The Foreign Investors Tax Act of 1966 (“FITA”) – The Origin of U.S. Tax Expatriation Law

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Today’s “tax expatriation” provisions which are based upon “mark-to-market” concepts of a “deemed/fictional sale” of worldwide assets, look quite different from the original law.  The first version was adopted by The Foreign Investors Tax Act of 1966 (“FITA”).  FITA introduced a number of specific tax concepts applicable to non-residents.Foreign Investors Tax Act of 1966

In addition, it created the first concept of “tax expatriation” for former U.S. citizens, that remained unchanged until the amendments in the law in 1996.  There was no reference to lawful permanent residency (or former LPRS) in the 1966 FITA.

The basic concept of the statute remained largely unchanged from the 1996 revisions compared to the original FITA 1966 version, which then I.R.C. § 877(a)(1) provided in relevant part as follows:

“[e]very nonresident alien individual who,
within the 10-year period
immediately preceding the
close of the taxable year,
lost U.S.citizenship,
unless such loss did not
have for one of its principal
purposes the avoidance of
taxes . . . shall be taxable
for such taxable year . . . .”

**

These old rules imposed U.S. tax on gains for a 10 year period after the former U.S. citizen became a nonresident alien.  The tax rate applicable was the normal U.S. rate and it was levied on gains from the sale of U.S. property, specifically stock and debt in U.S. companies.  Those items of income were treated as U.S. source income for that purpose.

The big difference in the 1996 revisions, was the creation of a presumption of a “principal purpose of tax avoidance” that had to be rebutted by submitting a private letter ruling request to the IRS.

For a somewhat provocative look at the law and its history, seeCATCH ME IF YOU CAN: RELINQUISHING CITIZENSHIP FOR TAXATION PURPOSES AFTER THE HEART ACT By: Yu Hang Sunny Kwong

 

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3 thoughts on “The Foreign Investors Tax Act of 1966 (“FITA”) – The Origin of U.S. Tax Expatriation Law

    […] when) that were made to the tax expatriation provisions, although the first law adopted in 1966 The Foreign Investors Tax Act of 1966 (“FITA”) – The Origin of U.S. Tax Expatriation Law is not […]

    […] hicieron a las disposiciones fiscales de expatriación, aunque la primera ley fue adoptada en 1966 Ley Fiscal del Inversionista Extranjero de 1966 (“FITA”) – el Origen de la Ley Fiscal … no se […]

    […] The first “expatriation tax” law was not adopted until 1966 as part of the  The Foreign Investors Tax Act of 1966 (“FITA”) – The Origin of U.S. Tax Expatriation Law (Posted on April 6, […]

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