REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.

SEC. 804. REVISION OF TAX RULES ON EXPATRIATION OF INDIVIDUALS.(a) Expatriation To Avoid Tax.—(1) In general.—Subsection (a) of section 877 (relating to treatment of expatriates) is amended to read as follows:“(a) Treatment of Expatriates.—“(1) In general.—Every nonresident alien individual to whom this section applies and who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection (after any reduction in such tax under the last sentence of such subsection) exceeds the tax which, without regard to this section, is imposed pursuant to section 871. “(2) Individuals subject to this section.—This section shall apply to any individual 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 $124,000, “(B) the net worth of the individual as of such date is $2,000,000 or more, or“(C) such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.In the case of the loss of United States citizenship in any calendar year after 2004, such $124,000 amount 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 ‘2003’ for ‘1992’ in subparagraph (B) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $1,000.”.(2) Revision of exceptions from alternative tax.—Subsection (c) of section 877 (relating to tax avoidance not presumed in certain cases) is amended to read as follows:“(c) Exceptions.—“(1) In general.—Subparagraphs (A) and (B) of subsection (a)(2) shall not apply to an individual described in paragraph (2) or (3).“(2) Dual citizens.—“(A) In general.—An individual is described in this paragraph if—“(i) the individual became at birth a citizen of the United States and a citizen of another country 118 STAT. 1570 and continues to be a citizen of such other country, and“(ii) the individual has had no substantial contacts with the United States.“(B) Substantial contacts.—An individual shall be treated as having no substantial contacts with the United States only if the individual—“(i) was never a resident of the United States (as defined in section 7701(b)),“(ii) has never held a United States passport, and“(iii) was not present in the United States for more than 30 days during any calendar year which is 1 of the 10 calendar years preceding the individual’s loss of United States citizenship.“(3) Certain minors.—An individual is described in this paragraph if—“(A) the individual became at birth a citizen of the United States,“(B) neither parent of such individual was a citizen of the United States at the time of such birth,“(C) the individual’s loss of United States citizenship occurs before such individual attains age 18½, and“(D) the individual was not present in the United States for more than 30 days during any calendar year which is 1 of the 10 calendar years preceding the individual’s loss of United States citizenship.”.(3) Conforming amendment.—Section 2107(a) is amended to read as follows:“(a) Treatment of Expatriates.—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 the date of death occurs during a taxable year with respect to which the decedent is subject to tax under section 877(b).”.(b) Special Rules for Determining When an Individual Is No Longer a United States Citizen or Long-Term Resident.—Section 7701 (relating to definitions) is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:“(n) Special Rules for Determining When an Individual Is No Longer a United States Citizen or Long-Term Resident.—An individual who would (but for this subsection) cease to be treated as a citizen or resident of the United States shall continue to be treated as a citizen or resident of the United States, as the case may be, until such individual—“(1) gives notice of an expatriating act or termination of residency (with the requisite intent to relinquish citizenship or terminate residency) to the Secretary of State or the Secretary of Homeland Security, and“(2) provides a statement in accordance with section 6039G.”.(c) Physical Presence in the United States for More Than 30 Days.—Section 877 (relating to expatriation to avoid tax) is amended by adding at the end the following new subsection:“(g) Physical Presence.—118 STAT. 1571“(1) In general.—This section shall not apply to any individual to whom this section would otherwise apply for any taxable year during the 10-year period referred to in subsection (a) in which such individual is physically present in the United States at any time on more than 30 days in the calendar year ending in such taxable year, and such individual shall be treated for purposes of this title as a citizen or resident of the United States, as the case may be, for such taxable year.“(2) Exception.—“(A) In general.—In the case of an individual described in any of the following subparagraphs of this paragraph, a day of physical presence in the United States shall be disregarded if the individual is performing services in the United States on such day for an employer. The preceding sentence shall not apply if—“(i) such employer is related (within the meaning of section 267 and 707) to such individual, or“(ii) such employer fails to meet such requirements as the Secretary may prescribe by regulations to prevent the avoidance of the purposes of this paragraph.Not more than 30 days during any calendar year may be disregarded under this subparagraph.