[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1812 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 1812

   To amend the Internal Revenue Code of 1986 to revise the income, 
 estate, and gift tax rules applicable to individuals who lose United 
                          States citizenship.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 9, 1995

Mr. Archer (for himself and Mrs. Johnson of Connecticut) 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 income, 
 estate, and gift tax rules applicable to individuals who lose United 
                          States citizenship.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Expatriation Tax Act of 1995''.

SEC. 2. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON INDIVIDUALS WHO 
              LOSE UNITED STATES CITIZENSHIP.

    (a) In General.--Subsection (a) of section 877 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) In general.--Every nonresident alien individual who, 
        within the 10-year period immediately preceding the close of 
        the taxable year, lost United States citizenship, unless such 
        loss did not have for 1 of its principal purposes the avoidance 
        of taxes under this subtitle or subtitle B, shall be taxable 
        for such taxable year in the manner provided in subsection (b) 
        if the tax imposed pursuant to such subsection exceeds the tax 
        which, without regard to this section, is imposed pursuant to 
        section 871.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--For purposes of paragraph (1), an individual shall be 
        treated as having a principal purpose to avoid such taxes if--
                    ``(A) the average annual net income tax (as defined 
                in section 38(c)(1)) of such individual for the period 
                of 5 taxable years ending before the date of the loss 
                of United States citizenship is greater than $100,000, 
                or
                    ``(B) the net worth of the individual as of such 
                date is $500,000 or more.
        In the case of the loss of United States citizenship in any 
        calendar year after 1996, such $100,000 and $500,000 amounts 
        shall be increased by an amount equal to such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting `1994' 
        for `1992' in subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest multiple of 
        $1,000.''
    (b) Exceptions.--
            (1) In general.--Section 877 of such Code is amended by 
        striking subsection (d), by redesignating subsection (c) as 
        subsection (d), and by inserting after subsection (b) the 
        following new subsection:
    ``(c) Section not to Apply to Certain Individuals.--
            ``(1) In general.--Subsection (a)(2) shall not apply to an 
        individual if--
                    ``(A) such individual is described in a 
                subparagraph of paragraph (2) of this subsection, and
                    ``(B) within the 1-year period beginning on the 
                date of the loss of United States citizenship,
                 such individual submits a ruling request for the 
Secretary's determination as to whether such loss has for 1 of its 
principal purposes the avoidance of taxes under this subtitle or 
subtitle B.
            ``(2) Individuals described.--
                    ``(A) Dual citizenship, etc.--An individual is 
                described in this subparagraph if--
                            ``(i) the individual became at birth a 
                        citizen of the United States and a citizen of 
                        another country and continues to be a citizen 
                        of such other country, or
                            ``(ii) the individual becomes (not later 
                        than the close of a reasonable period after 
                        loss of United States citizenship) a citizen of 
                        the country in which--
                                    ``(I) such individual was born,
                                    ``(II) if such individual is 
                                married, such individual's spouse was 
                                born, or
                                    ``(III) either of such individual's 
                                parents were born.
                    ``(B) Long-term foreign residents.--An individual 
                is described in this subparagraph if, for each year in 
                the 10-year period ending on the date of loss of United 
                States citizenship, the individual was present in the 
                United States for 30 days or less. The rule of section 
                7701(b)(3)(D)(ii) shall apply for purposes of this 
                subparagraph.
                    ``(C) Renunciation upon reaching age of majority.--
                An individual is described in this subparagraph if the 
                individual's loss of United States citizenship occurs 
                before such individual attains age 18\1/2\.
                    ``(D) Individuals specified in regulations.--An 
                individual is described in this subparagraph if the 
                individual is described in a category of individuals 
                prescribed by regulation by the Secretary.''
            (2) Technical amendment.--Paragraph (1) of section 877(b) 
        of such Code is amended by striking ``subsection (c)'' and 
        inserting ``subsection (d)''.
    (c) Treatment of Property Disposed of in Nonrecognition 
Transactions; Treatment of Distributions From Certain Controlled 
Foreign Corporations.--Subsection (d) of section 877 of such Code, as 
redesignated by subsection (b), is amended by striking the last 
sentence and inserting the following new paragraphs:
            ``(3) Property exchanged in nonrecognition transactions.--
                    ``(A) In general.--Gain on any exchange of property 
                to which this paragraph applies, determined as if such 
                property had been sold for its fair market value on the 
                date of the exchange.
                    ``(B) Transactions to which paragraph applies.--
                This paragraph shall apply to any exchange during the 
                10-year period described in subsection (a) if--
                            ``(i) gain is not recognized on such 
                        exchange in whole or in part for purposes of 
                        this subtitle,
                            ``(ii) income derived from such property 
                        was from sources within the United States (or, 
                        if no income was so derived, would have been 
                        from such sources), and
                            ``(iii) income derived from the property 
                        acquired in the exchange would be from sources 
                        outside the United States.
                    ``(C) Exception.--Subparagraph (A) shall not apply 
                if the individual enters into an agreement with the 
                Secretary which specifies that any income or gain 
                derived from the property acquired in the exchange (or 
                any other property which has a basis determined in 
                whole or part by reference to such property) during 
                such 10-year period shall be treated as from sources 
                within the United States. If the property transferred 
                in the exchange is disposed of by the person acquiring 
                such property, such agreement shall terminate and any 
                gain which was not recognized by reason of such 
                agreement shall be recognized as of the date of such 
                disposition.
                    ``(D) Substantial diminishing of risks of 
                ownership.--For purposes of determining whether this 
                paragraph (and subsection (a)) applies to any property 
                transferred by the individual in an exchange, the 
                running of the 10-year period described in subsection 
                (a) shall be suspended for any period during which the 
                individual's risk of loss with respect to the property 
                is substantially diminished by--
                            ``(i) the holding of a put with respect to 
                        such property (or similar property),
                            ``(ii) the holding by another person of a 
                        right to acquire the property, or
                            ``(iii) a short sale or any other 
                        transaction.
                    ``(E) Secretary may extend period.--To the extent 
