Dave's Blog


Since 2008, the US has imposed tax on expatriations. This includes a citizen renouncing his or her citizenship and a long term green card holder losing US permanent resident status or filing as a nonresident under a US tax treaty.

Because the tax on expatriation depends on the expatriate’s net worth on expatriation, planning before expatriation is essential.

Before 2007, the US imposed a special tax in the 10 years following expatriation, so the planning differed.

Corporate Tax Reform

Both President Obama and Congress have been discussing reform of the US corporate tax system, prompted by the US having the highest statutory corporate tax rate in the world. However, the discussions have focused on the effect of proposed changes on US based multinationals.

In my practice, I often seen corporations organized outside the US considering expansion into the US. Using Canadian corporations as an example, they face Canadian federal and provincial tax of about 25% to 30%, but US federal and state tax of 35% to 45%. For those corporations, the most basic tax plan is to minimize their presence in the US, compatible with their business objectives. If a tax treaty applies, a limited presence may avoid US federal income tax completely and, depending on the states in which business is carried on, also avoid US state income tax. Even if the presence is sufficient to be taxable in the US, limiting the functions performed in the US, the staff working in the US, and the assets located in the US can limit the profit allocable to the US under transfer pricing principles.

The effect is that foreign corporations expanding in to the US are discouraged from hiring employees in the US. It would be useful if Washington politicians considered such effects, rather than fixating on US corporations such as Apple.

Basis Step Up

Individuals who move to the US are often surprised to discover that the US will tax them on gains realized after they become US residents, even if the gains arose entirely before they moved to the US.

The reason is that the cost of an asset for US tax purposes is the original purchase price for the asset, and there is no adjustment to fair market value when the individual becomes a US resident (except on a subsequent departure from the US by certain green card holders and under a recent amendment to the Canada US tax treaty).

This means that, before an individual could be treated as a US resident, appreciated assets should be identified so that appropriate planning may occur without adverse US tax consequences.





Copyright © DavidRoberts, 1995-2013





HeaderHomecopy map Bio Blog Home ContactUs