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New expatriation tax rules passed by Congress; AICPA comments incorporated.

The Heroes Earnings Assistance and Relief Act of 2008 reflects many of the AICPA's comments to Congress. At press time, the act had passed the House and Senate and was expected to be signed by President Bush. It contains revised rules for taxing individuals who expatriate, alters the tax treatment of foreign subsidiaries of U.S. companies for employment tax purposes and increases penalties for failure to file returns.

The act imposes a mark-to-market regime for taxing gain of U.S. citizens and long-term U.S. permanent residents who expatriate. Most property of a covered expatriate would be treated as sold on the day before the expatriation at fair market value. Gains in excess of $600,000, adjusted for inflation after 2008, would be includible in income and taxed. Also, it imposes a gift tax on U.S. citizens or residents who receive on or after the date of enactment qualifying gifts or bequests from an expatriated individual (or an individual who immediately before death was a covered expatriate). There is also a 30% withholding tax on qualifying deferred compensation paid to a covered expatriate as well as certain distributions from non-grantor trusts.
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Publication:CPA Letter
Date:Jul 1, 2008
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