Which of the following is true about tax liabilities of expatriates?

The correct answer highlights an important aspect of the tax obligations for expatriates, which is that they are required to report their worldwide income to the Internal Revenue Service (IRS) if they are considered U.S. citizens or residents for tax purposes. This includes income earned both within the United States and abroad. Expatriates must use Form 8854 to formally mark their expatriation and report their income to maintain compliance with U.S. tax laws.

Form 8854, specifically, is a part of the procedure for individuals who have relinquished their U.S. citizenship or ceased to be long-term residents. It ensures that they disclose and settle any potential tax liabilities, including any income accrued in foreign sources. This requirement exists to prevent tax avoidance strategies that could arise from expatriating solely to escape tax liabilities.

The notion that expatriates do not have any tax liabilities simply by living outside the U.S. is misleading, as they remain taxable by the U.S. on their global income unless they officially terminate their citizenship or residency and fulfill all necessary tax obligations. Additionally, restricting their reporting solely to U.S. source income fails to capture the entire scope of their tax responsibilities. Lastly, expatriates cannot disregard foreign income for U.S. tax purposes,