PRACTICE AREAS
Expatriation Tax Planning Checklist
U.S. citizens and long-term green card holders — key steps before, during, and after expatriation
Renouncing U.S. citizenship or relinquishing a long-term green card is not merely an immigration decision — it is one of the most consequential tax events in U.S. law. For covered expatriates, Section 877A imposes a mark-to-market exit tax on all worldwide assets on the day before expatriation. Section 2801 imposes a transfer tax on U.S.-person family members who receive future gifts or bequests. And the five-year compliance certification requirement means that individuals with unfiled returns or missed international information returns cannot even achieve non-covered status without first remediating their compliance position.
This checklist covers the key steps that should be taken before, during, and after expatriation. The earlier the planning begins, the more options are available. Many of the most effective strategies — pre-expatriation gifting, basis step-up planning, deferred compensation elections, and foreign trust restructuring — require a multi-year runway to execute properly.
Who should use this?
This checklist is for U.S. citizens considering renunciation of citizenship and long-term green card holders considering abandonment of permanent resident status — and for the attorneys and advisors who work with them. It is most effective when used 2 to 5 years before the anticipated expatriation date, though it is valuable at any stage of the process.
Section 1
Covered Expatriate Analysis
Whether you are a covered expatriate determines the entire scope of the exit tax analysis. The three tests are independent — failing any one results in covered expatriate status.
- Determine your net worth as of the anticipated expatriation date — including worldwide assets at fair market value, net of liabilities.
The net worth threshold is currently $2 million. Assets held in trust, retirement accounts, and foreign entities may count depending on the facts. A careful valuation analysis is required.
- Calculate your average annual net income tax liability for the five taxable years preceding the anticipated expatriation year.
The threshold is currently $206,000, adjusted annually for inflation. This is not gross income — it is U.S. net income tax liability as reported on your returns. If you have had high-income years or significant capital gains, this threshold may be determinative.
- Review your U.S. tax filing history for the five years preceding expatriation — confirm that all required returns have been filed and all taxes paid.
The five-year compliance certification on Form 8854 requires that you have filed all required returns, paid all taxes, and complied with all information reporting requirements. Failure to certify results in covered expatriate status regardless of net worth or income — even if you would otherwise be below both thresholds.
- Identify any unfiled returns, missed international information returns (FBARs, Forms 5471, 8621, 3520, etc.), or unpaid taxes that must be remediated before expatriation.
- Analyze whether any strategies are available to reduce net worth or average tax liability below the thresholds — including pre-expatriation gifting, charitable contributions, and timing of expatriation.
- If you are a dual citizen who acquired U.S. citizenship at birth, analyze whether the dual citizen exemption from covered expatriate status under Section 877A(g)(1)(B) applies.
The dual citizen exemption requires that you: (1) acquired citizenship of both the U.S. and another country at birth; (2) remain a citizen and tax resident of the other country; and (3) have not been a U.S. resident for more than ten taxable years in the prior fifteen. A five-year compliance certification is still required.
Section 2
Long-Term Resident Analysis — Green Card Holders
Green card holders are subject to the exit tax only if they qualify as ‘long-term residents’ under the eight-year rule. This analysis should be completed before any decision to abandon the green card.
- Count the number of taxable years in which you held a green card in the fifteen-year period ending with the year you plan to abandon it.
A year counts if you were a lawful permanent resident at any point during the taxable year — regardless of when in the year you received or plan to abandon the status. Even a single day of LPR status in a given year counts as a full year.
- Analyze whether any years should be excluded from the count because you elected to be treated as a non-U.S. resident under an applicable tax treaty (and filed Form 8833 accordingly).
A year in which you were treated as a non-U.S. resident by reason of a treaty tie-breaker election does not count toward the eight-year threshold — but this requires that the election was actually made and properly reported.
- Determine whether abandoning the green card before reaching eight years of long-term resident status is feasible and advisable — this avoids the exit tax regime entirely.
- If you are already a long-term resident, proceed with the covered expatriate analysis in Section 1 and the exit tax modeling in Section 3.
- Confirm the proper method of abandonment — filing Form I-407 (Record of Abandonment of Lawful Permanent Resident Status) with USCIS or, in some cases, filing a U.S. tax return as a non-resident and submitting Form 8854.
Section 3
Exit Tax Modeling
If you are (or will be) a covered expatriate, the exit tax requires mark-to-market gain recognition on all worldwide assets. Modeling the tax before expatriation is essential — it determines how much planning is needed and which strategies are most effective.
- Prepare a complete inventory of all worldwide assets — real estate, securities, business interests, retirement accounts, foreign trusts, deferred compensation, intellectual property, and other property.
