What occurs during corporate expatriation events for tax purposes?

During corporate expatriation events, which often occur when a U.S. corporation reorganizes or changes its tax residence to a foreign jurisdiction, taxation on unrealized gains may indeed be triggered. This is a significant aspect of expatriation under U.S. tax law. The Internal Revenue Code has specific provisions that treat the expatriating corporation as having sold its assets at fair market value immediately prior to the expatriation. As a result, any unrealized gains accumulated on those assets become taxable.

When a corporation expatriates, it does not simply receive a clean slate or a cancellation of tax obligations, nor does it get its tax penalties waived. Such events typically do not result in the immediate dissolution of the corporation as it may continue to exist in its new jurisdiction. Instead, liabilities related to unrealized gains must be addressed as part of the tax implications of the expatriation process. The requirement to account for these gains ensures that the U.S. government can collect its due taxes on income that has been accumulated prior to the move.

Overall, the correct answer reflects the reality that expatriation involves significant tax considerations, especially regarding the treatment of unrealized gains, emphasizing the need for careful planning by corporations contemplating such moves.