the property with respect to which the 
election was made. 
‘‘(b) ELECTION TO DEFER TAX.— 
‘‘(1) IN GENERAL.—If the taxpayer elects the ap-
plication of this subsection with respect to any prop-
erty treated as sold by reason of subsection (a), the 
payment of the additional tax attributable to such 
property shall be postponed until the due date of the 
return for the taxable year in which such property is 
disposed of (or, in the case of property disposed of in 
a transaction in which gain is not recognized in 
whole or in part, until such other date as the Sec-
retary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT TO 
PROPERTY.—For purposes of paragraph (1), the addi-
tional tax attributable to any property is an amount 
which bears the same ratio to the additional tax im-
posed by this chapter for the taxable year solely by 
reason of subsection (a) as the gain taken into ac-
count under subsection (a) with respect to such prop-
erty bears to the total gain taken into account under 
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subsection (a) with respect to all property to which 
subsection (a) applies. 
‘‘(3) TERMINATION OF POSTPONEMENT.—No tax 
may be postponed under this subsection later than the 
due date for the return of tax imposed by this chapter 
for the taxable year which includes the date of death 
of the expatriate (or, if earlier, the time that the secu-
rity provided with respect to the property fails to 
meet the requirements of paragraph (4), unless the 
taxpayer corrects such failure within the time speci-
fied by the Secretary). 
‘‘(4) SECURITY.— 
‘‘(A) IN
GENERAL.—No election may be 
made under paragraph (1) with respect to any 
property unless adequate security is provided to 
the Secretary with respect to such property. 
‘‘(B) ADEQUATE SECURITY.—For purposes 
of subparagraph (A), security with respect to 
any property shall be treated as adequate secu-
rity if— 
‘‘(i) it is a bond in an amount equal 
to the deferred tax amount under paragraph 
(2) for the property, or 
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‘‘(ii) the taxpayer otherwise establishes 
to the satisfaction of the Secretary that the 
security is adequate. 
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No election 
may be made under paragraph (1) unless the tax-
payer consents to the waiver of any right under any 
treaty of the United States which would preclude as-
sessment or collection of any tax imposed by reason 
of this section. 
‘‘(6) ELECTIONS.—An election under paragraph 
(1) shall only apply to property described in the elec-
tion and, once made, is irrevocable. An election may 
be made under paragraph (1) with respect to an in-
terest in a trust with respect to which gain is re-
quired to be recognized under subsection (f)(1). 
‘‘(7) INTEREST.—For purposes of section 6601— 
‘‘(A) the last date for the payment of tax 
shall be determined without regard to the election 
under this subsection, and 
‘‘(B) section 6621(a)(2) shall be applied by 
substituting ‘5 percentage points’ for ‘3 percent-
age points’ in subparagraph (B) thereof. 
‘‘(c) COVERED EXPATRIATE.—For purposes of this sec-
tion— 
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‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘covered expatriate’ means an ex-
patriate. 
‘‘(2) EXCEPTIONS.—An individual shall not be 
treated as a covered expatriate if— 
‘‘(A) the individual— 
‘‘(i) became at birth a citizen of the 
United States and a citizen of another 
country and, as of the expatriation date, 
continues to be a citizen of, and is taxed as 
a resident of, such other country, and 
‘‘(ii) has not been a resident of the 
United States (as defined in section 
7701(b)(1)(A)(ii)) during the 5 taxable 
years ending with the taxable year during 
which the expatriation date occurs, or 
‘‘(B)(i) the individual’s relinquishment of 
United States citizenship occurs before such indi-
vidual attains age 181⁄2, and 
‘‘(ii) the individual has been a resident of 
the United States (as so defined) for not more 
than 5 taxable years before the date of relin-
quishment. 
‘‘(d) EXEMPT PROPERTY; SPECIAL RULES FOR PEN-
SION PLANS.— 
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‘‘(1) EXEMPT PROPERTY.—This section shall not 
apply to the following: 
‘‘(A) UNITED STATES REAL PROPERTY IN-
TERESTS.—Any United States real property in-
terest (as defined in section 897(c)(1)), other 
than stock of a United States real property hold-
ing corporation which does not, on the day before 
the expatriation date, meet the requirements of 
section 897(c)(2). 
‘‘(B) SPECIFIED PROPERTY.—Any property 
or interest in property not described in subpara-
graph (A) which the Secretary specifies in regu-
lations. 
