TaXpat's US Tax Blog

UPDATED: Street Address for mailing FBAR Reports (Form TD F 90-22.1)

2009-06-26T15:19:52+02:00

The address previously given (on the June 15 posting) seems to work but we have confirmed that there is a more current address which should be used.

Here is the response from an enquiry to the IRS:

The Date of Receipt determines timliness. If you want to use express mail to guarantee delivery, please use FED EX, UPS or DHL, any other service must be delivered during normal business hours. Address to:

IRS Enterprise Computing Center

Attn: FBAR Mail Room 4^th Flr.

985 Michigan Avenue

Detroit, MI 48226

Contact Phone # (313) 234-1062

The Contact Phone # cannot be used by a filer to determine if their report was received.

All tracking must be done through your delivery service.

David Colvin is the US Tax Partner for TaXpat BVin Amsterdam and an advisor to Maxim Global Wealth Advisors in Amsterdam and Portland. For more tax and investment issues for expats check out TaXpat's US Tax Blog and Maxim's Knowledge Library.

Street Address for Mailing 2008 Foreign Bank and Financial Account Report (Form TD F 90-22.1)

2009-06-15T15:36:19+02:00

UPDATED JUNE 26, 2009: For those of you who have not yet filed your 2008 Form T DF 90-22.1, be aware that the due date of June 30 is the date that the form must be received by the Department of Treasury, not the date it must be mailed (as is the case with tax returns).

If you are living overseas and have not yet mailed your 2008 forms, it is likely that they may not make it to Detroit by June 30 using regular mail. Using Dutch registered mail (aangetekend) is not a good option at this point - from my experience is it not unusual for this to take 3 weeks or more, and you get no proof of receipt, only of mailing. Therefore the only "safe" method of making sure it gets there on time is courier. If you send by courier, you will need the street address and phone number, which are as follows:

IRS Enterprise Computing Center

Attn: FBAR Mail Room 4^th Flr.

985 Michigan Avenue

Detroit, MI 48226

Contact Phone # (313) 234-1062

David Colvin is the US Tax Partner for TaXpat BVin Amsterdam and an advisor to Maxim Global Wealth Advisors in Amsterdam and Portland. For more tax and investment issues for expats check out TaXpat's US Tax Blog and Maxim's Knowledge Library.

Reminder: US Expat Tax Returns and 2009 Q2 Estimated Tax Payments Due June 15

2009-06-12T09:22:07+02:00

If you were living outside of the US on April 15, 2009, you get an automatic two-month extension of time to file your 2008 US federal taxes (to June 15, 2009). If you take advantage of the automatic extension you need to attach a statement to your 2008 tax return explaining that you have done this. The automatic extension does not extend the time to pay your tax - interest is charged as of April 15.

If you cannot file your 2008 tax return by June 15, you need to request an extension using Form 4868 (or sometimes Form 2350 if it is your first year living abroad).

June 15 is also the due date for the second quarter 2009 Estimated Tax Payment, which can be done online at www.officialpayments.com, or by mail using Form 1040-ES.

David Colvin is the US Tax Partner for TaXpat BV in Amsterdam and an advisor to Maxim Global Wealth Advisors in Amsterdam and Portland. For more tax and investment issues for expats check out TaXpat's US Tax Blog and Maxim's Knowledge Library.

How To Confirm Receipt Of Your Foreign Bank Account Report

2009-05-19T14:54:40+02:00

I had written earlier that there is a phone number to call to confirm receipt of Form TD F 90-22.1. However, this does not seem to work. We asked the IRS how to get verification of receipt and got the following response:

"You may request verification of filing by writing IRS at IRS Detroit Computing Center, BSA Compliance Department, P.O. Box 32063, Detroit, MI 48232. The FEE is $5.00 to conduct a search an additional $.15 if you need a copy. Make checks payable to Internal Revenue Service. Please spell it out do not use the acronym. Your letter must include the calendar year you are requesting and your Social Security number."

You can contact the IRS with questions related to Form TD F 90-22.1 at FBARQUESTIONS@irs.gov.

