< Back to H.R. 1535 (104th Congress, 1995–1996)

Text of To amend the Internal Revenue Code of 1986 to revise the tax rules on expatriation, to modify the basis rules ...

...the basis rules for nonresident aliens becoming citizens or residents, and for other purposes.

This bill was introduced on May 2, 1995, in a previous session of Congress, but was not enacted. The text of the bill below is as of May 2, 1995 (Introduced).

Source: GPO

HR 1535 IH

104th CONGRESS

1st Session

H. R. 1535

To amend the Internal Revenue Code of 1986 to revise the tax rules on expatriation, to modify the basis rules for nonresident aliens becoming citizens or residents, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MAY 2, 1995

Mr. GIBBONS (for himself, Mr. GEPHARDT, Mr. BONIOR, Mr. FAZIO of California, Mr. RANGEL, Mr. STARK, Mr. JACOBS, Mr. FORD, Mr. MATSUI, Mrs. KENNELLY, Mr. COYNE, Mr. LEVIN, Mr. CARDIN, Mr. MCDERMOTT, Mr. KLECZKA, Mr. LEWIS of Georgia, Mr. PAYNE of Virginia, Mr. NEAL and Mr. FROST) 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 revise the tax rules on expatriation, to modify the basis rules for nonresident aliens becoming citizens or residents, and for other purposes.

    Be it enacted by the Senate and House of Representatives 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 subchapter N of chapter 1 of the Internal Revenue Code of 1986 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- Except as provided in subsection (f)(2), all property held by an expatriate immediately before the expatriation date shall be treated as sold at such time 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 unless such gain is excluded from gross income under part III of subchapter B, 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 (and section 1092 shall apply) to any such loss.

      ‘(3) ELECTION TO CONTINUE TO BE TAXED AS UNITED STATES CITIZEN-

        ‘(A) IN GENERAL- If an expatriate elects the application of this paragraph with respect to any property--

          ‘(i) this section (other than this paragraph) shall not apply to such property, but

          ‘(ii) such property shall be subject to tax under this title in the same manner as if the individual were a United States citizen.

        ‘(B) LIMITATION ON AMOUNT OF ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAXES- The aggregate amount of taxes imposed under subtitle B with respect to any transfer of property by reason of an election under subparagraph (A) shall not exceed the amount of income tax which would be due if the property were sold for its fair market value immediately before the time of the transfer or death (taking into account the rules of subsection (a)(2)).

        ‘(C) REQUIREMENTS- Subparagraph (A) shall not apply to an individual unless the individual--

          ‘(i) provides security for payment of tax in such form and manner, and in such amount, as the Secretary may require,

          ‘(ii) consents to the waiver of any right of the individual under any treaty of the United States which would preclude assessment or collection of any tax which may be imposed by reason of this paragraph, and

          ‘(iii) complies with such other requirements as the Secretary may prescribe.

        ‘(D) ELECTION- An election under subparagraph (A) shall apply only to the property described in the election and, once made, shall be irrevocable.

    ‘(b) EXCLUSION FOR CERTAIN GAIN- The amount which would (but for this subsection) be includible in the gross income of any individual by reason of subsection (a) shall be reduced (but not below zero) by $600,000.

    ‘(c) PROPERTY TREATED AS HELD- For purposes of this section, except as otherwise provided by the Secretary, an individual shall be treated as holding--

      ‘(1) all property which would be includible in his gross estate under chapter 11 if such individual were a citizen or resident of the United States (within the meaning of chapter 11) who died at the time the property is treated as sold,

      ‘(2) any other interest in a trust which the individual is treated as holding under the rules of subsection (f)(1), and

      ‘(3) any other interest in property specified by the Secretary as necessary or appropriate to carry out the purposes of this section.

    ‘(d) EXCEPTIONS- The following property shall not be treated as sold for purposes of this section:

      ‘(1) UNITED STATES REAL PROPERTY INTERESTS- 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 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 limitation or which violate any condition for tax- favored 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 property 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 relinquishes his citizenship, or

        ‘(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.

      An individual shall not be treated as an expatriate for purposes of this section by reason of the individual relinquishing United States citizenship before attaining the age of 18 1/2 if the individual has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for less than 5 taxable years before the date of relinquishment.

      ‘(2) 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 of the event described in clause (i) or (ii) of paragraph (1)(B).

      ‘(3) 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.

      ‘(4) LONG-TERM RESIDENT-

        ‘(A) IN GENERAL- The term ‘long-term resident’ means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the sale under subsection (a)(1) is treated as occurring. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country.

        ‘(B) SPECIAL RULE- For purposes of subparagraph (A), there shall not be taken into account--

          ‘(i) any taxable year during which any prior sale is treated under subsection (a)(1) as occurring, or

          ‘(ii) any taxable year prior to the taxable year referred to in clause (i).

    ‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’ INTERESTS IN TRUST-

      ‘(1) DETERMINATION OF BENEFICIARIES’ INTEREST IN TRUST- For purposes of this section--

        ‘(A) GENERAL RULE- A beneficiary’s interest in a trust shall be based upon all relevant facts and circumstances, including the terms of the trust instrument and any letter of wishes or similar document, historical patterns of trust

distributions, and the existence of and functions performed by a trust protector or any similar advisor.

        ‘(B) SPECIAL RULE- The remaining interests in the trust not determined under subparagraph (A) to be held by any beneficiary shall be allocated first to the grantor, if a beneficiary, and then to other beneficiaries under rules prescribed by the Secretary similar to the rules of intestate succession.

        ‘(C) CONSTRUCTIVE OWNERSHIP- If a beneficiary of a trust is a corporation, partnership, trust, or estate, the shareholders, partners, or beneficiaries shall be deemed to be the trust beneficiaries for purposes of this section.

        ‘(D) TAXPAYER RETURN POSITION- A taxpayer shall clearly indicate on its income tax return--

          ‘(i) the methodology used to determine 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.

      ‘(2) DEEMED SALE IN CASE OF TRUST INTEREST- If an individual who is an expatriate is treated under paragraph (1) as holding an interest in a trust for purposes of this section--

        ‘(A) the individual shall not be treated as having sold such interest,

        ‘(B) such interest shall be treated as a separate share in the trust, and

        ‘(C)(i) such separate share shall be treated as a separate trust consisting of the assets allocable to such share,

        ‘(ii) the separate trust shall be treated as having sold its assets immediately before the expatriation date for their fair market value and as having distributed all of its assets to the individual as of such time, and

        ‘(iii) the individual shall be treated as having 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 described in subparagraph (C)(ii).

    ‘(g) TERMINATION OF DEFERRALS, ETC- On the date any property held by an individual is treated as sold under subsection (a), notwithstanding any other provision of this title--

      ‘(1) any period during which recognition of income or gain is deferred shall terminate, and

      ‘(2) any extension of time for payment of tax shall cease to apply and the unpaid portion of such tax shall be due and payable at the time and in the manner prescribed by the Secretary.

    ‘(h) RULES RELATING TO PAYMENT OF TAX-

      ‘(1) IMPOSITION OF TENTATIVE TAX-

        ‘(A) IN GENERAL- If an individual is required to include any amount in gross income under subsection (a) for any taxable year, there is hereby imposed, immediately before the expatriation date, a tax in an amount equal to the amount of tax which would be imposed if the taxable year were a short taxable year ending on the expatriation date.

        ‘(B) DUE DATE- The due date for any tax imposed by subparagraph (A) shall be the 90th day after the expatriation date.

        ‘(C) TREATMENT OF TAX- Any tax paid under subparagraph (A) shall be treated as a payment of the tax imposed by this chapter for the taxable year to which subsection (a) applies.

      ‘(2) DEFERRAL OF TAX- The payment of any tax attributable to amounts included in gross income under subsection (a) may be deferred to the same extent, and in the same manner, as any tax imposed by chapter 11, except that the Secretary may extend the period for extension of time for paying tax under section 6161 to such number of years as the Secretary determines appropriate.

      ‘(3) RULES RELATING TO SECURITY INTERESTS-

        ‘(A) ADEQUACY OF SECURITY INTERESTS- In determining the adequacy of any security to be provided under this section, the Secretary may take into account the principles of section 2056A.

        ‘(B) SPECIAL RULE FOR TRUST- If a taxpayer is required by this section to provide security in connection with any tax imposed by reason of this section with respect to the holding of an interest in a trust and any trustee of such trust is an individual citizen of the United States or a domestic corporation, such trustee shall be required to provide such security upon notification by the taxpayer of such requirement.

    ‘(i) COORDINATION WITH ESTATE AND GIFT TAXES- If subsection (a) applies to property held by an individual for any taxable year and--

      ‘(1) such property is includible in the gross estate of such individual solely by reason of section 2107, or

      ‘(2) section 2501 applies to a transfer of such property by such individual solely by reason of section 2501(a)(3),

    then there shall be allowed as a credit against the additional tax imposed by section 2101 or 2501, whichever is applicable, solely by reason of section 2107 or 2501(a)(3) an amount equal to the increase in the tax imposed by this chapter for such taxable year by reason of this section.

    ‘(j) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations to prevent double taxation by ensuring that--

      ‘(1) appropriate adjustments are made to basis to reflect gain recognized by reason of subsection (a) and the exclusion provided by subsection (b),

      ‘(2) no interest in property is treated as held for purposes of this section by more than one taxpayer, and

      ‘(3) any gain by reason of a deemed sale under subsection (a) of an interest in a corporation, partnership, trust, or estate is reduced to reflect that portion of such gain which is attributable to an interest in a trust which a shareholder, partner, or beneficiary is treated as holding directly under subsection (f)(1)(C).

