The current status of the U.S. expatriation tax (IRC Sec 877A), often referred to as the "exit tax," concerns U.S. citizens and long-term residents who relinquish their citizenship or residency. This process results in potential significant tax implications. According to the rules outlined, individuals classified as "covered expatriates" are subject to this tax. These individuals either have a net worth exceeding $2 million or an average annual income tax liability for the 5 years prior to expatriation greater than a predetermined threshold ($206,000 for 2025), or they fail to certify compliance with U.S. tax obligations for the preceding five years.

The exit tax involves assessing a mark-to-market tax on the unrealized gains of the expatriate's global assets as if those assets were sold the day before expatriation. This can include various types of deferred compensation and retirement accounts like IRAs and 401(k) plans, which may be taxed differently depending on individual elections and treaty considerations.

Further, the Heroes Earnings Assistance and Relief Tax (HEART) Act imposes an additional "inheritance tax" on U.S. recipients of covered gifts or bequests from expatriating individuals. This is aimed at preventing expatriates from avoiding U.S. transfer taxes.

Individuals seeking to expatriate should be prepared to comply with various procedural requirements, including a mandatory interview at a U.S. consulate and the completion of specific documentation like Form DS-4079 and Form 8854. The expatriating individual will need to file a dual-status return (1040 plus 1040NR) for the year of expatriation. Careful tax planning is recommended to mitigate potential exit tax liabilities.