Changing U.S. Tax Jurisdiction: Expatriates, Immigrants, and the Need for a Coherent Tax Policy

Changes to expatriate taxation were debated at length by the 104th Congress and settled by the Health Insurance Portability and Accountability Act of 1996, which left the then-existing tax system largely in place. The need for special expatriate tax provisions arises because of the different U.S. tax regimes that apply to citizens and residents on the one hand, and to nonresident aliens on the other. This discrepancy leads to tax-motivated expatriation. Current law attempts to equalize the U.S. tax liabilities of an expatriate with her tax liabilities had she remained a citizen.The author argues that this policy should be abandoned because it is ineffective at preventing tax-motivated expatriation and is overly burdensome to administer.

Congress should adopt a "mark-to-market" taxation policy, under which an expatriate's property would be deemed to be sold for its fair market value on the date of expatriation.