David Colvin is the US Tax Partner for TaXpat BV in Amsterdam and an advisor to Maxim Global Wealth Advisors in Amsterdam and Portland. For more tax and investment issues for expats check out TaXpat's US Tax Blog and Maxim's Knowledge Library.

Foreign Bank Reports Must Be "Received" By June 30

2009-05-11T17:51:57+02:00

Just a reminder that the Foreign Bank Report (TD F 90-22.1) must be received by the Department of Treasury no later than June 30, as opposed to tax returns, which need to be "postmarked" by the due date.

Seven Important Points About Penalties

2009-04-06T17:42:56+02:00

The following is a nice summary of the Failure-to-File and Failure-to-Pay Penalties that the IRS imposes. Note that for US expats, neither of these penalties apply until after June 15, as long as you attach a statement to your tax return explaining that you were residing abroad on April 15.

IRS Tax Tip 2009-51 (http://www.irs.gov/newsroom/article/0,,id=205326,00.html)

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

David Colvin is the US Tax Partner for TaXpat BV in Amsterdam and an advisor to Maxim Global Wealth Advisors in Amsterdam and Portland. For more tax and investment issues check out TaXpat's US Tax Blog and Maxim's Knowledge Library.

Fines for (NL Residents with) Secret Bank Accounts to Triple

2009-04-06T16:28:32+02:00

Scary news for those taxpayers still not reporting their worldwide assets in Box 3. If you are ready to come clean and want to take advantage of the amnesty program, there is a specific form to complete, called a "Vrijwillige Verbetering", which can be downloaded from the Belastingdienst web site at http://download.belastingdienst.nl/belastingdienst/docs/vrijwillige_verbetering_buitenlands_vermogen_ib151z3plfol.pdf.
Unfortunately the form seems to be available only in Dutch. Note that tax paid in Box 3 is a "creditable" tax for US tax purposes, so playing it by the book usually doesn't give too bad of a result for US citizens, aside from avoiding penalties down the road.

Per DutchNews.nl (www.dutchnews.nl), Monday 06 April 2009:

The fine for people found to have secret bank accounts abroad is to be tripled to 300% of the non-declared savings, tax minister Jan Kees de Jager told tv show Buitenhof on Sunday.

At the moment, people found with secret savings face having all of the money confiscated by the tax authorities. If MPs back de Jager's proposals, they will also have to pay the same amount twice over in fines.

Since 2002, the government has operated an amnesty for people with secret accounts. If they admit to having money stashed abroad they have to pay an extra tax surcharge but no fine and will not face criminal prosecution.

So far this year 317 people have come forward, admitting to secret savings totalling some €70m.

Drug dealers

The Telegraaf reports on Monday that a considerable percentage of the people declaring their foreign savings are soft drugs traders who made their money in the 1990s.

'If they declare their money to the tax before an investigation is begun, they do not have to say where their capital came from,' one lawyer told the paper.

Since it emerged that Switzerland, Liechtenstein, Luxemburg and Andorra are reforming their bank secrecy laws, the number of people declaring their foreign accounts has gone up by 20 a day, the paper says.

Tax havens are coming under increasing pressure on their banking secrecy laws and world leaders agreed at last week's G20 summit in London to take tougher action against them.

New Foreign Bank Reporting Form for 2008 (TD F 90-22.1)

2009-01-29T16:47:49+01:00

The IRS (actually US Department of Treasury) has come out with a new Form TD F 90-22.1, Report of Foreign Bank and Financial accounts, which is required for all forms submitted after December 31, 2008 (including late forms for years prior to 2008).

The new form and instructions can be downloaded from the IRS web site: http://www.irs.gov/pub/irs-pdf/f90221.pdf

This new form resolves a lot of the confusing issues which were caused by limitations on the old form, but also significantly increases the information required to be reported.

