SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON INDIVIDUALS WHO LOSE UNITED
STATES CITIZENSHIP.
Title[ Title V\Subtitle B Contents
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
(a) In General.--Subsection (a) of section 877 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 one 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 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 one 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 indi-
vidual'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, 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 corpora-
tion, 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.
``(4) Treatment of property contributed to controlled
foreign corporations.--
``(A) In general.--If--
``(i) an individual losing United States
citizenship contributes property to any
corporation which, at the time of the
contribution, is described in subparagraph (B),
and
``(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),
during the 10-year period referred to in subsection (a),
any income or gain on such property (or any other
property which has a basis determined in whole or part
by reference to such property) received or accrued by
the corporation shall be treated as received or accrued
directly by such individual and not by such corporation.
The preceding sentence shall not apply to the extent the
property has been treated under subparagraph (C) as
having been sold by such corporation.
``(B) Corporation described.--A corporation is
described in this subparagraph with respect to an
individual if, were such individual a United States
citizen--
``(i) such corporation would be a controlled
foreign corporation (as defined in 957), and
``(ii) such individual would be a United
States shareholder (as defined in section 951(b))
with respect to such corporation.
``(C) Disposition of stock in corporation.--If stock
in the corporation referred to in subparagraph (A) (or
any other stock which has a basis determined in whole or
part by reference to such stock) is disposed of during
the 10-year period referred to in subsection (a) and
while the property referred to in subparagraph (A) is
held by such corporation, a pro rata share of such
property (determined on the basis of the value of such
stock) shall be treated as sold by the corporation
immediately before such disposition.
``(D) Anti-abuse rules.--The Secretary shall
prescribe such regulations as may be necessary to
prevent the avoidance of the purposes of this paragraph,
including where--
``(i) the property is sold to the corporation,
and
``(ii) the property taken into account under
subparagraph (A) is sold by the corporation.
``(E) Information reporting.--The Secretary shall
require such information reporting as is necessary to
carry out the purposes of this paragraph.''.
(d) Credit for Foreign Taxes Imposed on United States Source
Income.--
(1) Subsection (b) of section 877 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, 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 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 one 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 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 of 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) is amended by striking ``more than 50 per-
cent 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) 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
one 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 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 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) (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 <<NOTE: 26 USC 877 note.>> 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 February 6, 1995.
(2) Ruling requests.--In no event shall the 1-year period
referred to in section 877(c)(1)(B) of such Code, as amended by
this section, expire before the date which is 90 days after the
date of the enactment of this Act.
(3) 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 and section 512 shall apply to such individual
except that 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.
(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.
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