Interrupted Period of Residence Special Tax Rule

[taoj]

In Pub 519 https://www.irs.gov/pub/irs-pdf/p519.pdf under section Interrupted Period of Residence, there is a special rule to "tax on your U.S. source gross income and gains on a net basis at the graduated rates applicable to individuals". When I try to see what this means and how to calculate this, it says "For information on how to figure the special tax, see Expatriation Tax, later." which is not helpful because Expatriation Tax does not seem relate to this at all.

I am guessing it's about some US income such as capital gain that will be taxed as ordinary income under nonresident alien tax bracket (as single filer or married filing separately since non resident is not allowed for joint filing), but I am not sure. I know this may be a very specific situation, but has someone come across this before?

[tagteam]

See if @pk has any input.

The expatriation tax is a MTM (mark-to-market) type tax where U.S. citizens who renounce their citizenship and long-term residents who end their residency are treated as if their assets were sold and then are taxed on unrealized gains. 

[pk · Accepted solution]

@taoj ,         my understanding of this  s" special rule " and for  re-patriation of citizens and Green Card holders is that  instead of treating  these persons as   pure  Non-Resident Aliens under section 871, there si the possibility of treating them under section 877 A  unless  871  yields more taxes due. and considering tac treaty benefits .  I am not very clear as to benefit of this special rule.  However, I suggest  the taxpayer ( whom  had given up   US citizenship or GreenCard and within a three year period renounced the earlier decision  or  entered the country again as a GreenCard holder ) to read through  both section 871 and 877A in conjunction with the applicable tax treaty.  I say this  every thing depends  on the exact facts and circumstances of the particular tax payer.  

[taoj]

I see. So this special tax rule is applicable to only those who were US resident for tax purpose as permanent residence/citizen and is nonresident due to losing that status. It is not about those who were in US as nonimmigrant (e.g. work visa or stay for over 183 days), move out, and for some reason come back again (either back as nonimmigrant or with permanent residency). Do I understand correctly?

[pk · Accepted solution]

@taoj , your understanding is correct. 

This code section 877-A and the special rule also does not include even those  persons  whom have passed  Substantial Presence Test  and are taxed as Resident for Tax purposes , 

 This section  hints at  and is probably applicable  also to  Long-Term Residents  whom have been subject to Mark-to-Market rules  when leaving the country and  then come back -- I need to study the rule a little bit more extensively for that portion of the rules

Is there more I can do for you ?

[taoj]

This clears things up a lot - those are all the questions I have. Thank you @pk !