To highlight some of the changes:

1) There are now four separate categories (and related separate pages in the form):
- Accounts owned by an individual separately (i.e not a joint account), or owned by a corporation in which the filer has a financial interest (generally by owning or having the voting rights for more than 50% of a corporation, partnership, or trust; see page 6 of the instructions for more details)
- Accounts owned jointly
- Accounts for which an individual has signing authority, but no financial interest
- Accounts for which a corporation is submitting a consolidated filing (not used by individuals)

2) You must provide the exact maximum balance on any statement during the year (e.g. quarterly, monthly, or other more frequent statement). If you only receive annual statements, you should use the maximum balance at any point during the year.

3) You should generally use the exchange rate at the end of the year (e.g. use € 1 = $1.4097, the rate for December 31, 2008, to convert the maximum balance in 2008).

4) You now need to provide the full address for each financial institution, even if you have a financial interest in the account (not required on previous forms).

5) It is now possible to file an amended report by ticking the "Amended" box at the top right section of the form.

6) If a spouse does not have any accounts held separately (i.e. the only foreign accounts held by the spouse are joint accounts together with the filer), they no longer need to file a separate form. You should indicate that the joint owner is your spouse by writing (spouse) after the last name. If they are not filing a separate form, the spouse also needs to sign the report on Page 1, though it is not stated exactly where (I would recommend directly under the filer's signature).

7) There is now a hotline to call to confirm that they have received your report (saves registered mail or courier fees). To verify a report has been received you can call the Detroit Computing Center Hotline at +1-800-800-2877.

Reminder: 2008 Q4 Estimated Tax Payments Due January 15, 2009

2009-01-12T16:01:26+01:00

Just a quick reminder for those of you making estimated tax payments - the final payment for Q4 2008 is due January 15, 2009.

Complete Text of Sec. 301 of P.L. 110-245 (H.R. 6081) - Applicable "Exit Tax" Law for Expatriators

2008-06-21T13:29:32+02:00

Here is the full text of Section 301 of P.L. 110-245 (commonly known as H.R. 6081, the Heroes Earnings Assistance and Relief Tax Act of 2008). Sec. 301 is the section that relates to expatriators/expatriation on or after June 17, 2008 (as signed by President Bush).

SEC. 301. REVISION OF TAX RULES ON EXPATRIATION.

(a) In General- Subpart A of part II of subchapter N of chapter 1 is amended by inserting after section 877 the following new section:

`SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

`(a) General Rules- For purposes of this subtitle --

`(1) MARK TO MARKET- All property of a covered 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.

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 sentence, 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 subparagraph (A) shall be increased by an amount equal to --

`(I) such dollar amount, multiplied by

`(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting `calendar year 2007' for `calendar year 1992' in subparagraph (B) thereof.

`(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 attributable 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 property 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 account under subsection (a) with respect to all property to which subsection (a) applies.

`(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 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 security if --

`(i) it is a bond which is furnished to, and accepted by, the Secretary, which is conditioned on the payment of tax (and interest thereon), and which meets the requirements of section 6325, or

`(ii) it is another form of security for such payment (including letters of credit) that meets such requirements as the Secretary may prescribe.

`(5) WAIVER OF CERTAIN RIGHTS- No election 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 election and, once made, is irrevocable.

`(7) INTEREST- For purposes of section 6601, the last date for the payment of tax shall be determined without regard to the election under this subsection.

`(c) Exception for Certain Property- Subsection (a) shall not apply to --

`(1) any deferred compensation item (as defined in subsection (d)(4)),

`(2) any specified tax deferred account (as defined in subsection (e)(2)), and

`(3) any interest in a nongrantor trust (as defined in subsection (f)(3)).

`(d) Treatment of Deferred Compensation Items-

`(1) WITHHOLDING ON ELIGIBLE DEFERRED COMPENSATION ITEMS-

`(A) IN GENERAL- In the case of any eligible 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 payment' means with respect to a covered expatriate any payment to the extent it would be includible in the gross income of the covered expatriate if such expatriate continued to be subject 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 preceding sentence when such item would be so includible.

