I
104TH CONGRESS
1ST SESSION
H. R. 1535
To amend the Internal Revenue Code of 1986 to revise the tax rules on
expatriation, to modify the basis rules for nonresident aliens becoming
citizens or residents, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 2, 1995
Mr. GIBBONS (for himself, Mr. GEPHARDT, Mr. BONIOR, Mr. FAZIO of Cali-
fornia, Mr. RANGEL, Mr. STARK, Mr. JACOBS, Mr. FORD, Mr. MATSUI,
Mrs. 
KENNELLY, 
Mr. 
COYNE, 
Mr. 
LEVIN, 
Mr. 
CARDIN, 
Mr.
MCDERMOTT, Mr. KLECZKA, Mr. LEWIS of Georgia, Mr. PAYNE of Vir-
ginia, Mr. NEAL and Mr. FROST) introduced the following bill; which was
referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to revise
the tax rules on expatriation, to modify the basis rules
for nonresident aliens becoming citizens or residents, and
for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. REVISION OF TAX RULES ON EXPATRIATION.
(a) IN GENERAL.—Subpart A of part II of sub-
chapter N of chapter 1 of the Internal Revenue Code of
1986 is amended by inserting after section 877 the follow-
ing 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
subsection (f)(2), all property held by an expatriate
immediately before the expatriation date shall be
treated as sold at such time 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 unless such gain is excluded from
gross income under part III of subchapter B,
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
(and section 1092 shall apply) to any such loss.
‘‘(3) ELECTION TO CONTINUE TO BE TAXED AS
UNITED STATES CITIZEN.—
‘‘(A) IN GENERAL.—If an expatriate elects
the application of this paragraph with respect
to any property—
‘‘(i) this section (other than this para-
graph) shall not apply to such property,
but
‘‘(ii) such property shall be subject to
tax under this title in the same manner as
if the individual were a United States
citizen.
‘‘(B) LIMITATION ON AMOUNT OF ESTATE,
GIFT, AND
GENERATION-SKIPPING
TRANSFER
TAXES.—The aggregate amount of taxes im-
posed under subtitle B with respect to any
transfer of property by reason of an election
under subparagraph (A) shall not exceed the
amount of income tax which would be due if the
property were sold for its fair market value im-
mediately before the time of the transfer or
death (taking into account the rules of sub-
section (a)(2)).
‘‘(C) 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 para-
graph, and
‘‘(iii) complies with such other re-
quirements as the Secretary may prescribe.
‘‘(D) ELECTION.—An election under sub-
paragraph (A) shall apply only to the property
described in the election and, once made, shall
be irrevocable.
‘‘(b) EXCLUSION FOR CERTAIN GAIN.—The amount
which would (but for this subsection) be includible in the
gross income of any individual by reason of subsection (a)
shall be reduced (but not below zero) by $600,000.
‘‘(c) PROPERTY TREATED AS HELD.—For purposes
of this section, except as otherwise provided by the Sec-
retary, an individual shall be treated as holding—
‘‘(1) all property which would be includible in
his gross estate under chapter 11 if such individual
were a citizen or resident of the United States (with-
in the meaning of chapter 11) who died at the time
the property is treated as sold,
‘‘(2) any other interest in a trust which the in-
dividual is treated as holding under the rules of sub-
section (f)(1), and
‘‘(3) any other interest in property specified by
the Secretary as necessary or appropriate to carry
out the purposes of this section.
‘‘(d) EXCEPTIONS.—The following property shall not
be treated as sold for purposes of this section:
‘‘(1) UNITED STATES REAL PROPERTY INTER-
ESTS.—Any United States real property interest (as
defined in section 897(c)(1)), other than stock of a
United States real property holding corporation
which does not, on the expatriation date, meet the
requirements of section 897(c)(2).
‘‘(2) INTEREST
IN
CERTAIN
RETIREMENT
PLANS.—
‘‘(A) IN
GENERAL.—Any interest in a
qualified retirement plan (as defined in section
4974(c)), other than any interest attributable to
contributions which are in excess of any limita-
tion or which violate any condition for tax-
favored treatment.
‘‘(B) FOREIGN PENSION PLANS.—
‘‘(i) IN GENERAL.—Under regulations
prescribed by the Secretary, interests in
foreign pension plans or similar retirement
arrangements or programs.