‘‘(2) SPECIAL RULES FOR CERTAIN RETIREMENT 
PLANS.— 
‘‘(A) IN GENERAL.—If a covered expatriate 
holds on the day before the expatriation date any 
interest in a retirement plan to which this para-
graph applies— 
‘‘(i) such interest shall not be treated 
as sold for purposes of subsection (a)(1), but 
‘‘(ii) an amount equal to the present 
value of the expatriate’s nonforfeitable ac-
crued benefit shall be treated as having been 
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received by such individual on such date as 
a distribution under the plan. 
‘‘(B) TREATMENT
OF
SUBSEQUENT
DIS-
TRIBUTIONS.—In the case of any distribution on 
or after the expatriation date to or on behalf of 
the covered expatriate from a plan from which 
the expatriate was treated as receiving a dis-
tribution under subparagraph (A), the amount 
otherwise includible in gross income by reason of 
the subsequent distribution shall be reduced by 
the excess of the amount includible in gross in-
come under subparagraph (A) over any portion 
of such amount to which this subparagraph pre-
viously applied. 
‘‘(C) TREATMENT
OF
SUBSEQUENT
DIS-
TRIBUTIONS BY PLAN.—For purposes of this title, 
a retirement plan to which this paragraph ap-
plies, and any person acting on the plan’s behalf, 
shall treat any subsequent distribution described 
in subparagraph (B) in the same manner as 
such distribution would be treated without re-
gard to this paragraph. 
‘‘(D) APPLICABLE PLANS.—This paragraph 
shall apply to— 
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‘‘(i) any qualified retirement plan (as 
defined in section 4974(c)), 
‘‘(ii) an eligible deferred compensation 
plan (as defined in section 457(b)) of an el-
igible 
employer 
described 
in 
section 
457(e)(1)(A), and 
‘‘(iii) to the extent provided in regula-
tions, any foreign pension plan or similar 
retirement arrangements or programs. 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’ 
means— 
‘‘(A) any United States citizen who relin-
quishes citizenship, and 
‘‘(B) any long-term resident of the United 
States who— 
‘‘(i) ceases to be a lawful permanent 
resident of the United States (within the 
meaning of section 7701(b)(6)), or 
‘‘(ii) commences to be treated as a resi-
dent of a foreign country under the provi-
sions of a tax treaty between the United 
States and the foreign country and who 
does not waive the benefits of such treaty 
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applicable to residents of the foreign coun-
try. 
‘‘(2) EXPATRIATION DATE.—The term ‘expatria-
tion date’ means— 
‘‘(A) the date an individual relinquishes 
United States citizenship, or 
‘‘(B) in the case of a long-term resident of 
the United States, the date of the event described 
in clause (i) or (ii) of paragraph (1)(B). 
‘‘(3) RELINQUISHMENT OF CITIZENSHIP.—A cit-
izen shall be treated as relinquishing United States 
citizenship on the earliest of— 
‘‘(A) the date the individual renounces such 
individual’s United States nationality before a 
diplomatic or consular officer of the United 
States pursuant to paragraph (5) of section 
349(a) of the Immigration and Nationality Act 
(8 U.S.C. 1481(a)(5)), 
‘‘(B) the date the individual furnishes to the 
United States Department of State a signed 
statement of voluntary relinquishment of United 
States nationality confirming the performance of 
an act of expatriation specified in paragraph 
(1), (2), (3), or (4) of section 349(a) of the Im-
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migration and Nationality Act (8 U.S.C. 
1481(a)(1)–(4)), 
‘‘(C) the date the United States Department 
of State issues to the individual a certificate of 
loss of nationality, or 
‘‘(D) the date a court of the United States 
cancels a naturalized citizen’s certificate of natu-
ralization. 
Subparagraph (A) or (B) shall not apply to any in-
dividual unless the renunciation or voluntary relin-
quishment is subsequently approved by the issuance to 
the individual of a certificate of loss of nationality by 
the United States Department of State. 
‘‘(4) LONG-TERM
RESIDENT.—The term ‘long- 
term resident’ has the meaning given to such term by 
section 877(e)(2). 
‘‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’ 
INTERESTS IN TRUST.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), if an individual is determined under para-
graph (3) to hold an interest in a trust on the day 
before the expatriation date— 
‘‘(A) the individual shall not be treated as 
having sold such interest, 
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‘‘(B) such interest shall be treated as a sep-
arate share in the trust, and 
‘‘(C)(i) such separate share shall be treated 
as a separate trust consisting of the assets allo-
cable to such share, 
‘‘(ii) the separate trust shall be treated as 
having sold its assets on the day before the expa-
triation date for their fair market value and as 
having distributed all of its assets to the indi-
vidual as of such time, and 
‘‘(iii) the individual shall be treated as hav-
ing recontributed the assets to the separate trust. 