`(2) OTHER DEFERRED COMPENSATION ITEMS- In the case of any deferred compensation item which is not an eligible deferred compensation item --

`(A)(i) with respect to any deferred compensation item to which clause (ii) does not apply, an amount equal to the present value of the covered expatriate's accrued benefit shall be treated as having been received by such individual on the day before the expatriation date as a distribution under the plan, and

`(ii) with respect to any deferred compensation item referred to in paragraph (4)(D), the rights of the covered expatriate to such item shall be treated as becoming transferable and not subject to a substantial risk of forfeiture on the day before the expatriation date,

`(B) no early distribution tax shall apply by reason of such treatment, and

`(C) appropriate adjustments shall be made to subsequent distributions from the plan to reflect such treatment.

`(3) ELIGIBLE DEFERRED COMPENSATION ITEMS- For purposes of this subsection, the term `eligible deferred compensation item' means any deferred compensation item with respect to which --

`(A) the payor of such item is --

`(i) a United States person, or

`(ii) a person who is not a United States person but who elects to be treated as a United States person for purposes of paragraph (1) and meets such requirements as the Secretary may provide to ensure that the payor will meet the requirements of paragraph (1), and

`(B) the covered expatriate --

`(i) notifies the payor of his status as a covered expatriate, and

`(ii) makes an irrevocable waiver of any right to claim any reduction under any treaty with the United States in withholding on such item.

`(4) DEFERRED COMPENSATION ITEM- For purposes of this subsection, the term `deferred compensation item' means --

`(A) any interest in a plan or arrangement described in section 219(g)(5),

`(B) any interest in a foreign pension plan or similar retirement arrangement or program,

`(C) any item of deferred compensation, and

`(D) any property, or right to property, which the individual is entitled to receive in connection with the performance of services to the extent not previously taken into account under section 83 or in accordance with section 83.

`(5) EXCEPTION- Paragraphs (1) and (2) shall not apply to any deferred compensation item to the extent attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.

`(6) SPECIAL RULES-

`(A) APPLICATION OF WITHHOLDING RULES- Rules similar to the rules of subchapter B of chapter 3 shall apply for purposes of this subsection.

`(B) APPLICATION OF TAX- Any item subject to the withholding tax imposed under paragraph (1) shall be subject to tax under section 871.

`(C) COORDINATION WITH OTHER WITHHOLDING REQUIREMENTS- Any item subject to withholding under paragraph (1) shall not be subject to withholding under section 1441 or chapter 24.

`(e) Treatment of Specified Tax Deferred Accounts-

`(1) ACCOUNT TREATED AS DISTRIBUTED- In the case of any interest in a specified tax deferred account held by a covered expatriate on the day before the expatriation date --

`(A) the covered expatriate shall be treated as receiving a distribution of his entire interest in such account on the day before the expatriation date,

`(B) no early distribution tax shall apply by reason of such treatment, and

`(C) appropriate adjustments shall be made to subsequent distributions from the account to reflect such treatment.

`(2) SPECIFIED TAX DEFERRED ACCOUNT- For purposes of paragraph (1), the term `specified tax deferred account' means an individual retirement plan (as defined in section 7701(a)(37)) other than any arrangement described in subsection (k) or (p) of section 408, a qualified tuition program (as defined in section 529), a Coverdell education savings account (as defined in section 530), a health savings account (as defined in section 223), and an Archer MSA (as defined in section 220).

`(f) Special Rules for Nongrantor Trusts-

`(1) IN GENERAL- In the case of a distribution (directly or indirectly) of any property from a nongrantor trust to a covered expatriate --

`(A) the trustee shall deduct and withhold from such distribution an amount equal to 30 percent of the taxable portion of the distribution, and

`(B) if the fair market value of such property exceeds its adjusted basis in the hands of the trust, gain shall be recognized to the trust as if such property were sold to the expatriate at its fair market value.

`(2) TAXABLE PORTION- For purposes of this subsection, the term `taxable portion' means, with respect to any distribution, that portion of the distribution which would be includible in the gross income of the covered expatriate if such expatriate continued to be subject to tax as a citizen or resident of the United States.

