I
104TH CONGRESS
1ST SESSION
H. R. 2012
To amend the Internal Revenue Code of 1986 to revise the income, estate,
and gift tax rules applicable to individuals who lose United States citizenship.
IN THE HOUSE OF REPRESENTATIVES
JULY 11, 1995
Mr. CREMEANS 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 income, estate, and gift tax rules applicable to indi-
viduals who lose United States citizenship.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Expatriation Tax Act
of 1995’’.
SEC. 2. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON
INDIVIDUALS WHO LOSE UNITED STATES
CITIZENSHIP.
(a) IN GENERAL.—Subsection (a) of section 877 of
the Internal Revenue Code of 1986 is amended to read
as follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) IN GENERAL.—Every nonresident alien in-
dividual who, within the 10-year period immediately
preceding the close of the taxable year, lost United
States citizenship, unless such loss did not have for
1 of its principal purposes the avoidance of taxes
under this subtitle or subtitle B, shall be taxable for
such taxable year in the manner provided in sub-
section (b) if the tax imposed pursuant to such sub-
section exceeds the tax which, without regard to this
section, is imposed pursuant to section 871.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAV-
ING
TAX
AVOIDANCE
PURPOSE.—For purposes of
paragraph (1), an individual shall be treated as hav-
ing a principal purpose to avoid such taxes if—
‘‘(A) the average annual net income tax
(as defined in section 38(c)(1)) of such individ-
ual for the period of 5 taxable years ending be-
fore the date of the loss of United States citi-
zenship is greater than $100,000, or
‘‘(B) the net worth of the individual as of
such date is $500,000 or more.
In the case of the loss of United States citizenship
in any calendar year after 1996, such $100,000 and
$500,000 amounts shall be increased by an amount
equal to such dollar amount multiplied by the cost-
of-living 
adjustment 
determined 
under 
section
1(f)(3) for such calendar year by substituting ‘1994’
for ‘1992’ in subparagraph (B) thereof. Any in-
crease under the preceding sentence shall be round-
ed to the nearest multiple of $1,000.’’
(b) EXCEPTIONS.—
(1) IN GENERAL.—Section 877 of such Code is
amended by striking subsection (d), by redesignating
subsection (c) as subsection (d), and by inserting
after subsection (b) the following new subsection:
‘‘(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN
CASES.—
‘‘(1) IN GENERAL.—Subsection (a)(2) shall not
apply to an individual if—
‘‘(A) such individual is described in a sub-
paragraph of paragraph (2) of this subsection,
and
‘‘(B) within the 1-year period beginning on
the date of the loss of United States citizenship,
such individual submits a ruling request for the
Secretary’s determination as to whether such
loss has for 1 of its principal purposes the
avoidance of taxes under this subtitle or subtitle
B.
‘‘(2) INDIVIDUALS DESCRIBED.—
‘‘(A) DUAL CITIZENSHIP, ETC.—An indi-
vidual is described in this subparagraph if—
‘‘(i) the individual became at birth a
citizen of the United States and a citizen
of another country and continues to be a
citizen of such other country, or
‘‘(ii) the individual becomes (not later
than the close of a reasonable period after
loss of United States citizenship) a citizen
of the country in which—
‘‘(I) such individual was born,
‘‘(II) if such individual is mar-
ried, such individual’s spouse was
born, or
‘‘(III) either of such individual’s
parents were born.
‘‘(B) LONG-TERM FOREIGN RESIDENTS.—
An individual is described in this subparagraph
if, for each year in the 10-year period ending on
the date of loss of United States citizenship, the
individual was present in the United States for
days 
or 
less. 
The 
rule 
of 
section
7701(b)(3)(D)(ii) shall apply for purposes of
this subparagraph.
‘‘(C) RENUNCIATION UPON REACHING AGE
OF
MAJORITY.—An individual is described in
this subparagraph if the individual’s loss of
United States citizenship occurs before such in-
dividual attains age 181⁄2.
‘‘(D) INDIVIDUALS SPECIFIED IN REGULA-
TIONS.—An individual is described in this sub-
paragraph if the individual is described in a
category of individuals prescribed by regulation
by the Secretary.’’
(2) TECHNICAL AMENDMENT.—Paragraph (1)
of section 877(b) of such Code is amended by strik-
ing ‘‘subsection (c)’’ and inserting ‘‘subsection (d)’’.
