Union Calendar No. 67
104TH CONGRESS
1ST SESSION
H. R. 1812
[Report No. 104–145]
A BILL
To amend the Internal Revenue Code of 1986 to
revise the income, estate, and gift tax rules appli-
cable to individuals who lose United States citi-
zenship.
JUNE 16, 1995
Reported with an amendment, committed to the Commit-
tee of the Whole House on the State of the Union, and
ordered to be printed
IB
Union Calendar No. 67
104TH CONGRESS
1ST SESSION
H. R. 1812
[Report No. 104–145]
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
JUNE 9, 1995
Mr. ARCHER (for himself and Mrs. JOHNSON of Connecticut) introduced the
following bill; which was referred to the Committee on Ways and Means
JUNE 16, 1995
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on June 9, 1995]
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 fol-
lows:
‘‘(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 subsection (b)
if the tax imposed pursuant to such subsection exceeds
the tax which, without regard to this section, is im-
posed pursuant to section 871.
‘‘(2) CERTAIN INDIVIDUALS TREATED AS HAVING
TAX
AVOIDANCE
PURPOSE.—For purposes of para-
graph (1), an individual shall be treated as having a
principal purpose to avoid such taxes if—
‘‘(A) the average annual net income tax (as
defined in section 38(c)(1)) of such individual
for the period of 5 taxable years ending before
the date of the loss of United States citizenship
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 increase
under the preceding sentence shall be rounded 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 individ-
ual 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 citi-
zen 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 in-
dividual was present in the United States for 30
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 indi-
vidual 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 striking
‘‘subsection (c)’’ and inserting ‘‘subsection (d)’’.
(c) TREATMENT OF PROPERTY DISPOSED OF IN NON-
RECOGNITION TRANSACTIONS; TREATMENT OF DISTRIBU-
TIONS FROM CERTAIN CONTROLLED FOREIGN CORPORA-
TIONS.—Subsection (d) of section 877 of such Code, as re-
designated 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 do-
mestic 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 CON-
TROLLED FOREIGN CORPORATION.—Any income
or gain derived from stock in a foreign corpora-
tion 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 at-
tributable to such stock which were earned
or accumulated before the loss of citizenship
and during periods that the ownership re-
quirements 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 property
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 agree-
ment with the Secretary which specifies that any
income or gain derived from the property ac-
quired 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 with-
in the United States. If the property transferred
in the exchange is disposed of by the person ac-
quiring such property, such agreement shall ter-
minate and any gain which was not recognized