Subsection (a)(2) shall apply to any income, gain, or 
loss of the individual arising from a distribution de-
scribed in subparagraph (C)(ii). In determining the 
amount of such distribution, proper adjustments shall 
be made for liabilities of the trust allocable to an in-
dividual’s share in the trust. 
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.— 
‘‘(A) IN GENERAL.—If the trust interest de-
scribed in paragraph (1) is an interest in a 
qualified trust— 
‘‘(i) paragraph (1) and subsection (a) 
shall not apply, and 
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‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed 
on each distribution with respect to such in-
terest a tax in the amount determined 
under subparagraph (B). 
‘‘(B) AMOUNT OF TAX.—The amount of tax 
under subparagraph (A)(ii) shall be equal to the 
lesser of— 
‘‘(i) the highest rate of tax imposed by 
section 1(e) for the taxable year which in-
cludes the day before the expatriation date, 
multiplied by the amount of the distribu-
tion, or 
‘‘(ii) the balance in the deferred tax ac-
count immediately before the distribution 
determined without regard to any increases 
under subparagraph (C)(ii) after the 30th 
day preceding the distribution. 
‘‘(C) DEFERRED TAX ACCOUNT.—For pur-
poses of subparagraph (B)(ii)— 
‘‘(i) OPENING BALANCE.—The opening 
balance in a deferred tax account with re-
spect to any trust interest is an amount 
equal to the tax which would have been im-
posed on the allocable expatriation gain 
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with respect to the trust interest if such 
gain had been included in gross income 
under subsection (a). 
‘‘(ii) INCREASE
FOR
INTEREST.—The 
balance in the deferred tax account shall be 
increased by the amount of interest deter-
mined (on the balance in the account at the 
time the interest accrues), for periods after 
the 90th day after the expatriation date, by 
using the rates and method applicable 
under section 6621 for underpayments of 
tax for such periods, except that section 
6621(a)(2) shall be applied by substituting 
‘5 percentage points’ for ‘3 percentage 
points’ in subparagraph (B) thereof. 
‘‘(iii) DECREASE
FOR
TAXES
PRE-
VIOUSLY PAID.—The balance in the tax de-
ferred account shall be reduced— 
‘‘(I) by the amount of taxes im-
posed by subparagraph (A) on any dis-
tribution to the person holding the 
trust interest, and 
‘‘(II) in the case of a person hold-
ing a nonvested interest, to the extent 
provided in regulations, by the amount 
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of taxes imposed by subparagraph (A) 
on distributions from the trust with re-
spect to nonvested interests not held by 
such person. 
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—For 
purposes of this paragraph, the allocable expa-
triation gain with respect to any beneficiary’s 
interest in a trust is the amount of gain which 
would be allocable to such beneficiary’s vested 
and nonvested interests in the trust if the bene-
ficiary held directly all assets allocable to such 
interests. 
‘‘(E) TAX DEDUCTED AND WITHHELD.— 
‘‘(i) IN GENERAL.—The tax imposed by 
subparagraph (A)(ii) shall be deducted and 
withheld by the trustees from the distribu-
tion to which it relates. 
‘‘(ii) EXCEPTION WHERE FAILURE TO 
WAIVE TREATY RIGHTS.—If an amount may 
not be deducted and withheld under clause 
(i) by reason of the distributee failing to 
waive any treaty right with respect to such 
distribution— 
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the 
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trust and each trustee shall be person-
ally liable for the amount of such tax, 
and 
‘‘(II) any other beneficiary of the 
trust shall be entitled to recover from 
the distributee the amount of such tax 
imposed on the other beneficiary. 
‘‘(F) DISPOSITION.—If a trust ceases to be 
a qualified trust at any time, a covered expa-
triate disposes of an interest in a qualified trust, 
or a covered expatriate holding an interest in a 
qualified trust dies, then, in lieu of the tax im-
posed by subparagraph (A)(ii), there is hereby 
imposed a tax equal to the lesser of— 
‘‘(i) the tax determined under para-
graph (1) as if the day before the expatria-
tion date were the date of such cessation, 
disposition, or death, whichever is applica-
ble, or 
‘‘(ii) the balance in the tax deferred ac-
count immediately before such date. 
