Defered Departure Tax ... does it have to be paid?

[JGCA]

In my preceeding paragraph when I said he has a capital loss equal to the deemed dividend less his ACB, I want to correct this to less his PUC ( paid up capital not his adjusted cost base).

[nelsona]

Putting aside the issue of cpcc shares, etc, I hope I can get a correct understanding from you on capital losses for US sake.

A Cdn moves to US, and has $500 of ABC shares which were bought at $1000 . His deemed dispo loss is $500, reported on his departure return.

The market crashes further and he later sells the shares when living in US at $100.

You do realize that his allowed capital loss is $900. The IRS has never accepted deemed diposition as an event, so unless one elects, the cost basis remains $1000.
I hope you didn't have a misconception that IRS ignores pre-arrival gains and losses. they don't. One has to elect it if beneficial (and could only dod this since the last protocol).

thesame would be true of a stock that rose from $500 to $1000 at deperture, and then was sold at $1500. The cap gains would be $1000 unless election was made.

[nelsona]

The reason is IRS doesnot have a concept of starting and stopping filing requirements, like Canada does, since citizens are always taxable.

That is why the protocol on deemed dispo had to be encted, because it was unfait tjat Cdns leaving canada had to pay twice on pre-arrival gains. But the had (and stll have) the right to use the capital losses twice.

[JGCA]

Your explanation holds true in a case where one left and there was a subsequent sale the loss would be recognized in the US as you state, in this case there was no actual sale so this loss is not recognized in the US.

Your analysis is correct, but based on a different scenario than this one relates to.

[nelsona]

Phew. i'm glad we agree on that one.

The wind-down is a whole other animal, and you have correctly described it.

Just wanted to make sure about 'normal' cases.