‘‘(ii) LIMITATION.—The value of prop-
erty which is treated as not sold by reason
of this subparagraph shall not exceed
$500,000.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) 
EXPATRIATE.—The 
term 
‘expatriate’
means—
‘‘(A) any United States citizen who relin-
quishes his citizenship, or
‘‘(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
resident of a foreign country under the
provisions of a tax treaty between the
United States and the foreign country and
who does not waive the benefits of such
treaty applicable to residents of the foreign
country.
An individual shall not be treated as an expatriate
for purposes of this section by reason of the individ-
ual relinquishing United States citizenship before at-
taining the age of 181⁄2 if the individual has been a
resident of the United States (as defined in section
7701(b)(1)(A)(ii)) for less than 5 taxable years be-
fore the date of relinquishment.
‘‘(2) EXPATRIATION
DATE.—The term ‘expa-
triation 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 de-
scribed in clause (i) or (ii) of paragraph (1)(B).
‘‘(3) RELINQUISHMENT
OF
CITIZENSHIP.—A
citizen shall be treated as relinquishing his United
States citizenship on the earliest of—
‘‘(A) the date the individual renounces his
United States nationality before a diplomatic or
consular officer of the United States pursuant
to paragraph (5) of section 349(a) of the Immi-
gration 
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 per-
formance of an act of expatriation specified in
paragraph (1), (2), (3), or (4) of section 349(a)
of the Immigration and Nationality Act (8
U.S.C. 1481(a) (1)–(4)),
‘‘(C) the date the United States Depart-
ment of State issues to the individual a certifi-
cate of loss of nationality, or
‘‘(D) the date a court of the United States
cancels a naturalized citizen’s certificate of nat-
uralization.
Subparagraph (A) or (B) shall not apply to any indi-
vidual 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.—
‘‘(A) IN GENERAL.—The term ‘long-term
resident’ means any individual (other than a
citizen of the United States) who is a lawful
permanent resident of the United States in at
least 8 taxable years during the period of 15
taxable years ending with the taxable year dur-
ing which the sale under subsection (a)(1) is
treated as occurring. For purposes of the pre-
ceding sentence, an individual shall not be
treated as a lawful permanent resident for any
taxable year if such individual is treated as a
resident of a foreign country for the taxable
year under the provisions of a tax treaty be-
tween the United States and the foreign coun-
try and does not waive the benefits of such
treaty applicable to residents of the foreign
country.
‘‘(B) SPECIAL
RULE.—For purposes of
subparagraph (A), there shall not be taken into
account—
‘‘(i) any taxable year during which
any prior sale is treated under subsection
(a)(1) as occurring, or
‘‘(ii) any taxable year prior to the tax-
able year referred to in clause (i).
‘‘(f) SPECIAL
RULES
APPLICABLE
TO
BENE-
FICIARIES’ INTERESTS IN TRUST.—
‘‘(1) DETERMINATION OF BENEFICIARIES’ IN-
TEREST IN TRUST.—For purposes of this section—
‘‘(A) GENERAL RULE.—A beneficiary’s in-
terest 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 patterns of trust
distributions, and the existence of and functions
performed by a trust protector or any similar
advisor.
‘‘(B) SPECIAL RULE.—The remaining in-
terests in the trust not determined under sub-
paragraph (A) to be held by any beneficiary
shall be allocated first to the grantor, if a bene-
ficiary, and then to other beneficiaries under
rules prescribed by the Secretary similar to the
rules of intestate succession.
‘‘(C) CONSTRUCTIVE
OWNERSHIP.—If a
beneficiary of a trust is a corporation, partner-
ship, trust, or estate, the shareholders, part-
ners, or beneficiaries shall be deemed to be the
trust beneficiaries for purposes of this section.
‘‘(D) TAXPAYER
RETURN
POSITION.—A
taxpayer shall clearly indicate on its income tax
return—
‘‘(i) the methodology used to deter-
mine 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 different methodol-
ogy to determine such beneficiary’s trust
interest under this section.