`(3) NONGRANTOR TRUST- For purposes of this subsection, the term `nongrantor trust' means the portion of any trust that the individual is not considered the owner of under subpart E of part I of subchapter J. The determination under the preceding sentence shall be made immediately before the expatriation date.

`(4) SPECIAL RULES RELATING TO WITHHOLDING- For purposes of this subsection --

`(A) rules similar to the rules of subsection (d)(6) shall apply, and

`(B) the covered expatriate shall be treated as having waived any right to claim any reduction under any treaty with the United States in withholding on any distribution to which paragraph (1)(A) applies unless the covered expatriate agrees to such other treatment as the Secretary determines appropriate.

`(5) APPLICATION- This subsection shall apply to a nongrantor trust only if the covered expatriate was a beneficiary of the trust on the day before the expatriation date.

`(g) Definitions and Special Rules Relating to Expatriation- For purposes of this section --

`(1) COVERED EXPATRIATE-

`(A) IN GENERAL- The term `covered expatriate' means an expatriate who meets the requirements of subparagraph (A), (B), or (C) of section 877(a)(2).

`(B) EXCEPTIONS- An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if --

`(i) 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 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs, or

`(ii)(I) the individual's relinquishment of United States citizenship occurs before such individual attains age 18 1/2 , and

`(II) the individual has been a resident of the United States (as so defined) for not more than 10 taxable years before the date of relinquishment.

`(C) COVERED EXPATRIATES ALSO SUBJECT TO TAX AS CITIZENS OR RESIDENTS- In the case of any covered expatriate who is subject to tax as a citizen or resident of the United States for any period beginning after the expatriation date, such individual shall not be treated as a covered expatriate during such period for purposes of subsections (d)(1) and (f) and section 2801.

`(2) EXPATRIATE- The term `expatriate' means --

`(A) any United States citizen who relinquishes his citizenship, and

`(B) any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).

`(3) EXPATRIATION DATE- The term `expatriation 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 on which the individual ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).

`(4) 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 Immigration 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 performance 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 Department of State issues to the individual a certificate of loss of nationality, or

`(D) the date a court of the United States cancels a naturalized citizen's certificate of naturalization.

Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.

`(5) LONG-TERM RESIDENT- The term `long-term resident' has the meaning given to such term by section 877(e)(2).

`(6) EARLY DISTRIBUTION TAX- The term `early distribution tax' means any increase in tax imposed under section 72(t), 220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4).

`(h) Other Rules-

`(1) TERMINATION OF DEFERRALS, ETC- In the case of any covered expatriate, notwithstanding any other provision of this title --

`(A) any time period for acquiring property which would result in the reduction in the amount of gain recognized with respect to property disposed of by the taxpayer shall terminate on the day before the expatriation date, and

`(B) any extension of time for payment of tax shall cease to apply on the day before the expatriation date and the unpaid portion of such tax shall be due and payable at the time and in the manner prescribed by the Secretary.

`(2) STEP-UP IN BASIS- Solely for purposes of determining any tax imposed by reason of subsection (a), property which was held by an individual on the date the individual first became a resident of the United States (within the meaning of section 7701(b)) 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.

`(3) COORDINATION WITH SECTION 684- If the expatriation of any individual would result in the recognition of gain under section 684, this section shall be applied after the application of section 684.

`(i) 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 Expatriates-

(1) IN GENERAL- Subtitle B (relating to estate and gift taxes) is amended by inserting after chapter 14 the following new chapter:

`CHAPTER 15 --GIFTS AND BEQUESTS FROM EXPATRIATES

`Sec. 2801. Imposition of tax.

`SEC. 2801. 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 imposed 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 value of covered gifts and bequests received by any person during the calendar year exceeds the dollar amount in effect under section 2503(b) for such calendar year.

`(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 chapter, 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, is a covered expatriate, and

`(B) any property acquired directly or indirectly by reason of the death of an individual who, immediately before such death, was a covered 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 covered expatriate, and

`(B) any property included in the gross estate of the covered expatriate for purposes of chapter 11 and shown on a timely filed return of tax imposed by chapter 11 of the estate of the covered expatriate.