Such tax shall be imposed on the trust and each 
trustee shall be personally liable for the amount 
of such tax and any other beneficiary of the trust 
shall be entitled to recover from the covered expa-
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triate or the estate the amount of such tax im-
posed on the other beneficiary. 
‘‘(G) DEFINITIONS AND SPECIAL RULES.— 
For purposes of this paragraph— 
‘‘(i) QUALIFIED
TRUST.—The term 
‘qualified trust’ means a trust which is de-
scribed in section 7701(a)(30)(E). 
‘‘(ii) VESTED
INTEREST.—The term 
‘vested interest’ means any interest which, 
as of the day before the expatriation date, is 
vested in the beneficiary. 
‘‘(iii) 
NONVESTED
INTEREST.—The 
term ‘nonvested interest’ means, with re-
spect to any beneficiary, any interest in a 
trust which is not a vested interest. Such 
interest shall be determined by assuming the 
maximum exercise of discretion in favor of 
the beneficiary and the occurrence of all 
contingencies in favor of the beneficiary. 
‘‘(iv) ADJUSTMENTS.—The Secretary 
may provide for such adjustments to the 
bases of assets in a trust or a deferred tax 
account, and the timing of such adjust-
ments, in order to ensure that gain is taxed 
only once. 
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‘‘(v) COORDINATION WITH RETIREMENT 
PLAN
RULES.—This subsection shall not 
apply to an interest in a trust which is 
part of a retirement plan to which sub-
section (d)(2) applies. 
‘‘(3) DETERMINATION OF BENEFICIARIES’ INTER-
EST IN TRUST.— 
‘‘(A) DETERMINATIONS UNDER PARAGRAPH 
(1).—For purposes of paragraph (1), a bene-
ficiary’s interest in a trust shall be based upon 
all relevant facts and circumstances, including 
the terms of the trust instrument and any letter 
of wishes or similar document, historical pat-
terns of trust distributions, and the existence of 
and functions performed by a trust protector or 
any similar adviser. 
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section— 
‘‘(i) CONSTRUCTIVE OWNERSHIP.—If a 
beneficiary of a trust is a corporation, part-
nership, trust, or estate, the shareholders, 
partners, or beneficiaries shall be deemed to 
be the trust beneficiaries for purposes of this 
section. 
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‘‘(ii) TAXPAYER RETURN POSITION.—A 
taxpayer shall clearly indicate on its in-
come tax return— 
‘‘(I) the methodology used to de-
termine that taxpayer’s trust interest 
under this section, and 
‘‘(II) if the taxpayer knows (or 
has reason to know) that any other 
beneficiary of such trust is using a dif-
ferent methodology to determine such 
beneficiary’s trust interest under this 
section. 
‘‘(g) TERMINATION OF DEFERRALS, ETC.—In the case 
of any covered expatriate, notwithstanding any other provi-
sion of this title— 
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate on the day 
before the expatriation date, and 
‘‘(2) any extension of time for payment of tax 
shall cease to apply on the day before the expatriation 
date and the unpaid portion of such tax shall be due 
and payable at the time and in the manner pre-
scribed by the Secretary. 
‘‘(h) IMPOSITION OF TENTATIVE TAX.— 
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‘‘(1) IN GENERAL.—If an individual is required 
to include any amount in gross income under sub-
section (a) for any taxable year, there is hereby im-
posed, immediately before the expatriation date, a tax 
in an amount equal to the amount of tax which 
would be imposed if the taxable year were a short tax-
able year ending on the expatriation date. 
‘‘(2) DUE DATE.—The due date for any tax im-
posed by paragraph (1) shall be the 90th day after the 
expatriation date. 
‘‘(3) TREATMENT OF TAX.—Any tax paid under 
paragraph (1) shall be treated as a payment of the 
tax imposed by this chapter for the taxable year to 
which subsection (a) applies. 
‘‘(4) DEFERRAL OF TAX.—The provisions of sub-
section (b) shall apply to the tax imposed by this sub-
section to the extent attributable to gain includible in 
gross income by reason of this section. 
