CROSS-BORDER TAX PLANNING – OUTBOUND

By Charles G. Stephenson, Esq.^* and Debra L. Kasper, Esq.*

I. INTRODUCTION

With the passage of the American Jobs Creation Act ("AJCA"), P.L. 108-357, in October 2004, Congress has made it more difficult for individuals to avoid U.S. income taxes and transfer taxes by expatriating. This article explains how an individual may abandon his status as a "U.S. person" — for U.S. estate and gift tax purposes, and for U.S. income tax purposes. The article next discusses some of the substantive property law issues and practical matters that should be considered when planning for expatriation. Next, it summarizes the special tax rules applicable to high-income or high-net worth expatriates, and compares these with the tax treatment of nonresident aliens who are not subject to the special expatriation tax rules. Finally, the article gives a brief overview of the relevant rules governing outbound transfers of property by a U.S. person to a foreign trust.

II. TERMINATION OF "U.S. PERSON" STATUS