“(B) Individuals with ties to other countries.—An individual is described in this subparagraph if—“(i) the individual becomes (not later than the close of a reasonable period after loss of United States citizenship or termination of residency) a citizen or resident 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, and“(ii) the individual becomes fully liable for income tax in such country.“(C) Minimal prior physical presence in the united states.—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 or termination of residency, the individual was physically 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.”.(d) Transfers Subject to Gift Tax.—(1) In general.—Subsection (a) of section 2501 (relating to taxable transfers) is amended by striking paragraph (4), by redesignating paragraph (5) as paragraph (4), and by striking paragraph (3) and inserting the following new paragraph:“(3) Exception.—“(A) Certain individuals.—Paragraph (2) shall not apply in the case of a donor to whom section 877(b) applies for the taxable year which includes the date of the transfer.“(B) 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 118 STAT. 1572 paid to any foreign country in respect of any gift which is taxable under this section solely by reason of this paragraph.”.(2) Transfers of certain stock.—Subsection (a) of section 2501 is amended by adding at the end the following new paragraph:“(5) Transfers of certain stock.—“(A) In general.—In the case of a transfer of stock in a foreign corporation described in subparagraph (B) by a donor to whom section 877(b) applies for the taxable year which includes the date of the transfer—“(i) section 2511(a) shall be applied without regard to whether such stock is situated within the United States, and“(ii) the value of such stock for purposes of this chapter shall be its U.S.-asset value determined under subparagraph (C).“(B) Foreign corporation described.—A foreign corporation is described in this subparagraph with respect to a donor if—“(i) the donor owned (within the meaning of section 958(a)) at the time of such transfer 10 percent or more of the total combined voting power of all classes of stock entitled to vote of the foreign corporation, and“(ii) such donor owned (within the meaning of section 958(a)), or is considered to have owned (by applying the ownership rules of section 958(b)), at the time of such transfer, 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.“(C) U.S.-asset value.—For purposes of subparagraph (A), the U.S.-asset value of stock shall be the amount which bears the same ratio to the fair market value of such stock at the time of transfer as—“(i) the fair market value (at such time) of the assets owned by such foreign corporation and situated in the United States, bears to“(ii) the total fair market value (at such time) of all assets owned by such foreign corporation.”.(e) Enhanced Information Reporting From Individuals Losing United States Citizenship.—(1) In general.—Subsection (a) of section 6039G is amended to read as follows:“(a) In General.—Notwithstanding any other provision of law, any individual to whom section 877(b) applies for any taxable year shall provide a statement for such taxable year which includes the information described in subsection (b).”.(2) Information to be provided.—Subsection (b) of section 6039G is amended to read as follows:“(b) Information To Be Provided.—Information required under subsection (a) shall include—“(1) the taxpayer’s TIN, 118 STAT. 1573“(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) information detailing the income, assets, and liabilities of such individual, “(6) the number of days during any portion of which that the individual was physically present in the United States during the taxable year, and“(7) such other information as the Secretary may prescribe.”.(3) Increase in penalty.—Subsection (d) of section 6039G is amended to read as follows:“(d) Penalty.—If—“(1) an individual is required to file a statement under subsection (a) for any taxable year, and“(2) fails to file such a statement with the Secretary on or before the date such statement is required to be filed or fails to include all the information required to be shown on the statement or includes incorrect information,such individual shall pay a penalty of $10,000 unless it is shown that such failure is due to reasonable cause and not to willful neglect.”.(4) Conforming amendment.—Section 6039G is amended by striking subsections (c), (f), and (g) and by redesignating subsections (d) and (e) as subsection (c) and (d), respectively.(f) Effective Date.—The amendments made by this section shall apply to individuals who expatriate after June 3, 2004.