I
107TH CONGRESS
2D SESSION
H. R. 4880
To amend the Internal Revenue Code of 1986 to prevent the continued
use of renouncing United States citizenship as a device for avoiding
United States taxes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 6, 2002
Mr. RANGEL (for himself and Mr. GEPHARDT) 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 prevent
the continued use of renouncing United States citizenship
as a device for avoiding United States taxes.
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 fol-
lowing new section:
‘‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
‘‘(a) GENERAL
RULES.—For purposes of this
subtitle—
‘‘(1) MARK TO MARKET.—Except as provided in
subsection (f), all property of a covered expatriate to
whom this section applies shall be treated as sold on
the day before the expatriation date for its fair mar-
ket 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 sen-
tence.
‘‘(3) EXCLUSION
FOR
CERTAIN
GAIN.—The
amount which would (but for this paragraph) be in-
cludible in the gross income of any individual by rea-
son of this section shall be reduced (but not below
zero) by $600,000. For purposes of this paragraph,
allocable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same man-
ner as an amount required to be includible in gross
income.
‘‘(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 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 rec-
ognized 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.
‘‘(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 security provided 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 in an amount equal
to the deferred tax amount under para-
graph (2)(A) for the property, or
‘‘(ii) the taxpayer otherwise estab-
lishes to the satisfaction of the Secretary
that the security is adequate.
‘‘(5) WAIVER OF CERTAIN RIGHTS.—No elec-
tion may be made under paragraph (1) unless the
taxpayer consents to the waiver of any right under
any treaty of the United States which would pre-
clude 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. An election may
be under paragraph (1) with respect to an interest
in a trust with respect to which gain is required to
be recognized under subsection (f)(1).
‘‘(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) COVERED EXPATRIATE.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘covered expa-
triate’ means an expatriate who meets the require-
ments of subparagraph (A) or (B) of section
877(a)(2).
‘‘(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 been a resident of the United
States 
(as 
defined 
in 
section
7701(b)(1)(A)(ii)) for not more than 8 tax-
able years during the 15-taxable year pe-
riod 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 in-
dividual 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) SECTION NOT TO APPLY TO CERTAIN PROP-
ERTY.—This section shall not apply to the following prop-
erty:
‘‘(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 day before 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-fa-
vored 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, 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
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.
‘‘(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).
‘‘(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).
‘‘(2) SPECIAL RULES FOR INTERESTS IN QUALI-
FIED TRUSTS.—
‘‘(A) IN GENERAL.—If the trust interest
described in paragraph (1) is an interest in a
qualified trust—
‘‘(i) paragraph (1) and subsection (a)
shall not apply, and
‘‘(ii) in addition to any other tax im-
posed by this title, there is hereby imposed
on each distribution with respect to such
interest 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
account 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 open-
ing balance in a deferred tax account with
respect to any trust interest is an amount
equal to the tax which would have been im-
posed on the allocable expatriation gain
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 de-
termined (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 appli-
cable under section 6621 for underpay-
ments of tax for such periods.
‘‘(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
distribution to the person holding the
trust interest, and
‘‘(II) in the case of a person
holding a nonvested interest, to the
extent provided in regulations, by the
amount of taxes imposed by subpara-
graph (A) on distributions from the
trust with respect to nonvested inter-
ests not held by such person.
‘‘(D) ALLOCABLE EXPATRIATION GAIN.—
For purposes of this paragraph, the allocable
expatriation gain with respect to any bene-
ficiary’s interest in a trust is the amount of
gain which would be allocable to such bene-
ficiary’s vested and nonvested interests in the
trust if the beneficiary 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 dis-
tribution 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 fail-
ing to waive any treaty right with respect
to such distribution—
‘‘(I) the tax imposed by subpara-
graph (A)(ii) shall be imposed on the
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 inter-
est in a qualified trust dies, then, in lieu of the
tax imposed 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
account 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 expatriate or the estate the amount of
such tax imposed on the other beneficiary.
‘‘(G) DEFINITIONS AND SPECIAL RULE.—
For purposes of this paragraph—
‘‘(i) QUALIFIED
TRUST.—The term
‘qualified trust’ means a trust—
‘‘(I) which is organized under,
and governed by, the laws of the
United States or a State, and
‘‘(II) with respect to which the
trust instrument requires that at least
1 trustee of the trust be an individual
citizen of the United States or a do-
mestic corporation.
‘‘(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 bene-
ficiary.
‘‘(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.