    ‘(k) Cross Reference-

‘For income tax treatment of individuals who terminate United States citizenship, see section 7701(a)(47).’

    (b) DEFINITION OF TERMINATION OF UNITED STATES CITIZENSHIP- Section 7701(a) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

      ‘(47) TERMINATION OF UNITED STATES CITIZENSHIP- 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(e)(3).’

    (c) CONFORMING AMENDMENTS-

      (1) Section 877 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

    ‘(f) APPLICATION- This section shall not apply to any individual who relinquishes (within the meaning of section 877A(e)(3)) United States citizenship on or after February 6, 1995.’

      (2) Section 2107(c) of such Code is amended by adding at the end the following new paragraph:

      ‘(3) CROSS REFERENCE- For credit against the tax imposed by subsection (a) for expatriation tax, see section 877A(i).’

      (3) Section 2501(a)(3) of such Code is amended by adding at the end the following new flush sentence:

      ‘For credit against the tax imposed under this section by reason of this paragraph, see section 877A(i).’

      (4) Section 6851 of such Code is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).

      (5) Paragraph (10) of section 7701(b) of such Code is amended by adding at the end the following new sentence: ‘This paragraph shall not apply to any long-term resident of the United States who is an expatriate (as defined in section 877A(e)(1)).’

    (d) CLERICAL AMENDMENT- The table of sections for subpart A of part II of subchapter N of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 877 the following new item:

‘Sec. 877A. Tax responsibilities of expatriation.’

    (e) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to expatriates (within the meaning of section 877A(e) of the Internal Revenue Code of 1986, as added by this section) whose expatriation date (as so defined) occurs on or after February 6, 1995.

      (2) DUE DATE FOR TENTATIVE TAX- The due date under section 877A(h)(1)(B) of such Code shall in no event occur before the 90th day after the date of the enactment of this Act.

SEC. 2. BASIS OF ASSETS OF NONRESIDENT ALIEN INDIVIDUALS BECOMING CITIZENS OR RESIDENTS.

    (a) IN GENERAL- Part IV of subchapter O of chapter 1 of the Internal Revenue Code of 1986 (relating to special rules for gain or loss on disposition of property) is amended by redesignating section 1061 as section 1062 and by inserting after section 1060 the following new section:

‘SEC. 1061. BASIS OF ASSETS OF NONRESIDENT ALIEN INDIVIDUALS BECOMING CITIZENS OR RESIDENTS.

    ‘(a) GENERAL RULE- If a nonresident alien individual becomes a citizen or resident of the United States, gain or loss on the disposition of any property held on the date the individual becomes such a citizen or resident shall be determined by substituting, as of the applicable date, the fair market value of such property (on the applicable date) for its cost basis.

    ‘(b) EXCEPTION FOR DEPRECIATION- Any deduction under this chapter for depreciation, depletion, or amortization shall be determined without regard to the application of this section.

    ‘(c) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

      ‘(1) APPLICABLE DATE- The term ‘applicable date’ means, with respect to any property to which subsection (a) applies, the earlier of--

        ‘(A) the date the individual becomes a citizen or resident of the United States, or

        ‘(B) the date the property first becomes subject to tax under this subtitle by reason of being used in a United States trade or business or by reason of becoming a United States real property interest (within the meaning of section 897(c)(1)).

      ‘(2) RESIDENT- The term ‘resident’ does not include an individual who is treated as a resident of a foreign country under the provisions of a tax treaty between the United States and a foreign country and who does not waive the benefits of such treaty applicable to residents of the foreign country.

      ‘(3) TRUSTS- A trust shall not be treated as an individual.

      ‘(4) ELECTION NOT TO HAVE SECTION APPLY- An individual may elect not to have this section apply solely for purposes of determining gain with respect to any property. Such election shall apply only to property specified in the election and, once made, shall be irrevocable.

      ‘(5) SECTION ONLY TO APPLY ONCE- This section shall apply only with respect to the first time the individual becomes either a citizen or resident of the United States.

    ‘(d) REGULATIONS- The Secretary shall prescribe regulations for purposes of this section, including regulations--

      ‘(1) for application of this section in the case of property which consists of a direct or indirect interest in a trust, and

      ‘(2) providing look-thru rules in the case of any indirect interest in any United States real property interest (within the meaning of section 897(c)(1)) or property used in a United States trade or business.’

    (b) CONFORMING AMENDMENT- The table of sections for part IV of subchapter O of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 1061 and inserting the following new items:

‘Sec. 1061. Basis of assets of nonresident alien individuals becoming citizens or residents.

‘Sec. 1062. Cross references.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to dispositions after the date of the enactment of this Act, and to any disposition occurring on or before such date to which section 877A of the Internal Revenue Code of 1986 (as added by section 1) applies.