Section 911 and Other International Tax Rules Relating to U.S. Citizens and Residents (Portfolio 6080)
This Portfolio discusses double taxation of U.S. citizens abroad, citizens who expatriate to avoid tax, tax treaties relevant to U.S. citizens and other taxes relevant to U.S. citizens.
Bloomberg Tax Portfolio, Section 911 and Other International Tax Rules Relating to U.S. Citizens and Residents, discusses double taxation.
The United States taxes its citizens and residents on their worldwide income, even if they live or work outside of the United States. However, U.S. citizens and residents typically are also subject to foreign country taxation on income when they live or work overseas. Such competing tax regimes create a potential for double taxation. Section 911 allows qualified individuals to elect to exclude all or a portion of their foreign earned income from U.S. gross income, and to exclude or deduct certain foreign housing costs. To the extent that taxes paid to a foreign government are allocable to income not excluded under §911, a taxpayer may elect to take a credit against U.S. income tax either for taxes paid or taxes accrued to a foreign country. The interaction of §911 with the foreign tax credit rules under §901 can present U.S. citizens and residents with significant choices in relation to making or revoking such elections, particularly if they move between foreign countries with higher or lower tax rates relative to those in the United States.
The very existence of multiple tax jurisdictions creates mechanisms for avoiding tax; by moving tax nexus to a jurisdiction with a lower rate of tax, a taxpayer can enjoy significant tax savings. Individuals who renounce U.S. citizenship or terminate U.S. residency can be subject to tax determined under §877A on the inherent appreciation in their property by means of a deemed sale of all their assets on the day before the change in status or, in the case of earlier expatriates, determined under §877 for a 10-year period after the loss of citizenship or termination of residency. This Portfolio examines the mechanisms of §877A and §877 and their related provisions, which were substantially revised in 2004 and again in 2008.
Table of Contents
I. Section 911: The Foreign Earned Income and Housing Exclusions
II. Special Situations
III. The Foreign Tax Credit
IV. Expatriation to Avoid Tax
V. Income Tax Treaties
VI. Other Issues
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