(c) TREATMENT
OF PROPERTY DISPOSED
OF
IN
NONRECOGNITION TRANSACTIONS; TREATMENT OF DIS-
TRIBUTIONS
FROM
CERTAIN
CONTROLLED
FOREIGN
CORPORATIONS.—Subsection (d) of section 877 of such
Code, as redesignated by subsection (b), is amended to
read as follows:
‘‘(d) SPECIAL RULES FOR SOURCE, ETC.—For pur-
poses of subsection (b)—
‘‘(1) SOURCE RULES.—The following items of
gross income shall be treated as income from sources
within the United States:
‘‘(A) SALE OF PROPERTY.—Gains on the
sale or exchange of property (other than stock
or debt obligations) located in the United
States.
‘‘(B) STOCK
OR
DEBT
OBLIGATIONS.—
Gains on the sale or exchange of stock issued
by a domestic corporation or debt obligations of
United States persons or of the United States,
a State or political subdivision thereof, or the
District of Columbia.
‘‘(C) INCOME
OR
GAIN
DERIVED
FROM
CONTROLLED FOREIGN CORPORATION.—Any in-
come or gain derived from stock in a foreign
corporation but only—
‘‘(i) if the individual losing United
States citizenship owned (within the mean-
ing of section 958(a)), or is considered as
owning (by applying the ownership rules of
section 958(b)), at any time during the 2-
year period ending on the date of the loss
of United States citizenship, more than 50
percent of—
‘‘(I) the total combined voting
power of all classes of stock entitled
to vote of such corporation, or
‘‘(II) the total value of the stock
of such corporation, and
‘‘(ii) to the extent such income or gain
does not exceed the earnings and profits
attributable to such stock which were
earned or accumulated before the loss of
citizenship and during periods that the
ownership requirements of clause (i) are
met.
‘‘(2) GAIN
RECOGNITION
ON
CERTAIN
EX-
CHANGES.—
‘‘(A) IN GENERAL.—In the case of any ex-
change of property to which this paragraph ap-
plies, notwithstanding any other provision of
this title, such property shall be treated as sold
for its fair market value on the date of such ex-
change, and any gain shall be recognized for
the taxable year which includes such date.
‘‘(B) EXCHANGES TO WHICH PARAGRAPH
APPLIES.—This paragraph shall apply to any
exchange during the 10-year period described in
subsection (a) if—
‘‘(i) gain would not (but for this para-
graph) be recognized on such exchange in
whole or in part for purposes of this sub-
title,
‘‘(ii) income derived from such prop-
erty was from sources within the United
States (or, if no income was so derived,
would have been from such sources), and
‘‘(iii) income derived from the prop-
erty acquired in the exchange would be
from sources outside the United States.
‘‘(C) 
EXCEPTION.—Subparagraph 
(A)
shall not apply if the individual enters into an
agreement with the Secretary which specifies
that any income or gain derived from the prop-
erty acquired in the exchange (or any other
property which has a basis determined in whole
or part by reference to such property) during
such 10-year period shall be treated as from
sources within the United States. If the prop-
erty transferred in the exchange is disposed of
by the person acquiring such property, such
agreement shall terminate and any gain which
was not recognized by reason of such agreement
shall be recognized as of the date of such dis-
position.
‘‘(D) SECRETARY MAY EXTEND PERIOD.—
To the extent provided in regulations prescribed
by the Secretary, subparagraph (B) shall be ap-
plied by substituting the 15-year period begin-
ning 5 years before the loss of United States
citizenship for the 10-year period referred to
therein.
‘‘(E) SECRETARY MAY REQUIRE RECOGNI-
TION OF GAIN IN CERTAIN CASES.—To the ex-
tent provided in regulations prescribed by the
Secretary—
‘‘(i) the removal of appreciated tan-
gible personal property from the United
States, and
‘‘(ii) any other occurrence which
(without recognition of gain) results in a
change in the source of the income or gain
from property from sources within the
United States to sources outside the
United States,
shall be treated as an exchange to which this
paragraph applies.
‘‘(3) SUBSTANTIAL DIMINISHING OF RISKS OF
OWNERSHIP.—For purposes of determining whether
this section applies to any gain on the sale or ex-
change of any property, the running of the 10-year
period described in subsection (a) shall be suspended
for any period during which the individual’s risk of
loss with respect to the property is substantially di-
minished by—
‘‘(A) the holding of a put with respect to
such property (or similar property),
‘‘(B) the holding by another person of a
right to acquire the property, or
‘‘(C) a short sale or any other trans-
action.’’