‘‘(3) DETERMINATION OF BENEFICIARIES’ IN-
TEREST IN TRUST.—
‘‘(A) 
DETERMINATIONS
UNDER
PARA-
GRAPH (1).—For purposes of paragraph (1), a
beneficiary’s interest in a trust shall be based
upon all relevant facts and circumstances, in-
cluding the terms of the trust instrument and
any letter of wishes or similar document, histor-
ical patterns of trust distributions, and the ex-
istence of and functions performed by a trust
protector or any similar advisor.
‘‘(B) OTHER DETERMINATIONS.—For pur-
poses of this section—
‘‘(i) CONSTRUCTIVE
OWNERSHIP.—If
a beneficiary of a trust is a corporation,
partnership, trust, or estate, the share-
holders, partners, or beneficiaries shall be
deemed to be the trust beneficiaries for
purposes of this section.
‘‘(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
different 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
provision 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 expatria-
tion date and the unpaid portion of such tax shall
be due and payable at the time and in the manner
prescribed by the Secretary.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) TAX ON GIFTS AND BEQUESTS RECEIVED BY
UNITED STATES CITIZENS AND RESIDENTS FROM EXPA-
TRIATES.—
(1) IN GENERAL.—Subtitle B of the Internal
Revenue Code of 1986 (relating to estate and gift
taxes) is amended by inserting after chapter 13 the
following new chapter:
‘‘CHAPTER 13A—GIFTS AND BEQUESTS
FROM EXPATRIATES
‘‘Sec. 2681. Imposition of tax.
‘‘SEC. 2681. IMPOSITION OF TAX.
‘‘(a) IN GENERAL.—If, during any calendar year, any
United States citizen or resident receives any covered gift
or bequest, there is hereby imposed a tax equal to the
product of—
‘‘(1) the highest rate of tax specified in the
table contained in section 2001(c) as in effect on the
date of such receipt (or, if greater, the highest rate
of tax specified in the table applicable under section
2502(a) as in effect on the date), and
‘‘(2) the value of such covered gift or bequest.
‘‘(b) TAX TO BE PAID BY RECIPIENT.—The tax im-
posed by subsection (a) on any covered gift or bequest
shall be paid by the person receiving such gift or bequest.
‘‘(c) EXCEPTION FOR CERTAIN GIFTS.—Subsection
(a) shall apply only to the extent that the covered gifts
and bequests received during the calendar year exceed
$10,000.
‘‘(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE
TAX.—The tax imposed by subsection (a) on any covered
gift or bequest shall be reduced by the amount of any gift
or estate tax paid to a foreign country with respect to such
covered gift or bequest.
‘‘(e) COVERED GIFT OR BEQUEST.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, the term ‘covered gift or bequest’ means—
‘‘(A) any property acquired by gift directly
or indirectly from an individual who, at the
time of such acquisition, was an expatriate, and
‘‘(B) any property acquired by bequest, de-
vise, or inheritance directly or indirectly from
an individual who, at the time of death, was an
expatriate.
‘‘(2) EXCEPTIONS FOR TRANSFERS OTHERWISE
SUBJECT TO ESTATE OR GIFT TAX.—Such term shall
not include—
‘‘(A) any property shown on a timely filed
return of tax imposed by chapter 12 which is a
taxable gift by the expatriate, and
‘‘(B) any property shown on a timely filed
return of tax imposed by chapter 11 of the es-
tate of the expatriate.
‘‘(3) TRANSFERS IN TRUST.—Any covered gift
or bequest which is made in trust shall be treated
as made to the beneficiaries of such trust in propor-
tion to their respective interests in such trust (as de-
termined under section 877A(f)(3)).
‘‘(f) EXPATRIATE.—For purposes of this section, the
term ‘expatriate’ has the meaning given to such term by
section 877A(e)(1).’’.
(2) CLERICAL
AMENDMENT.—The table of
chapters for subtitle B of such Code is amended by
inserting after the item relating to chapter 13 the
following new item:
‘‘Chapter 13A. Gifts and bequests from expatriates.’’
(c) DEFINITION
OF
TERMINATION
OF
UNITED
STATES CITIZENSHIP.—Section 7701(a) of such Code is
amended by adding at the end the following new para-
graph:
‘‘(48) TERMINATION OF UNITED STATES CITI-
ZENSHIP.—
‘‘(A) IN
GENERAL.—An individual shall
not cease to be treated as a United States cit-
izen before the date on which the individual’s
citizenship is treated as relinquished under sec-
tion 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 cit-
izen of another country.’’