‘‘(i) SPECIAL LIENS FOR DEFERRED TAX AMOUNTS.— 
‘‘(1) IMPOSITION OF LIEN.— 
‘‘(A) IN GENERAL.—If a covered expatriate 
makes an election under subsection (a)(4) or (b) 
which results in the deferral of any tax imposed 
by reason of subsection (a), the deferred amount 
(including any interest, additional amount, ad-
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dition to tax, assessable penalty, and costs at-
tributable to the deferred amount) shall be a lien 
in favor of the United States on all property of 
the expatriate located in the United States (with-
out regard to whether this section applies to the 
property). 
‘‘(B) DEFERRED AMOUNT.—For purposes of 
this subsection, the deferred amount is the 
amount of the increase in the covered expatri-
ate’s income tax which, but for the election under 
subsection (a)(4) or (b), would have occurred by 
reason of this section for the taxable year includ-
ing the expatriation date. 
‘‘(2) PERIOD OF LIEN.—The lien imposed by this 
subsection shall arise on the expatriation date and 
continue until— 
‘‘(A) the liability for tax by reason of this 
section is satisfied or has become unenforceable 
by reason of lapse of time, or 
‘‘(B) it is established to the satisfaction of 
the Secretary that no further tax liability may 
arise by reason of this section. 
‘‘(3) CERTAIN RULES APPLY.—The rules set forth 
in paragraphs (1), (3), and (4) of section 6324A(d) 
shall apply with respect to the lien imposed by this 
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subsection as if it were a lien imposed by section 
6324A. 
‘‘(j) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) INCLUSION IN INCOME OF GIFTS AND BEQUESTS 
RECEIVED BY UNITED STATES CITIZENS AND RESIDENTS 
FROM EXPATRIATES.—Section 102 (relating to gifts, etc. 
not included in gross income) is amended by adding at the 
end the following new subsection: 
‘‘(d) GIFTS AND INHERITANCES FROM COVERED EX-
PATRIATES.— 
‘‘(1) TREATMENT
OF
GIFTS
AND
INHERIT-
ANCES.— 
‘‘(A) IN GENERAL.—Subsection (a) shall not 
exclude from gross income the value of any prop-
erty acquired by gift, bequest, devise, or inherit-
ance from a covered expatriate after the expa-
triation date. 
‘‘(B) DETERMINATION OF BASIS.—Notwith-
standing sections 1015 or 1022, the basis of any 
property described in subparagraph (A) in the 
hands of the donee or the person acquiring such 
property from the decedent shall be equal to the 
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fair market value of the property at the time of 
the gift, bequest, devise, or inheritance. 
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE 
SUBJECT TO ESTATE OR GIFT TAX.—Paragraph (1) 
shall not apply to any property if either— 
‘‘(A) the gift, bequest, devise, or inheritance 
is— 
‘‘(i) shown on a timely filed return of 
tax imposed by chapter 12 as a taxable gift 
by the covered expatriate, or 
‘‘(ii) included in the gross estate of the 
covered expatriate for purposes of chapter 
11 and shown on a timely filed return of 
tax imposed by chapter 11 of the estate of 
the covered expatriate, or 
‘‘(B) no such return was timely filed but no 
such return would have been required to be filed 
even if the covered expatriate were a citizen or 
long-term resident of the United States. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, any term used in this subsection which is also 
used in section 877A shall have the same meaning as 
when used in section 877A.’’. 
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(c) DEFINITION OF TERMINATION OF UNITED STATES 
CITIZENSHIP.—Section 7701(a) is amended by adding at 
the end the following new paragraph: 
‘‘(50) TERMINATION OF UNITED STATES CITIZEN-
SHIP.— 
‘‘(A) IN GENERAL.—An individual shall not 
cease to be treated as a United States citizen be-
fore the date on which the individual’s citizen-
ship is treated as relinquished under section 
877A(e)(3). 
‘‘(B) DUAL
CITIZENS.—Under regulations 
prescribed by the Secretary, subparagraph (A) 
shall not apply to an individual who became at 
birth a citizen of the United States and a citizen 
of another country.’’. 
(d) INELIGIBILITY
FOR
VISA
OR
ADMISSION
TO 
UNITED STATES.— 
(1) IN GENERAL.—Section 212(a)(10)(E) of the 
Immigration 
and 
Nationality 
Act 
(8 
U.S.C. 
1182(a)(10)(E)) is amended to read as follows: 
‘‘(E) FORMER
CITIZENS
NOT
IN
COMPLI-
ANCE
WITH
EXPATRIATION
REVENUE
PROVI-
SIONS.—Any alien who is a former citizen of the 
United States who relinquishes United States 
citizenship (within the meaning of section 
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