1. When does an individual expatriate from the US?

The term “expatriate” is commonly used to describe a US citizen living abroad.  As a legal matter, a US citizen expatriates only when he or she relinquishes, or otherwise loses, US citizenship.

  1. Does expatriation for immigration purposes relieve an individual of the obligation to file US tax returns?

No.  The position of the US Internal Revenue Service is that until an individual files the expatriating tax return and notifies the Department of State or the Department of Homeland security of their expatriating act, the expatriation for immigration purposes does not relieve the individual of the obligation to file US tax returns and report worldwide income as a citizen or resident of the US.

  1. What is the US exit tax?

The US exit tax is imposed on “covered expatriates”.  The exit tax is a mark-to-market tax on gains in excess of $600,000 (indexed for inflation for years after 2008; 2014 $680,000) from a deemed sale of an individual’s worldwide assets on the day prior to the individual’s expatriation date.

  1. Who is a “covered expatriate” subject to the US exit tax?

With certain exceptions, the term “covered expatriate” includes individuals who renounce or relinquish US nationality and whose net income tax liability for the five years preceding expatriation exceeds $124,000 indexed for inflation (for 2014, $157,000) or whose net worth at the date of expatriation equals or exceeds $2 million (not indexed for inflation).  An individual is also subject to the US exit tax if they are not current with their current year and previous five years of US tax filing obligations through the date of their expatriation.