- Obtain current fair market value appraisals for all assets — particularly closely held business interests, real estate, and other non-publicly traded assets.
- Determine the adjusted tax basis of each asset — the difference between fair market value and basis is the built-in gain (or loss) subject to the mark-to-market tax.
- Identify assets that are excluded from the mark-to-market regime and subject to separate treatment — including deferred compensation items, specified tax-deferred accounts, and interests in non-grantor trusts.
- Apply the annual exclusion (currently $866,000, adjusted for inflation) to reduce taxable gain — allocate the exclusion strategically across highest-gain assets.
The exclusion is a single lifetime amount applied on the expatriation date, not an annual exclusion. It cannot be carried forward or applied to future transactions.
- Model the total exit tax liability before and after pre-expatriation planning strategies to determine the magnitude of exposure and the value of planning.
- Analyze whether any assets with built-in losses can be strategically disposed of before the expatriation date to generate losses that can offset gain in the final year.
Section 4
Pre-Expatriation Planning Strategies
Pre-expatriation planning can substantially reduce or eliminate exit tax exposure — but most strategies require time to execute and should begin years before the anticipated expatriation date.
| Step | Action | What to know |
|---|---|---|
| Gift | Evaluate pre-expatriation gifting — transferring appreciated assets to non-U.S. family members or a spouse before the expatriation date removes them from the mark-to-market base. | Gifts to a non-U.S. citizen spouse may be subject to the annual exclusion for gifts to non-citizen spouses ($185,000 in 2024) and potentially gift tax on amounts above the exclusion. Gifts to non-U.S. family members are not subject to U.S. gift tax if the gifted property is non-U.S. situs. Planning is required. |
| Step up basis | Consider selling and repurchasing appreciated U.S. assets before expatriation to step up basis — recognizing gain while still a U.S. person and paying tax at current rates, rather than at exit tax rates on a larger embedded gain. | Tax is paid now on today’s gain instead of later on a larger deemed gain at exit. |
| Donate | Analyze whether charitable contributions of appreciated property before expatriation can reduce the mark-to-market base while generating a current deduction. | Removes the asset from the exit-tax base and produces a deduction in the same year. |
| CFC interests | For CFC interests, evaluate whether pre-expatriation restructuring — including check-the-box elections, liquidations, or reorganizations — can reduce the exit tax on the CFC’s built-in gain. | Entity classification changes must be in place before the expatriation date to count. |
| PFIC holdings | For PFIC holdings, consider disposing of PFICs before expatriation to recognize gain while still a U.S. person rather than subjecting them to the exit tax regime. | A pre-expatriation sale is taxed under the PFIC rules once; the exit tax would otherwise apply on top. |
| Foreign trusts | For foreign trusts, analyze whether restructuring the trust before the expatriation date — including changes to trustee, distribution provisions, or grantor trust status — reduces exit tax exposure. | Trust interests can be valued and taxed differently depending on grantor status at the exit date. |
| Timing | Time the expatriation date strategically — year-end vs. mid-year expatriation can affect the dual-status year calculation and the allocation of income between the resident and non-resident periods. | The date chosen splits the final year into resident and non-resident periods for reporting. |
Section 5
Deferred Compensation Planning
Deferred compensation is one of the most complex areas of expatriation tax planning. Classification as eligible or ineligible determines whether the tax is imposed immediately on expatriation or deferred until payment — a critical distinction for large pension and compensation balances.
- Inventory all deferred compensation arrangements — U.S. qualified plans (401(k), pension), non-qualified deferred compensation, stock options, restricted stock, foreign pension plans, and similar arrangements.
- Classify each arrangement as ‘eligible’ or ‘ineligible’ deferred compensation for purposes of Section 877A.
Eligible deferred compensation items — including most U.S. tax-qualified plans and arrangements meeting specific criteria — are subject to 30% withholding as payments are made after expatriation. Ineligible items — including most foreign pension plans and non-qualifying arrangements — are included in income at present value on the expatriation date. The distinction is critical for large balances.
- For eligible deferred compensation items, confirm that the payor (plan administrator or employer) will apply 30% withholding on post-expatriation payments and file the required Form W-8CE election.
The election to treat an item as eligible deferred compensation must be filed with the payor on Form W-8CE before the expatriation date. Missing this filing can result in the item being treated as ineligible.
- For ineligible deferred compensation items, model the present value inclusion on the expatriation date and evaluate whether pre-expatriation distribution, conversion, or restructuring can reduce the exposure.
- Analyze stock options and restricted stock — the treatment depends on whether the awards are vested or unvested, and whether they are U.S.-source or foreign-source. Unvested awards may be subject to special rules.
