SECTION 4. COORDINATION WITH

CERTAIN CODE PROVISIONS

Termination of deferrals . Section 877A(h)(1)(A) provides that, notwithstanding any other provision of the Code, any time period for acquiring property that would result in the reduction of gain recognized with respect to property disposed of by a covered expatriate terminates on the day before the expatriation date. This rule applies to certain incomplete transactions such as deferred like-kind exchanges and involuntary conversions. In addition, section 877A(h)(1)(B) provides that, notwithstanding any other provision of the Code, any extension of time for payment of tax ceases to apply on the day before the expatriation date, and the unpaid portion of such tax becomes due and payable at the time and in the manner prescribed by the Secretary. Accordingly, the tax shall be due and payable on the earlier of the date the tax would become due and payable without regard to section 877A and the due date of the covered expatriate’s return for the taxable year that includes the day before the expatriation date.

Section 367(a). Regulations under section 367(a) regarding gain recognition agreements (GRAs) provide that if an

Step 2. Determine the portion of tax attributable to each asset deemed sold by multiplying the amount of tax determined under Step 1 by the ratio of the amount includible in gross income with respect to each gain asset (as determined in Step 3 of Example 1,

individual U.S. transferor loses U.S. citizenship or ceases to be a lawful permanent resident of the United States, the individual shall be treated as disposing of all the stock of the transferee foreign corporation received in the initial transfer as of the day before the loss of such status. This disposition shall constitute a triggering event with respect to the GRA and require the recognition of gain under the GRA (and the payment of applicable interest with respect to any additional tax due); this disposition shall not terminate or reduce the amount of gain subject to the GRA. Gain recognized under the GRA as a result of this disposition, and any basis adjustments resulting from such gain recognition, shall be taken into account prior to any gain or loss that is required to be taken into account under section 877A on the deemed sale of the stock of the transferee foreign corporation under section 877A(a).

Section 684 . Section 877A(h)(3) provides that if the expatriation of any individual would result in recognition of gain under section 684, the provisions of section 684 apply before the provisions of section 877A. Section 684(a) and the regulations thereunder generally require immediate recognition of gain when a U.S. person directly, indirectly, or constructively transfers appreciated property to a foreign trust of which the U.S. person is not treated as the owner under the grantor trust rules (sections 671 through 679). Section 672(f) limits the circumstances in which a foreign person may be treated as the owner of a trust under the grantor trust rules. A covered expatriate’s expatriation may cause a domestic trust of which the covered expatriate was treated as the owner on the day before the expatriation date to become a foreign trust under the rules of section 7701(a)(31)(B) and § 301.7701–7.

with the amount with respect to assets with a built-in loss being zero) to the total amount includible in gross income with respect to all gain assets.

If a covered expatriate’s expatriation also causes the covered expatriate to cease to be treated as the owner of the trust, appreciated property held by the trust will generally be subject to the gain recognition rules of section 684. Gain that is subject to tax under the rules of section 684 will not also be subject to tax under the mark-to-market regime.

Section 897 . If a covered expatriate holds a USRPI on the day before the expatriation date, the USRPI is generally subject to tax under the mark-to-market regime in the same manner as other property of the covered expatriate. As provided in section 3.C of this notice, the covered expatriate’s basis in the USRPI will be adjusted to reflect the gain or loss taken into account under the mark-to-market regime. Section 897 will not apply to the gain or loss recognized as a result of the mark-to-market regime, because the covered expatriate will not be a nonresident alien within the meaning section 7701(b) on the day before the expatriation date. However, as illustrated in Example 3, above, section 897 will apply when the covered expatriate subsequently disposes of the USRPI.

Expatriations subject to section 877. An individual whose expatriation date occurred before June 17, 2008, continues to be covered by the rules of sections 877 and 6039G as in effect on the individual’s expatriation date. An individual whose expatriation date occurred after June 3, 2004, but before June 17, 2008, continues to be subject to the provisions of section 7701(n) (as in effect prior to June 17, 2008). In such case, the 10-year period described in section 877(a) commences on the date the U.S. citizen or long-term resident complies with the provision of section 7701(n) (as in effect prior to June 17, 2008).

November 9, 2009 604 2009–45 I.R.B.

to or on behalf of the covered expatriate in connection with the performance of services with respect to such property or right to property within the meaning of section 83(a) and the regulations thereunder; (B) on or before the expatriation date, either (i) such transferred property has become substantially vested or (ii) the covered expatriate has made a valid election under section 83(b) with respect to such transferred property; and (C) the covered expatriate has filed a Federal income tax return for the appropriate taxable year or years accurately reporting the full amount (if any) includible in such covered expatriate’s income with respect to such transferred property for such year or years and has paid all taxes due with respect to such return or returns, or, if such tax return is due after the expatriation date, the income with respect to such transferred property has been subject to appropriate tax withholding.

(2) Eligible deferred compensation item means any deferred compensation item with respect to which: (i) the payor is either a U.S. person or a non-U.S. person who elects to be treated as a U.S. person for purposes of section 877A(d)(1) and (ii) the covered expatriate notifies the payor of his or her status as a covered expatriate and irrevocably waives any right to claim any withholding reduction under any treaty with the United States. See section 8 of this notice for the applicable filing and reporting requirements. Separate guidance will be issued under section 877A(d)(3)(A) providing rules for a non-U.S. person to elect to be treated as a U.S. person for purposes of section 877A(d)(1). (3) Ineligible deferred compensation item means any deferred compensation item that is not an eligible deferred compensation item. See section 8 of this notice for the applicable filing and reporting requirements.

(4) Item of deferred compensation means any amount of compensation if, under the terms of the plan, contract, or other arrangement providing for such compensation (compensation arrangement), the covered expatriate has a legally binding right as of the expatriation date to such compensation, the compensation has not been actually or constructively received on or before the expatriation date, and pursuant to the compensation arrange

Example 7. A, a U.S. citizen, relinquishes U.S. citizenship on June 10, 2008, but does not file Form 8854 until December 12, 2009. A is subject to the rules of section 877 and the reporting and notification provisions of sections 6039G and 7701(n), as in effect prior to June 17, 2008. The ten-year period described in section 877(a) commences on December 12, 2009.

Example 8. A is a long-term resident who commences to be treated as a resident of a foreign country pursuant to an income tax treaty between the United States and the foreign country. A qualifies under the treaty to be treated as a resident of the foreign country as of January 1, 2008. A is subject to the rules of section 877 and the reporting and notification provisions of sections 6039G and 7701(n), as in effect prior to June 17, 2008.