`(3) EXCEPTIONS FOR TRANSFERS TO SPOUSE OR CHARITY- Such term shall not include any property with respect to which a deduction would be allowed under section 2055, 2056, 2522, or 2523, whichever is appropriate, if the decedent or donor were a United States person.

`(4) TRANSFERS IN TRUST-

`(A) DOMESTIC TRUSTS- In the case of a covered gift or bequest made to a domestic trust --

`(i) subsection (a) shall apply in the same manner as if such trust were a United States citizen, and

`(ii) the tax imposed by subsection (a) on such gift or bequest shall be paid by such trust.

`(B) FOREIGN TRUSTS-

`(i) IN GENERAL- In the case of a covered gift or bequest made to a foreign trust, subsection (a) shall apply to any distribution attributable to such gift or bequest from such trust (whether from income or corpus) to a United States citizen or resident in the same manner as if such distribution were a covered gift or bequest.

`(ii) DEDUCTION FOR TAX PAID BY RECIPIENT- There shall be allowed as a deduction under section 164 the amount of tax imposed by this section which is paid or accrued by a United States citizen or resident by reason of a distribution from a foreign trust, but only to the extent such tax is imposed on the portion of such distribution which is included in the gross income of such citizen or resident.

`(iii) ELECTION TO BE TREATED AS DOMESTIC TRUST- Solely for purposes of this section, a foreign trust may elect to be treated as a domestic trust. Such an election may be revoked with the consent of the Secretary.

`(f) Covered Expatriate- For purposes of this section, the term `covered expatriate' has the meaning given to such term by section 877A(g)(1).'.

(2) CLERICAL AMENDMENT- The table of chapters for subtitle B is amended by inserting after the item relating to chapter 14 the following new item:

`Chapter 15. Gifts and Bequests From Expatriates.'.

(c) Definition of Termination of United States Citizenship-

(1) IN GENERAL- Section 7701(a) is amended by adding at the end the following new paragraph:

`(50) TERMINATION OF UNITED STATES CITIZENSHIP-

`(A) IN GENERAL- An individual shall not cease to be treated as a United States citizen before the date on which the individual's citizenship is treated as relinquished under section 877A(g)(4).

`(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 citizen of another country.'.

(2) CONFORMING AMENDMENTS-

(A) Paragraph (1) of section 877(e) is amended to read as follows:

`(1) IN GENERAL- Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G 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.'.

(B) Paragraph (6) of section 7701(b) is amended by adding at the end the following flush sentence:

`An individual shall cease to be treated as a lawful permanent resident of the United States if such individual 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, does not waive the benefits of such treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment.'.

(C) Section 7701 is amended by striking subsection (n) and by redesignating subsections (o) and (p) as subsections (n) and (o), respectively.

(d) Termination of Section 877- Section 877 is amended by adding at the end the following new subsection:

`(h) Termination- This section shall not apply to any individual whose expatriation date (as defined in section 877A(g)(3)) is on or after the date of the enactment of this subsection.'.

(e) Information Returns- Section 6039G is amended --

(1) by inserting `or 877A' after `section 877(b)' in subsection (a), and

(2) by inserting `or 877A' after `section 877(a)' in subsection (d).

(f) Clerical Amendment- The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by inserting after the item relating to section 877 the following new item:

`Sec. 877A. Tax responsibilities of expatriation.'.

(g) Effective Date-

(1) IN GENERAL- Except as provided in this subsection, the amendments made by this section shall apply to any individual whose expatriation date (as so defined) is on or after the date of the enactment of this Act.

(2) GIFTS AND BEQUESTS- Chapter 15 of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to covered gifts and bequests (as defined in section 2801 of such Code, as so added) received on or after the date of the enactment of this Act from transferors (or from the estates of transferors) whose expatriation date is on or after such date of enactment.

David Colvin is the US Tax Partner for TaXpat BV in Amsterdam (www.taxpat.com) and a Managing Director for Maxim Global Wealth Advisors in Amsterdam and Portland (www.maximadvisors.com). For more tax and investment issues see his blog at http://blog.taxpat.com.