                provided in regulations prescribed by the Secretary, 
                subparagraph (B) shall be applied by substituting the 
                15-year period beginning 5 years before the loss of 
                United States citizenship for the 10-year period 
                referred to therein.
            ``(4) Income or gain derived from controlled foreign 
        corporation.--Any income or gain derived from stock in a 
        foreign corporation but only--
                    ``(A) if the individual losing United States 
                citizenship owned (within the meaning of section 
                958(a)), or is considered as owning (by applying the 
                ownership rules of section 958(b)), at any time during 
                the 2-year period ending on the date of the loss of 
                United States citizenship, more than 50 percent of--
                            ``(i) the total combined voting power of 
                        all classes of stock entitled to vote of such 
                        corporation, or
                            ``(ii) the total value of the stock of such 
                        corporation, and
                    ``(B) to the extent such income or gain does not 
                exceed the earnings and profits earned or accumulated 
                before the loss of citizenship and during periods that 
                the ownership requirements of subparagraph (A) are 
                met.''
    (d) Credit for Foreign Taxes Imposed on United States Source 
Income.--Subsection (b) of section 877 of such Code is amended by 
adding at the end the following new sentence: ``The tax imposed solely 
by reason of this section shall be reduced (but not below zero) by the 
amount of any income, war profits, and excess profits taxes (within the 
meaning of section 903) paid to any foreign country or possession of 
the United States on any income on which tax is imposed solely by 
reason of this section.''
    (e) Comparable Estate and Gift Tax Treatment.--
            (1) Estate tax.--
                    (A) In general.--Subsection (a) of section 2107 of 
                such Code is amended to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) Rate of tax.--A tax computed in accordance with the 
        table contained in section 2001 is hereby imposed on the 
        transfer of the taxable estate, determined as provided in 
        section 2106, of every decedent nonresident not a citizen of 
        the United States if, within the 10-year period ending with the 
        date of death, such decedent lost United States citizenship, 
        unless such loss did not have for 1 of its principal purposes 
        the avoidance of taxes under this subtitle or subtitle A.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--
                    ``(A) In general.--For purposes of paragraph (1), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to a decedent meeting the requirements of section 
                877(c)(1).''
                    (B) Credit for foreign death taxes.--Subsection (c) 
                of section 2107 of such Code is amended by 
                redesignating paragraph (2) as paragraph (3) and by 
                inserting after paragraph (1) the following new 
                paragraph:
            ``(2) Credit for foreign death taxes.--
                    ``(A) In general.--The tax imposed by subsection 
                (a) shall be credited with the amount
                 of any estate, inheritance, legacy, or succession 
taxes actually paid to any foreign country in respect of any property 
which is included in the gross estate solely by reason of subsection 
(b).
                    ``(B) Limitation on credit.--The credit allowed by 
                subparagraph (A) for such taxes paid to a foreign 
                country shall not exceed the lesser of--
                            ``(i) the amount which bears the same ratio 
                        to the amount of such taxes actually paid to 
                        such foreign country in respect of property 
                        included in the gross estate as the value of 
                        the property included in the gross estate 
                        solely by reason of subsection (b) bears to the 
                        value of all property subjected to such taxes 
                        by such foreign country, or
                            ``(ii) such property's proportionate share 
                        of the excess of--
                                    ``(I) the tax imposed by subsection 
                                (a), over
                                    ``(II) the tax which would be 
                                imposed by section 2101 but for this 
                                section.
                    ``(C) Proportionate share.--For purposes of 
                subparagraph (B), a property's proportionate share is 
                the percentage which the value of the property which is 
                included in the gross estate solely by reason of 
                subsection (b) bears to the total value of the gross 
                estate.''
                    (C) Expansion of inclusion in gross estate of stock 
                of foreign corporations.--Paragraph (2) of section 
                2107(b) of such Code is amended by striking ``more than 
                50 percent of'' and all that follows and inserting 
                ``more than 50 percent of--
                    ``(A) the total combined voting power of all 
                classes of stock entitled to vote of such corporation, 
                or
                    ``(B) the total value of the stock of such 
                corporation,''.
            (2) Gift tax.--
                    (A) In general.--Paragraph (3) of section 2501(a) 
                of such Code is amended to read as follows:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) shall not 
                apply in the case of a donor who, within the 10-year 
                period ending with the date of transfer, lost United 
                States citizenship, unless such loss did not have for 1 
                of its principal purposes the avoidance of taxes under 
                this subtitle or subtitle A.
                    ``(B) Certain individuals treated as having tax 
                avoidance purpose.--For purposes of subparagraph (A), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(C) Exception for certain individuals.--
                Subparagraph (B) shall not apply to a decedent meeting 
                the requirements of section 877(c)(1).
                    ``(D) Credit for foreign gift taxes.--The tax 
                imposed by this section solely by reason of this 
                paragraph shall be credited with the amount of any gift 
                tax actually paid to any foreign country in respect of 
                any gift which is taxable under this section solely by 
                reason of this paragraph.''
    (f) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to individuals losing United States citizenship (within 
        the meaning of section 877 of the Internal Revenue Code of 
        1986) on or after February 6, 1995.
            (2) Special rule.--
                    (A) In general.--In the case of an individual who 
                performed 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)) before February 6, 1995, but who did not, on or 
                before such date, furnish to the United States 
                Department of State a signed statement of voluntary 
                relinquishment of United States nationality confirming 
                the performance of such act, the amendments made by 
                this section shall apply to such individual except 
                that--
                            (i) the 10-year period described in section 
                        877(a) of such Code shall not expire before the 
                        end of the 10-year period beginning on the date 
                        such statement is so furnished, and
                            (ii) the 1-year period referred to in 
                        section 877(c) of such Code, as amended by this 
                        section, shall not expire before the date which 
                        is 1 year after the date of the enactment of 
                        this Act.
                    (B) Exception.--Subparagraph (A) shall not apply if 
                the individual establishes to the satisfaction of the 
                Secretary that such loss of United States citizenship 
                occurred before February 6, 1994.

