IRS News Release  
March 17, 1995

Johnson Announces Hearing to Examine the
Administration's Proposal Relating to the Tax Treatment of
Americans Who Renounce Citizenship

Congresswoman Nancy L. Johnson (R-CT), Chairman of the Subcommittee on Oversight of the Committee on Ways and Means, today announced that the Subcommittee will conduct a hearing to evaluate the provision in the Administration's FY 1996 budget proposals to impose a tax on U.S. citizens who renounce their citizenship and long-term resident aliens who give up their status as residents. The hearing will be held on Monday, March 27, 1995 in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 12:00 noon.

This hearing will feature invited witnesses only. In view of the limited time available to hear witnesses, the Subcommittee will not be able to accommodate requests to testify other than from those who are invited. Those persons and organizations not scheduled for an oral appearance are welcome to submit written statements for the record of the hearing.


U.S. citizens (regardless of their residence) and resident aliens generally are subject to U.S. income taxation on their worldwide income. The U.S. tax may be reduced or offset by a credit allowed for foreign income taxes paid with respect to foreign source income. Nonresident aliens are taxed at a flat rate of 30 percent (or a lower treaty rate) on certain types of passive income derived from U.S. sources, and at regular graduated rates on net profits derived from a U.S. business. Under present law, a U.S. citizen who abandons his or her citizenship with a principal purpose to avoid federal income tax may be subjected to an alternative taxing method on his or her U.S. source income for 10 years after expatriation.

Under the Administration's proposal, a U.S. citizen who relinquishes citizenship generally would be treated as having sold all of his or her assets at fair market value immediately prior to the relinquishment, and net gain from the deemed sale would be subject to U.S. income tax. The tax would also apply to a "long-term resident" (generally, a green card holder who resides in the U.S. for at least 10 of the prior 15 taxable years) who ceases to be subject to tax as a resident of the United States. The tax would apply whether or not the principal purpose of relinquishment of U.S. citizenship was tax motivated. The proposal would apply to U.S. residents who relinquish their citizenship and long-term residents who cease to be taxed as U.S. residents on or after February 6, 1995 (the date the Administration announced the proposal). On March 15, 1995, the Senate Committee on Finance adopted a modified version of the Administration's proposal during its consideration of H.R. 831. H.R. 831, a bill to permanently extend the deduction for the health insurance costs of the self-employed, and for other purposes, was considered before the Committee on Ways and Means on February 8,and was passed by the House on February 2, 1995.


Under present law, taxes are imposed on former U.S. citizens on U.S. source income for ten years following renunciation of citizenship if one of the principal purposes of the renunciation was to avoid U.S. income tax. A similar rule applies to resident aliens who cease to be residents. According to the Department of the Treasury, the existing rules to prevent tax avoidance through expatriation "have proven largely ineffective because departing taxpayers have found ways to restructure their activities to avoid those rules, and compliance is difficult to monitor." However, as the Administration's proposal is drafted, it would apply to any U.S. citizen who abandons his or ha citizenship, not simply to those who expatriate for tax-motivated reasons.

The Subcommittee will examine the Administration's proposal and specific problems which the Internal Revenue Service has encountered in recent years in enforcing existing laws aimed at taxing former U.S. citizens who abandon their citizenship for tax-motivated reasons. If the aim of the Administration's expatriation proposal is to tighten the rules for tax-motivated expatriations, the Subcommittee wants to learn why the proposed solution applies broadly to all citizens who give up their U.S. citizenship, and consider whether more narrowly-targeted reforms would achieve the Administration's goals.


Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) copies of their statement by the close of business, Monday, April 3, 1995, to Phillip D. Moseley, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Oversight office, room 1136 Longworth House Office Building, at least one hour before the hearing begins.

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