‘‘(2) DEEMED SALE IN CASE OF TRUST INTER-
EST.—If an individual who is an expatriate is treat-
ed under paragraph (1) as holding an interest in a
trust for purposes of this section—
‘‘(A) the individual shall not be treated as
having sold such interest,
‘‘(B) such interest shall be treated as a
separate share in the trust, and
‘‘(C)(i) such separate share shall be treat-
ed as a separate trust consisting of the assets
allocable to such share,
‘‘(ii) the separate trust shall be treated as
having sold its assets immediately before the ex-
patriation date for their fair market value and
as having distributed all of its assets to the in-
dividual 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).
‘‘(g) TERMINATION OF DEFERRALS, ETC.—On the
date any property held by an individual is treated as sold
under subsection (a), notwithstanding any other provision
of this title—
‘‘(1) any period during which recognition of in-
come or gain is deferred shall terminate, and
‘‘(2) any extension of time for payment of tax
shall cease to apply and the unpaid portion of such
tax shall be due and payable at the time and in the
manner prescribed by the Secretary.
‘‘(h) RULES RELATING TO PAYMENT OF TAX.—
‘‘(1) IMPOSITION OF TENTATIVE TAX.—
‘‘(A) IN GENERAL.—If an individual is re-
quired to include any amount in gross income
under subsection (a) for any taxable year, there
is hereby imposed, immediately before the expa-
triation date, a tax in an amount equal to the
amount of tax which would be imposed if the
taxable year were a short taxable year ending
on the expatriation date.
‘‘(B) DUE DATE.—The due date for any
tax imposed by subparagraph (A) shall be the
90th day after the expatriation date.
‘‘(C) TREATMENT OF TAX.—Any tax paid
under subparagraph (A) shall be treated as a
payment of the tax imposed by this chapter for
the taxable year to which subsection (a) applies.
‘‘(2) DEFERRAL OF TAX.—The payment of any
tax attributable to amounts included in gross income
under subsection (a) may be deferred to the same
extent, and in the same manner, as any tax imposed
by chapter 11, except that the Secretary may extend
the period for extension of time for paying tax under
section 6161 to such number of years as the Sec-
retary determines appropriate.
‘‘(3) RULES
RELATING
TO
SECURITY
INTER-
ESTS.—
‘‘(A) ADEQUACY
OF
SECURITY
INTER-
ESTS.—In determining the adequacy of any se-
curity to be provided under this section, the
Secretary may take into account the principles
of section 2056A.
‘‘(B) SPECIAL
RULE
FOR
TRUST.—If a
taxpayer is required by this section to provide
security in connection with any tax imposed by
reason of this section with respect to the hold-
ing of an interest in a trust and any trustee of
such trust is an individual citizen of the United
States or a domestic corporation, such trustee
shall be required to provide such security upon
notification 
by 
the 
taxpayer 
of 
such
requirement.
‘‘(i) COORDINATION
WITH
ESTATE
AND
GIFT
TAXES.—If subsection (a) applies to property held by an
individual for any taxable year and—
‘‘(1) such property is includible in the gross es-
tate of such individual solely by reason of section
2107, or
‘‘(2) section 2501 applies to a transfer of such
property by such individual solely by reason of sec-
tion 2501(a)(3),
then there shall be allowed as a credit against the addi-
tional tax imposed by section 2101 or 2501, whichever is
applicable, solely by reason of section 2107 or 2501(a)(3)
an amount equal to the increase in the tax imposed by
this chapter for such taxable year by reason of this
section.
‘‘(j) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions to prevent double taxation by ensuring that—
‘‘(1) appropriate adjustments are made to basis
to reflect gain recognized by reason of subsection (a)
and the exclusion provided by subsection (b),
‘‘(2) no interest in property is treated as held
for purposes of this section by more than one tax-
payer, and
‘‘(3) any gain by reason of a deemed sale under
subsection (a) of an interest in a corporation, part-
nership, trust, or estate is reduced to reflect that
portion of such gain which is attributable to an in-
terest in a trust which a shareholder, partner, or
beneficiary is treated as holding directly under sub-
section (f)(1)(C).
‘‘(k) CROSS REFERENCE.—
‘‘For income tax treatment of individuals who ter-
minate 
United 
States 
citizenship, 
see 
section
7701(a)(47).’’
