[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2012 Introduced in House (IH)]







104th CONGRESS
  1st Session
                                H. R. 2012

   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

                             July 11, 1995

 Mr. Cremeans 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) Tax Avoidance Not Presumed in Certain Cases.--
            ``(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 to read as follows:
    ``(d) Special Rules for Source, Etc.--For purposes of subsection 
(b)--
            ``(1) Source rules.--The following items of gross income 
        shall be treated as income from sources within the United 
        States:
                    ``(A) Sale of property.--Gains on the sale or 
                exchange of property (other than stock or debt 
                obligations) located in the United States.
                    ``(B) Stock or debt obligations.--Gains on the sale 
                or exchange of stock issued by a domestic corporation 
                or debt obligations of United States persons or of the 
                United States, a State or political subdivision 
                thereof, or the District of Columbia.
                    ``(C) Income or gain derived from controlled 
                foreign corporation.--Any income or gain derived from 
                stock in a foreign corporation but only--
                            ``(i) 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
                            ``(ii) to the extent such income or gain 
                        does not exceed the earnings and profits 
                        attributable to such stock which were earned or 
                        accumulated before the loss of citizenship and 
                        during periods that the ownership requirements 
                        of clause (i) are met.
            ``(2) Gain recognition on certain exchanges.--
                    ``(A) In general.--In the case of any exchange of 
                property to which this paragraph applies, 
                notwithstanding any other provision of this title, such 
                property shall be treated as sold for its fair market 
                value on the date of such exchange, and any gain shall 
                be recognized for the taxable year which includes such 
                date.
                    ``(B) Exchanges to which paragraph applies.--This 
                paragraph shall apply to any
                 exchange during the 10-year period described in 
subsection (a) if--
                            ``(i) gain would not (but for this 
                        paragraph) be 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) 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.
                    ``(E) Secretary may require recognition of gain in 
                certain cases.--To the extent provided in regulations 
                prescribed by the Secretary--
                            ``(i) the removal of appreciated tangible 
                        personal property from the United States, and
                            ``(ii) any other occurrence which (without 
                        recognition of gain) results in a change in the 
                        source of the income or gain from property from 
                        sources within the United States to sources 
                        outside the United States,
                shall be treated as an exchange to which this paragraph 
                applies.
            ``(3) Substantial diminishing of risks of ownership.--For 
        purposes of determining whether this section applies to any 
        gain on the sale or exchange of any property, 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--
                    ``(A) the holding of a put with respect to such 
                property (or similar property),
                    ``(B) the holding by another person of a right to 
                acquire the property, or
                    ``(C) a short sale or any other transaction.''
    (d) Credit for Foreign Taxes Imposed on United States Source 
Income.--
            (1) 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 of the taxpayer on which tax is imposed solely by 
        reason of this section.''
            (2) Subsection (a) of section 877 of such Code, as amended 
        by subsection (a), is amended by inserting ``(after any 
        reduction in such tax under the last sentence of such 
        subsection)'' after ``such subsection''.
    (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) Comparable Treatment of Lawful Permanent Residents Who Cease To 
Be Taxed as Residents.--
            (1) In general.--Section 877 of such Code is amended by 
        redesignating subsection (e) as subsection (f) and by inserting 
        after subsection (d) the following new subsection:
    ``(e) Comparable Treatment of Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--
            ``(1) In general.--Any long-term resident of the United 
        States who--
                    ``(A) ceases to be a lawful permanent resident of 
                the United States (within the meaning of section 
                7701(b)(6)), or
                    ``(B) 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,
        shall be treated for purposes of this section and sections 
        2107, 2501, and 6039F in the same manner as if such resident 
        were a citizen of the United States who lost United States 
        citizenship on the date of such cessation or commencement.
            ``(2) Long-term resident.--For purposes of this subsection, 
        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 event described in subparagraph (A) or 
        (B) of paragraph (1) occurs. 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.
            ``(3) Special rules.--
                    ``(A) Exceptions not to apply.--Subsection (c) 
                shall not apply to an individual who is treated as 
                provided in paragraph (1).
                    ``(B) Step-up in basis.--Solely for purposes of 
                determining any tax imposed by reason of this 
                subsection, property which was held by the long-term 
                resident on the date the individual first became a 
                resident of the United States shall be treated as 
                having a basis on such date of not less than the fair 
                market value of such property on such date. The 
                preceding sentence shall not apply if the individual 
                elects not to have such sentence apply. Such an 
                election, once made, shall be irrevocable.
            ``(4) Authority to exempt individuals.--This subsection 
        shall not apply to an individual who is described in a category 
        of individuals prescribed by regulation by the Secretary.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this subsection, 
        including regulations providing for the application of this 
        subsection in cases where an alien individual becomes a 
        resident of the United States during the 10-year period after 
        being treated as provided in paragraph (1).''
            (2) Conforming amendments.--
                    (A) Section 2107 of such Code is amended by 
                striking subsection (d), by redesignating subsection 
                (e) as subsection (d), and by inserting after 
                subsection (d) (as so redesignated) the following new 
                subsection:
    ``(e) Cross Reference.--

                                  ``For comparable treatment of long-
term lawful permanent residents who ceased to be taxed as residents, 
see section 877(e).''
                    (B) Paragraph (3) of section 2501(a) of such Code 
                (as amended by subsection (e)) is amended by adding at 
                the end the following new subparagraph:
                    ``(E) Cross reference.--

                                  ``For comparable treatment of long-
term lawful permanent residents who ceased to be taxed as residents, 
see section 877(e).''
    (g) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to--
                    (A) individuals losing United States citizenship 
                (within the meaning of section 877 of the Internal 
                Revenue Code of 1986) on or after February 6, 1995, and
                    (B) long-term residents of the United States with 
                respect to whom an event described in subparagraph (A) 
                or (B) of section 877(e)(1) of such Code occurs on or 
                after June 13, 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 of the Treasury 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--
            ``(1) any Federal agency or court which collects (or is 
        required to collect) the statement under subsection (a) shall 
        provide to the Secretary--
                    ``(A) a copy of any such statement, and
                    ``(B) the name (and any other identifying 
                information) of any individual refusing to comply with 
                the provisions of subsection (a),
            ``(2) the Secretary of State shall provide to the Secretary 
        a copy of each certificate as to the loss of American 
        nationality under section 358 of the Immigration and 
        Nationality Act which is approved by the Secretary of State, 
        and
            ``(3) the Federal agency primarily responsible for 
        administering the immigration laws shall provide to the 
        Secretary the name of each lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) whose 
        status as such has been revoked or has been administratively or 
        judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days 
after the close of each calendar quarter, the Secretary shall publish 
in the Federal Register the name of each individual losing United 
States citizenship (within the meaning of section 877(a)) with respect 
to whom the Secretary receives information under the preceding sentence 
during such quarter.
    ``(f) Reporting by Long-Term Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--In lieu of applying the last sentence of 
subsection (a), any individual who is required to provide a statement 
under this section by reason of section 877(e)(1) shall provide such 
statement with the return of tax imposed by chapter 1 for the taxable 
year during which the event described in such section occurs.
    ``(g) 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--
            (1) individuals losing 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, and
            (2) long-term residents of the United States with respect 
        to whom an event described in subparagraph (A) or (B) of 
        section 877(e)(1) of such Code occurs after such date.

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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