(d) CREDIT
FOR FOREIGN TAXES IMPOSED
ON
UNITED STATES SOURCE INCOME.—
(1) Subsection (b) of section 877 of such Code
is amended by adding at the end the following new
sentence: ‘‘The tax imposed solely by reason of this
section shall be reduced (but not below zero) by the
amount of any income, war profits, and excess prof-
its taxes (within the meaning of section 903) paid to
any foreign country or possession of the United
States on any income of the taxpayer on which tax
is imposed solely by reason of this section.’’
(2) Subsection (a) of section 877 of such Code,
as amended by subsection (a), is amended by insert-
ing ‘‘(after any reduction in such tax under the last
sentence of such subsection)’’ after ‘‘such sub-
section’’.
(e) COMPARABLE ESTATE AND GIFT TAX TREAT-
MENT.—
(1) ESTATE TAX.—
(A) IN GENERAL.—Subsection (a) of sec-
tion 2107 of such Code is amended to read as
follows:
‘‘(a) TREATMENT OF EXPATRIATES.—
‘‘(1) RATE OF TAX.—A tax computed in accord-
ance with the table contained in section 2001 is
hereby imposed on the transfer of the taxable estate,
determined as provided in section 2106, of every de-
cedent nonresident not a citizen of the United States
if, within the 10-year period ending with the date of
death, such decedent lost United States citizenship,
unless such loss did not have for 1 of its principal
purposes the avoidance of taxes under this subtitle
or subtitle A.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAV-
ING TAX AVOIDANCE PURPOSE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), an individual shall be treated as hav-
ing a principal purpose to avoid such taxes if
such individual is so treated under section
877(a)(2).
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply to a decedent meeting the re-
quirements of section 877(c)(1).’’
(B) 
CREDIT
FOR
FOREIGN
DEATH
TAXES.—Subsection (c) of section 2107 of such
Code is amended by redesignating paragraph
(2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
‘‘(2) CREDIT FOR FOREIGN DEATH TAXES.—
‘‘(A) IN GENERAL.—The tax imposed by
subsection (a) shall be credited with the amount
of any estate, inheritance, legacy, or succession
taxes actually paid to any foreign country in re-
spect of any property which is included in the
gross estate solely by reason of subsection (b).
‘‘(B) LIMITATION ON CREDIT.—The credit
allowed by subparagraph (A) for such taxes
paid to a foreign country shall not exceed the
lesser of—
‘‘(i) the amount which bears the same
ratio to the amount of such taxes actually
paid to such foreign country in respect of
property included in the gross estate as the
value of the property included in the gross
estate solely by reason of subsection (b)
bears to the value of all property subjected
to such taxes by such foreign country, or
‘‘(ii) such property’s proportionate
share of the excess of—
‘‘(I) the tax imposed by sub-
section (a), over
‘‘(II) the tax which would be im-
posed by section 2101 but for this
section.
‘‘(C) PROPORTIONATE
SHARE.—For pur-
poses of subparagraph (B), a property’s propor-
tionate share is the percentage which the value
of the property which is included in the gross
estate solely by reason of subsection (b) bears
to the total value of the gross estate.’’
(C) EXPANSION OF INCLUSION IN GROSS
ESTATE
OF
STOCK
OF
FOREIGN
CORPORA-
TIONS.—Paragraph (2) of section 2107(b) of
such Code is amended by striking ‘‘more than
50 percent of’’ and all that follows and insert-
ing ‘‘more than 50 percent of—
‘‘(A) the total combined voting power of all
classes of stock entitled to vote of such corpora-
tion, or
‘‘(B) the total value of the stock of such
corporation,’’.
(2) GIFT TAX.—
(A) IN GENERAL.—Paragraph (3) of sec-
tion 2501(a) of such Code is amended to read
as follows:
‘‘(3) EXCEPTION.—
‘‘(A) CERTAIN
INDIVIDUALS.—Paragraph
(2) shall not apply in the case of a donor who,
within the 10-year period ending with the date
of transfer, lost United States citizenship, un-
less such loss did not have for 1 of its principal
purposes the avoidance of taxes under this sub-
title or subtitle A.
