How is an expatriate's tax liability calculated?

An expatriate's tax liability is primarily determined by the submission of Form 8854 and the calculation of their worldwide income. When an expatriate renounces their U.S. citizenship or terminates their long-term residency, Form 8854, also known as the Initial and Annual Expatriation Statement, is required to report their expatriation status and provide the IRS with information about their assets and income.

The important aspect of this form is that it helps establish whether the individual meets the criteria of a covered expatriate, which can influence how their income is taxed upon expatriation. Worldwide income is crucial in this context because expatriates are still subject to U.S. taxation on their global earnings. Thus, calculating their tax liability involves assessing all sources of income earned both domestically and internationally.

This process is vital for expatriates to ensure compliance with U.S. tax laws, as failing to correctly report and calculate tax obligations can lead to significant penalties and complications. The other options, while they may play a role in the overall process, do not fully encompass the specific requirements and calculations needed to assess an expatriate's tax liability correctly.