Covered Expatriate Charged with Tax Fraud after Concealing $1B in Assets

Who is a covered expatriate?

The IRS expatriation provisions apply to US citizens who have renounced their citizenship and long-term residents who have ended their US resident status for federal tax purposes. If the individual expatriated after June 17,2008, IRC 877A may apply. You are a “covered expatriate” if any of the following apply:

• Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($172,000 for 2021, $161,000 for 2016, $162,000 for 2017, $165,000 for 2018, and $168,000 for 2019).

• Your net worth is $2 million or more on the date of your expatriation or termination of residency.

• You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If you are a covered expatriate, you are subject to a “mark-to-market tax” which means you are subject to income tax on the net unrealized gain of your property as if it were sold at its current fair market value on the day before your expatriation date.

Tax Practitioner Planning: The Form 8854, 'Initial and Annual Expatriation Statement', must be filed regardless of net worth or income level. This is often overlooked when a “green card” is relinquished. A resident with a green card who has been in the US 8 of the last 15 tax years is considered a long-term resident and must file the Form 8854 upon departure.

The Case

Oleg Tinkov is the founder of the online bank Tinkoff Credit Systems (TCS) that had its initial public offering on the London Stock Exchange on October 25, 2013. On October 28, 2013, Tinkov renounced his US citizenship which would require him to be taxed on the constructive sale of all his worldwide assets, including the 92 million shares of TCS stock he owned through multiple British Virgin Island entities. According to the indictment, despite knowing he owned more than $1B of TCS shares, he filed a 2013 US Income tax return with less than $260,000 of income and a Form 8854 reporting his net worth was $300,000. Tinkov was arrested in London in March 2020 and awaits extradition to the United States for trial.

(US v. Oleg Tinkov, CR 19 489, Northern District of California, March 5, 2020)

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