Expatriation and Deferral of Payment

Deferral of payment of tax under the mark-to-market regime

Section 877A(b) provides that a covered expatriate may make an irrevocable election (“deferral election”) with respect to any property deemed sold by reason of section 877A(a) to defer the payment of the additional tax attributable to any such property (“deferral assets”). The deferral election is made on an asset-by-asset basis. In order to make the election with respect to any asset, the covered expatriate must provide adequate security and must irrevocably waive any right under any U.S. treaty that would preclude assessment or collection of any tax imposed by reason of I.R.C. Section 877A.

I.R.C. Section 877A(b)(7) provides that for purposes of I.R.C. Section 6601, the last date for the payment of tax will be determined without regard to the deferral election. Interest will be computed at the underpayment rate established under I.R.C. Section 6621 from the due date of the return (without extensions) for the taxable year that includes the day before the expatriation date and will compound daily under I.R.C. Section 6622 until the date the tax is paid. See Notice 2009-85.

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