SEC. 3. INFORMATION ON INDIVIDUALS LOSING UNITED STATES CITIZENSHIP.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 of the Internal Revenue Code of 1986 is amended by inserting after 
section 6039E the following new section:

``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
              CITIZENSHIP.

    ``(a) In General.--Notwithstanding any other provision of law, any 
individual who loses United States citizenship (within the meaning of 
section 877(a)) shall provide a statement which includes the 
information described in subsection (b). Such statement shall be--
            ``(1) provided not later than the earliest date of any act 
        referred to in subsection (c), and
            ``(2) provided to the person or court referred to in 
        subsection (c) with respect to such act.
    ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's principal 
        foreign residence,
            ``(3) the foreign country in which such individual is 
        residing,
            ``(4) the foreign country of which such individual is a 
        citizen,
            ``(5) in the case of an individual having a net worth of at 
        least the dollar amount applicable under section 877(a)(2)(B), 
        information detailing the assets and liabilities of such 
        individual, and
            ``(6) such other information as the Secretary may 
        prescribe.
    ``(c) Acts Described.--For purposes of this section, the acts 
referred to in this subsection are--
            ``(1) the individual's renunciation of 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)),
            ``(2) the individual's furnishing 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)),
            ``(3) the issuance by the United States Department of State 
        of a certificate of loss of nationality to the individual, or
            ``(4) the cancellation by a court of the United States of a 
        naturalized citizen's certificate of naturalization.
    ``(d) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for each 
year (of the 10-year period beginning on the date of loss of United 
States citizenship) during any portion of which such failure continues 
in an amount equal to the greater of--
            ``(1) 5 percent of the tax required to be paid under 
        section 877 for the taxable year ending during such year, or
            ``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not 
to willful neglect.
    ``(e) Information To Be Provided to Secretary.--Notwithstanding any 
other provision of law, any person which collects (or is required to 
collect) the statement under subsection (a) shall--
            ``(1) provide any such statement to the Secretary, and
            ``(2) provide to the Secretary the name (and any other 
        identifying information) of any individual refusing to comply 
        with the provisions of subsection (a).
    ``(f) Exemption.--The Secretary may by regulations exempt any class 
of individuals from the requirements of this section if he determines 
that applying this section to such individuals is not necessary to 
carry out the purposes of this section.''
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by inserting after the item relating to section 6039E the 
following new item:

                              ``Sec. 6039F. Information on individuals 
                                        losing United States 
                                        citizenship.''
    (c) Effective Date.--The amendments made by this section shall 
apply to individuals who lose United States citizenship (within the 
meaning of section 877 of the Internal Revenue Code of 1986) after the 
date of the enactment of this Act.

SEC. 4. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND 
              RESIDENTS LIVING ABROAD.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall prepare and submit to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report--
            (1) describing the compliance with subtitle A of the 
        Internal Revenue Code of 1986 by citizens and lawful permanent 
        residents of the United States (within the meaning of section 
        7701(b)(6) of such Code) residing outside the United States, 
        and
            (2) recommending measures to improve such compliance 
        (including improved coordination between executive branch 
        agencies).
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