- Confirm that IRA and other individual retirement account balances are addressed — traditional IRAs held by covered expatriates are generally treated as distributed on the expatriation date, subject to income tax but not the 10% early distribution penalty.
Section 6
Five-Year Compliance Certification
The five-year compliance certification is a mandatory condition for avoiding covered expatriate status on the compliance test. It requires that you have filed all required U.S. tax returns and international information returns, paid all taxes, and complied with all reporting requirements for the five years preceding expatriation.
- Pull copies of all U.S. federal income tax returns filed for the five taxable years preceding the anticipated expatriation year.
- Confirm that FBAR (FinCEN Form 114) was filed for each year in which foreign financial accounts exceeded $10,000 in aggregate value.
- Confirm that all required international information returns were filed — Forms 5471, 8865, 8858, 8621, 3520, and 3520-A — for each applicable year.
- Identify any compliance gaps — unfiled returns, missed information returns, or unpaid taxes — and develop a remediation plan before expatriation.
Remediation options include the Streamlined Filing Compliance Procedures (for non-willful taxpayers), the Delinquent FBAR Submission Procedures, and the IRS Voluntary Disclosure Program. The appropriate pathway depends on the nature and willfulness of the non-compliance.
- Confirm that all applicable taxes have been paid — including any underpayments, penalties, and interest — so that Form 8854 can be executed with a truthful certification.
- If compliance remediation is required, sequence the remediation and expatriation carefully — expatriation before achieving full compliance results in covered expatriate status on the compliance test, regardless of net worth or income.
Section 7
Section 2801 — Planning for U.S.-Person Family Members
Section 2801 imposes a transfer tax on U.S. persons who receive gifts or bequests from covered expatriates. Planning for Section 2801 is often overlooked — but for families with U.S.-person children or grandchildren, it can be the most significant long-term consequence of covered expatriate status.
- Identify all U.S.-person family members who may receive gifts or bequests from you after expatriation — including children, grandchildren, and other beneficiaries.
- Analyze the magnitude of potential Section 2801 exposure — the tax is imposed at the highest gift and estate tax rate (currently 40%) on all covered transfers after the expatriation date.
- Consider making gifts to U.S.-person family members before the expatriation date — pre-expatriation transfers are not subject to Section 2801 (though they may be subject to gift tax).
Pre-expatriation gifting must be analyzed carefully in the context of the net worth threshold — gifts made to reduce net worth before expatriation may affect the covered expatriate analysis. The interaction between pre-expatriation gifting strategies and Section 2801 planning requires coordinated analysis.
- If you hold assets in trust for U.S.-person beneficiaries, analyze how Section 2801 applies to trust distributions — indirect transfers through foreign trusts are covered by Section 2801 in certain circumstances.
- Advise U.S.-person family members of their Section 2801 reporting obligations — they are required to file Form 708 and pay the tax on covered gifts and bequests received from a covered expatriate.
- Consider whether restructuring your estate plan — including the use of trusts, corporate structures, or other vehicles — can reduce Section 2801 exposure for U.S.-person beneficiaries on future transfers.
Section 8
Final-Year Compliance & Post-Expatriation
The expatriation year requires careful compliance — a dual-status return, Form 8854, and coordination of all final-year U.S. tax obligations. Post-expatriation, ongoing obligations may continue for several years.
- Prepare for a dual-status tax return in the year of expatriation — covering the resident period (from January 1 through the expatriation date) and the non-resident period (from the expatriation date through December 31).
- File Form 8854 (Initial and Annual Expatriation Statement) with your final-year U.S. tax return — this is mandatory for all expatriating citizens and long-term residents, covered or not.
For covered expatriates, Form 8854 requires a balance sheet and income statement, mark-to-market gain calculations, and deferred compensation schedules. It is a complex form that requires careful preparation.
- Analyze post-expatriation U.S.-source income — as a non-resident alien after expatriation, U.S.-source income is subject to withholding under Sections 1441 and 877(b), potentially at punitive rates for covered expatriates.
- If applicable, file annual Form 8854 for subsequent years in which you have deferred tax items subject to Section 877A — the annual filing obligation continues until all deferred items are resolved.
- Coordinate with foreign counsel in your new country of residence to ensure that the expatriation and any pre-expatriation transactions are properly reflected in your foreign tax filings.
- Notify U.S. financial institutions, plan administrators, and other payors of your non-resident alien status after expatriation — and ensure withholding is applied correctly on any remaining U.S.-source payments.
- Retain copies of all expatriation-related filings indefinitely — Form 8854, the final-year return, and pre-expatriation planning documentation may be relevant for years after the expatriation date.
Questions About Expatriation and the Exit Tax?
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