(b) DEFINITION
OF
TERMINATION
OF
UNITED
STATES CITIZENSHIP.—Section 7701(a) of the Internal
Revenue Code of 1986 is amended by adding at the end
the following new paragraph:
‘‘(47) TERMINATION OF UNITED STATES CITI-
ZENSHIP.—An individual shall not cease to be treat-
ed as a United States citizen before the date on
which the individual’s citizenship is treated as relin-
quished under section 877A(e)(3).’’
(c) CONFORMING AMENDMENTS.—
(1) Section 877 of the Internal Revenue Code
of 1986 is amended by adding at the end the follow-
ing new subsection:
of the Internal Revenue Code of 1986 is amended by in-
serting after the item relating to section 877 the following
new item:
‘‘Sec. 877A. Tax responsibilities of expatriation.’’
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to expatriates (within the
meaning of section 877A(e) of the Internal Revenue
Code of 1986, as added by this section) whose expa-
triation date (as so defined) occurs on or after Feb-
ruary 6, 1995.
(2) DUE DATE FOR TENTATIVE TAX.—The due
date under section 877A(h)(1)(B) of such Code shall
in no event occur before the 90th day after the date
of the enactment of this Act.
SEC. 2. BASIS OF ASSETS OF NONRESIDENT ALIEN INDIVID-
UALS BECOMING CITIZENS OR RESIDENTS.
(a) IN GENERAL.—Part IV of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
special rules for gain or loss on disposition of property)
is amended by redesignating section 1061 as section 1062
and by inserting after section 1060 the following new
section:
‘‘SEC. 1061. BASIS OF ASSETS OF NONRESIDENT ALIEN INDI-
VIDUALS 
BECOMING 
CITIZENS 
OR 
RESI-
DENTS.
‘‘(a) GENERAL RULE.—If a nonresident alien individ-
ual becomes a citizen or resident of the United States,
gain or loss on the disposition of any property held on
the date the individual becomes such a citizen or resident
shall be determined by substituting, as of the applicable
date, the fair market value of such property (on the appli-
cable date) for its cost basis.
‘‘(b) EXCEPTION FOR DEPRECIATION.—Any deduc-
tion under this chapter for depreciation, depletion, or am-
ortization shall be determined without regard to the appli-
cation of this section.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE DATE.—The term ‘applicable
date’ means, with respect to any property to which
subsection (a) applies, the earlier of—
‘‘(A) the date the individual becomes a citi-
zen or resident of the United States, or
‘‘(B) the date the property first becomes
subject to tax under this subtitle by reason of
being used in a United States trade or business
or by reason of becoming a United States real
property interest (within the meaning of section
897(c)(1)).
‘‘(2) RESIDENT.—The term ‘resident’ does not
include an individual who is treated as a resident of
a foreign country under the provisions of a tax trea-
ty between the United States and a foreign country
and who does not waive the benefits of such treaty
applicable to residents of the foreign country.
‘‘(3) TRUSTS.—A trust shall not be treated as
an individual.
‘‘(4) 
ELECTION
NOT
TO
HAVE
SECTION
APPLY.—An individual may elect not to have this
section apply solely for purposes of determining gain
with respect to any property. Such election shall
apply only to property specified in the election and,
once made, shall be irrevocable.
‘‘(5) SECTION
ONLY
TO
APPLY
ONCE.—This
section shall apply only with respect to the first time
the individual becomes either a citizen or resident of
the United States.
‘‘(d) REGULATIONS.—The Secretary shall prescribe
regulations for purposes of this section, including regula-
tions—
‘‘(1) for application of this section in the case
of property which consists of a direct or indirect in-
terest in a trust, and
‘‘(2) providing look-thru rules in the case of any
indirect interest in any United States real property
interest (within the meaning of section 897(c)(1)) or
property used in a United States trade or business.’’
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part IV of subchapter O of chapter 1 of the Inter-
nal Revenue Code of 1986 is amended by striking the item
relating to section 1061 and inserting the following new
items:
‘‘Sec. 1061. Basis of assets of nonresident alien individuals be-
coming citizens or residents.
‘‘Sec. 1062. Cross references.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to dispositions after the date of
the enactment of this Act, and to any disposition occurring
on or before such date to which section 877A of the Inter-
nal Revenue Code of 1986 (as added by section 1) applies.
Æ
HR 1535 IH——2