‘‘(B) CERTAIN INDIVIDUALS TREATED AS
HAVING TAX AVOIDANCE PURPOSE.—For pur-
poses of subparagraph (A), an individual shall
be treated as having a principal purpose to
avoid such taxes if such individual is so treated
under section 877(a)(2).
‘‘(C) EXCEPTION
FOR
CERTAIN
INDIVID-
UALS.—Subparagraph (B) shall not apply to a
decedent meeting the requirements of section
877(c)(1).
‘‘(D) CREDIT FOR FOREIGN GIFT TAXES.—
The tax imposed by this section solely by reason
of this paragraph shall be credited with the
amount of any gift tax actually paid to any for-
eign country in respect of any gift which is tax-
able under this section solely by reason of this
paragraph.’’
(f) COMPARABLE TREATMENT OF LAWFUL PERMA-
NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI-
DENTS.—
(1) IN GENERAL.—Section 877 of such Code is
amended by redesignating subsection (e) as sub-
section (f) and by inserting after subsection (d) the
following new subsection:
‘‘(e) COMPARABLE TREATMENT OF LAWFUL PERMA-
NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI-
DENTS.—
‘‘(1) IN GENERAL.—Any long-term resident of
the United States who—
‘‘(A) ceases to be a lawful permanent resi-
dent of the United States (within the meaning
of section 7701(b)(6)), or
‘‘(B) commences to be treated as a resi-
dent 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,
shall be treated for purposes of this section and sec-
tions 2107, 2501, and 6039F in the same manner
as if such resident were a citizen of the United
States who lost United States citizenship on the date
of such cessation or commencement.
‘‘(2) LONG-TERM RESIDENT.—For purposes of
this subsection, 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 during which the event described in subpara-
graph (A) or (B) of paragraph (1) occurs. For pur-
poses of the preceding 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 between the
United States and the foreign country and does not
waive the benefits of such treaty applicable to resi-
dents of the foreign country.
‘‘(3) SPECIAL RULES.—
‘‘(A) EXCEPTIONS NOT TO APPLY.—Sub-
section (c) shall not apply to an individual who
is treated as provided in paragraph (1).
‘‘(B) STEP-UP IN BASIS.—Solely for pur-
poses of determining any tax imposed by reason
of this subsection, property which was held by
the long-term resident on the date the individ-
ual first became a resident of the United States
shall be treated as having a basis on such date
of not less than the fair market value of such
property on such date. The preceding sentence
shall not apply if the individual elects not to
have such sentence apply. Such an election,
once made, shall be irrevocable.
‘‘(4) AUTHORITY TO EXEMPT INDIVIDUALS.—
This subsection shall not apply to an individual who
is described in a category of individuals prescribed
by regulation by the Secretary.
‘‘(5) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be appropriate to
carry out this subsection, including regulations pro-
viding for the application of this subsection in cases
where an alien individual becomes a resident of the
United States during the 10-year period after being
treated as provided in paragraph (1).’’
(2) CONFORMING AMENDMENTS.—
(A) Section 2107 of such Code is amended
by striking subsection (d), by redesignating sub-
section (e) as subsection (d), and by inserting
after subsection (d) (as so redesignated) the fol-
lowing new subsection:
‘‘(e) CROSS REFERENCE.—
‘‘For comparable treatment of long-term lawful
permanent residents who ceased to be taxed as resi-
dents, see section 877(e).’’
(B) Paragraph (3) of section 2501(a) of
such Code (as amended by subsection (e)) is
amended by adding at the end the following
new subparagraph:
‘‘(E) CROSS REFERENCE.—
‘‘For comparable treatment of long-term lawful
permanent residents who ceased to be taxed as resi-
dents, see section 877(e).’’
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to—
(A) individuals losing United States citi-
zenship (within the meaning of section 877 of
the Internal Revenue Code of 1986) on or after
February 6, 1995, and
(B) long-term residents of the United
States with respect to whom an event described
in subparagraph (A) or (B) of section 877(e)(1)
of such Code occurs on or after June 13, 1995.
(2) SPECIAL RULE.—
(A) IN GENERAL.—In the case of an indi-
vidual who performed an act of expatriation
specified in paragraph (1), (2), (3), or (4) of
section 349(a) of the Immigration and Nation-
ality Act (8 U.S.C. 1481(a)(1)–(4)) before Feb-
ruary 6, 1995, but who did not, on or before
such date, furnish to the United States Depart-
ment of State a signed statement of voluntary
relinquishment of United States nationality con-
firming the performance of such act, the
amendments made by this section shall apply to
such individual except that—
(i) the 10-year period described in
section 877(a) of such Code shall not ex-
pire before the end of the 10-year period
beginning on the date such statement is so
furnished, and
(ii) the 1-year period referred to in
section 877(c) of such Code, as amended
by this section, shall not expire before the
date which is 1 year after the date of the
enactment of this Act.
