How to avoid covered expatriate status?
Covered expatriates face exit tax on worldwide assets and inheritance tax on future gifts. Learn the net worth and tax liability tests, and how to plan around them.
You are a covered expatriate if you meet any of three tests on the date before renunciation: net worth of $2 million or more, average annual net income tax liability exceeding $201,000 for the five years before expatriation, or failure to certify tax compliance for the prior five years. To avoid covered status, reduce your net worth below $2 million through legitimate estate planning, accelerate income into pre-expatriation years to manage the tax liability average, and ensure you are fully compliant for the five years prior to renouncing. If you are not compliant, use Streamlined Filing or another disclosure program to clean up before filing Form 8854. Dual citizens from birth and certain minors who meet limited conditions may qualify for exceptions.