Which statement about renouncing U.S. citizenship and the consequences of a successful renunciation is not correct?

Which statement about renouncing U.S. citizenship and the consequences of a successful renunciation is not correct?

• A. The expatriate was at birth a dual citizen of the United States and another country. On the expatriation date, she continues to be a citizen, and is taxed as a resident, of the other country and has been a U.S. resident for more than 10 tax years during the 15-tax-year period in which the expatriation date occurs.
• B. The expatriate gives up his U.S. citizenship before becoming 18½ years old and was a U.S. resident for not more than 10 tax years before relinquishing citizenship.
• C. There is an inflation-adjusted exemption for some of the gain subject to the mark-to-market rules.
• D. The expatriate was at birth a dual citizen of the United States and another country. On the expatriation date, she continues to be a citizen, and is taxed as a resident, of the other country and has been a U.S. resident for more than 10 tax years during the 15-tax-year period in which the expatriation date occurs.

Answer: (B)

Renunciation of U.S. citizenship can lead to an expatriation tax if the person is a “covered expatriate.” The key mechanism is the exit tax under the mark-to-market rules, where you’re treated as selling all assets on the expatriation date, with an inflation-adjusted exemption that reduces the amount of gain subject to tax. There is a special rule for minors who renounce before age 18½: they generally aren’t treated as covered expatriates if they haven’t been a U.S. resident for more than 10 of the 15 tax years ending on the expatriation date. However, that exemption is not automatic and depends on meeting all the conditions, including the broader tests for being a covered expatriate (net worth and tax-liability thresholds). So stating that renouncing before 18½ and having not more than 10 years of U.S. residency automatically avoids the exit tax is not correct, because other criteria could still apply and determine whether the expatriation tax is due. The inflation-adjusted exemption for a portion of the gain and the general exit-tax framework are independent pieces you must consider in every case.

Renunciation of U.S. citizenship can lead to an expatriation tax if the person is a “covered expatriate.” The key mechanism is the exit tax under the mark-to-market rules, where you’re treated as selling all assets on the expatriation date, with an inflation-adjusted exemption that reduces the amount of gain subject to tax. There is a special rule for minors who renounce before age 18½: they generally aren’t treated as covered expatriates if they haven’t been a U.S. resident for more than 10 of the 15 tax years ending on the expatriation date. However, that exemption is not automatic and depends on meeting all the conditions, including the broader tests for being a covered expatriate (net worth and tax-liability thresholds). So stating that renouncing before 18½ and having not more than 10 years of U.S. residency automatically avoids the exit tax is not correct, because other criteria could still apply and determine whether the expatriation tax is due. The inflation-adjusted exemption for a portion of the gain and the general exit-tax framework are independent pieces you must consider in every case.