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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
1986. 
SEC. 5. REVISION OF TAX RULES ON EXPATRIATION. 
(a) IN GENERAL.—Subpart A of part II of sub-
chapter N of chapter 1 is amended by inserting after sec-
tion 877 the following new section: 
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION. 
‘‘(a) GENERAL RULES.—For purposes of this sub-
title— 
‘‘(1) MARK TO MARKET.—All property of a cov-
ered expatriate 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. 
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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 sen-
tence, determined without regard to paragraph (3). 
‘‘(3) EXCLUSION FOR CERTAIN GAIN.— 
‘‘(A) IN
GENERAL.—The amount which 
would (but for this paragraph) be includible in 
the gross income of any individual by reason of 
paragraph (1) shall be reduced (but not below 
zero) by $600,000. 
‘‘(B) ADJUSTMENT FOR INFLATION.— 
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 2008, the dollar amount in subpara-
graph (A) shall be increased by an amount 
equal to— 
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which the tax-
able year begins, by substituting ‘cal-
endar year 2007’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
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‘‘(ii) ROUNDING.—If any amount as 
adjusted under clause (i) is not a multiple 
of $1,000, such amount shall be rounded 
to the nearest multiple of $1,000. 
‘‘(b) ELECTION TO DEFER TAX.— 
‘‘(1) IN GENERAL.—If the taxpayer elects the 
application of this subsection with respect to any 
property treated as sold by reason of subsection (a), 
the time for payment of the additional tax attrib-
utable to such property shall be extended until the 
due date of the return for the taxable year in which 
such property is disposed of (or, in the case of prop-
erty disposed of in a transaction in which gain is not 
recognized in whole or in part, until such other date 
as the Secretary may prescribe). 
‘‘(2) DETERMINATION OF TAX WITH RESPECT 
TO PROPERTY.—For purposes of paragraph (1), the 
additional tax attributable to any property is an 
amount which bears the same ratio to the additional 
tax imposed by this chapter for the taxable year 
solely by reason of subsection (a) as the gain taken 
into account under subsection (a) with respect to 
such property bears to the total gain taken into ac-
count under subsection (a) with respect to all prop-
erty to which subsection (a) applies. 
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‘‘(3) TERMINATION OF EXTENSION.—The due 
date for payment of tax may not be extended under 
this subsection later than the due date for the re-
turn of tax imposed by this chapter for the taxable 
year which includes the date of death of the expa-
triate (or, if earlier, the time that the security pro-
vided with respect to the property fails to meet the 
requirements of paragraph (4), unless the taxpayer 
corrects such failure within the time specified 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 
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 which is furnished to, 
and accepted by, the Secretary, which is 
conditioned on the payment of tax (and in-
terest thereon), and which meets the re-
quirements of section 6325, or 
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‘‘(ii) it is another form of security for 
such payment (including letters of credit) 
that meets such requirements as the Sec-
retary may prescribe. 
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec-
tion may be made under paragraph (1) unless the 
taxpayer makes an irrevocable waiver of any right 
under any treaty of the United States which would 
preclude assessment 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. 
‘‘(7) INTEREST.—For purposes of section 6601, 
the last date for the payment of tax shall be deter-
mined without regard to the election under this sub-
section. 
‘‘(c) EXCEPTION
FOR CERTAIN PROPERTY.—Sub-
section (a) shall not apply to— 
‘‘(1) any deferred compensation item (as de-
fined in subsection (d)(4)), 
‘‘(2) any specified tax deferred account (as de-
fined in subsection (e)(2)), and 
‘‘(3) any interest in a nongrantor trust (as de-
fined in subsection (f)(3)). 
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‘‘(d) TREATMENT
OF DEFERRED COMPENSATION 
ITEMS.— 
‘‘(1) WITHHOLDING
ON
ELIGIBLE
DEFERRED 
COMPENSATION ITEMS.— 
‘‘(A) IN GENERAL.—In the case of any eli-
gible deferred compensation item, the payor 
shall deduct and withhold from any taxable 
payment to a covered expatriate with respect to 
such item a tax equal to 30 percent thereof. 
‘‘(B) TAXABLE PAYMENT.—For purposes 
of subparagraph (A), the term ‘taxable pay-
ment’ means with respect to a covered expa-
triate any payment to the extent it would be in-
cludible in the gross income of the covered ex-
patriate if such expatriate continued to be sub-
ject to tax as a citizen or resident of the United 
States. A deferred compensation item shall be 
taken into account as a payment under the pre-
ceding sentence when such item would be so in-
cludible. 
‘‘(2) 
OTHER
DEFERRED
COMPENSATION 
ITEMS.—In the case of any deferred compensation 
item which is not an eligible deferred compensation 
item— 
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