(B) EXCEPTION.—Subparagraph (A) shall
not apply if the individual establishes to the
satisfaction of the Secretary of the Treasury
that such loss of United States citizenship oc-
curred before February 6, 1994.
SEC. 3. INFORMATION ON INDIVIDUALS LOSING UNITED
STATES CITIZENSHIP.
(a) IN GENERAL.—Subpart A of part III of sub-
chapter A of chapter 61 of the Internal Revenue Code of
1986 is amended by inserting after section 6039E the fol-
lowing new section:
‘‘SEC. 
6039F. 
INFORMATION 
ON 
INDIVIDUALS 
LOSING
UNITED STATES CITIZENSHIP.
‘‘(a) IN GENERAL.—Notwithstanding any other pro-
vision of law, any individual who loses United States citi-
zenship (within the meaning of section 877(a)) shall pro-
vide a statement which includes the information described
in subsection (b). Such statement shall be—
unless it is shown that such failure is due to reasonable
cause and not to willful neglect.
‘‘(e) INFORMATION TO BE PROVIDED
TO SEC-
RETARY.—Notwithstanding any other provision of law—
‘‘(1) any Federal agency or court which collects
(or is required to collect) the statement under sub-
section (a) shall provide to the Secretary—
‘‘(A) a copy of any such statement, and
‘‘(B) the name (and any other identifying
information) of any individual refusing to com-
ply with the provisions of subsection (a),
‘‘(2) the Secretary of State shall provide to the
Secretary a copy of each certificate as to the loss of
American nationality under section 358 of the Immi-
gration and Nationality Act which is approved by
the Secretary of State, and
‘‘(3) the Federal agency primarily responsible
for administering the immigration laws shall provide
to the Secretary the name of each lawful permanent
resident of the United States (within the meaning of
section 7701(b)(6)) whose status as such has been
revoked or has been administratively or judicially de-
termined to have been abandoned.
Notwithstanding any other provision of law, not later than
30 days after the close of each calendar quarter, the Sec-
retary shall publish in the Federal Register the name of
each individual losing United States citizenship (within
the meaning of section 877(a)) with respect to whom the
Secretary receives information under the preceding sen-
tence during such quarter.
‘‘(f) REPORTING BY LONG-TERM LAWFUL PERMA-
NENT RESIDENTS WHO CEASE TO BE TAXED AS RESI-
DENTS.—In lieu of applying the last sentence of sub-
section (a), any individual who is required to provide a
statement under this section by reason of section
877(e)(1) shall provide such statement with the return of
tax imposed by chapter 1 for the taxable year during
which the event described in such section occurs.
‘‘(g) EXEMPTION.—The Secretary may by regula-
tions exempt any class of individuals from the require-
ments of this section if he determines that applying this
section to such individuals is not necessary to carry out
the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such subpart A is amended by inserting after the item
relating to section 6039E the following new item:
‘‘Sec. 6039F. Information on individuals losing United States citi-
zenship.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to—
(1) individuals losing United States citizenship
(within the meaning of section 877 of the Internal
Revenue Code of 1986) after the date of the enact-
ment of this Act, and
(2) long-term residents of the United States
with respect to whom an event described in subpara-
graph (A) or (B) of section 877(e)(1) of such Code
occurs after such date.
SEC. 4. REPORT ON TAX COMPLIANCE BY UNITED STATES
CITIZENS AND RESIDENTS LIVING ABROAD.
Not later than 90 days after the date of the enact-
ment of this Act, the Secretary of the Treasury shall pre-
pare and submit to the Committee on Ways and Means
of the House of Representatives and the Committee on
Finance of the Senate a report—
(1) describing the compliance with subtitle A of
the Internal Revenue Code of 1986 by citizens and
lawful permanent residents of the United States
(within the meaning of section 7701(b)(6) of such
Code) residing outside the United States, and
(2) recommending measures to improve such
compliance (including improved coordination be-
tween executive branch agencies).
Æ
HR 2012 IH——2