Knowing that Superman enjoys traveling, meeting people, and his established status as a proud public figure, he probably would not have any issues dealing with the first three or four requirements. However, dealing with the IRS is an entirely different matter. He will most likely need a good tax counsel to analyze and review his situation under Section 877A.
Section 877A was enacted as a part of the Heroes Earnings Assistance and Relief Tax Act (the “Heroes Act”). This section generally imposes a “mark to market” regime on expatriates covered under this section and it assesses taxes based on a hypothetical income that assumes that all properties owned by the expatriate were sold at market value on the date before expatriation. This law is intended to prevent tax avoidance schemes by affluent taxpayers, who have taken advantage of deferral features of current tax laws.
How many people will be affected by the “Heroes Act”? The law in Section 877A applies only to a handful of cases where (1) the net average annual income taxes owed for the five tax years preceding the expatriation date is more than $151,000 for an expatriation during the year 2012, (2) the net worth was more than two million U.S. Dollars, or (3)if the individual failed to comply with any federal tax obligations in the five tax years leading up to the expatriation date. In fact, you can find Section 877A cases more often that you thought.
Dr. Jeong H. Kim seems to be one of these cases. If you are not already familiar with recent news related to Dr. Kim, he is a Korean-American electrical engineer who came to the U.S. when he was 14 years old. He left his home at sixteen and worked menial labor jobs before eventually obtaining a Ph. D. Eventually he founded a venture, Yurie System, and he sold it to Lucent in 1998 for almost a billion dollars. He is an American success story, and a hero to many Korean immigrants in the United States. After serving many public posts, receiving various honors and making large charitable contributions, he was appointed by the South Korean government as the Minister of Future Creation and Science.
To take that offer, he announced his intention to give up his U.S. citizenship. However, he soon withdrew his plan to take the appointment, and blamed the political situation for changing his mind. However, many people cast doubts on his reasoning and sudden change. After all, he pledged, like Superman, to loftily contribute to his mother country. Some newspapers previously reported the impacts of Section 877A on this Korean -American hero’s decision. Considering that a corporate transaction typically involves stock issuance and deferral of gains, the mandatory recognition of income under Section 877A could have had certain effects on his decision. Even though no one knows for certain whether Section 877A was his Kryptonite, the case was interesting enough to attract attention to this law.
Several months ago, Superman quit his day job at the Daily Planet. I am not sure if he will eventually found a profitable company, like Dr. Kim. Nonetheless, if he is planning to renounce his U.S. citizenship as a part of his long term plan, he will be better off having his tax counsel involved at an early stage.
1 See the news at http://www.foxnews.com/entertainment/2011/04/28/superman-renounces-citizenship-00th-issue/
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