Is a Formal Appraisal Valuation Required for Exit Tax
Is a Formal Valuation Appraisal Required for Exit Tax ? A common question we receive from Expatriates who are preparing to exit the U.S. as either a US Citizen or LTR (Long-Term Lawful Permanent Resident), is whether or not they are required to obtain a Formal Valuation at the time of exit. Generally, the IRS does not require formal valuations to determine the Fair Market Value of non-public assets. And, even if the Taxpayer does obtain a formal valuation — depending on the purpose that the valuation was made and how far back it was from the date of exit — it may not be valid or accurate to reflect FMV at the time of expatriation. Let’s explore the basics of a formal appraisal/valuation at the time of exit.
Formal Appraisal Valuation
When a Taxpayer exits the US Tax system, and they are either a US Citizen or LTR (Long-Term Lawful Permanent Resident), they are required to file a Form 8854 and include the FMV of certain assets on the day before expatriation. Some assets may not have a public FMV and therefore, the Taxpayer must estimate the value. The issue becomes, does the Taxpayer have to actually obtain a formal appraisal?
While the answer is No –sometimes it can help if Taxpayer is concerned the IRS may come back and claim the asset had a higher value.
Valuation of interests in property. In determining the values of interests in property for purposes of the net worth test, individuals must use the valuation principles of section 2512 and the regulations thereunder without regard to any prohibitions or restrictions on such interest.
Although individuals must use good faith estimates of values, formal appraisals are not required.
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