As taxes continue to climb, more and more Americans are getting fed up. While its common to hear people in taverns and lunch counters across the country threaten to simply give up their citizenship, record numbers are actually doing so! Renouncing one’s citizenship and leaving the country is called expatriation. Of course many people who expatriate and leave the United States don’t give up their citizenship.
While many people feel that society is on the brink because of high taxes, reactions vary widely. Some folks prepare for the worst and watch Doomsday Preppers on Nat Geo, others pack up and simply vanish to another country, while others are content to simply complain. Moving out of the United States is obviously legal but the government does have rules if you want to give up your citizenship. (The irony of having rules for people who want to get away from rules isn’t lost on us.)
If you are seeking expatriation and want to renounce your citizenship, there are several things to consider.
First, there is an exit tax. Yes, really! Congress says that if you have a net worth of over $2 million or paid an average tax of $155,000 over the last 5 years, you must pay an exit tax and show 5 years of tax compliance. Obviously, if you don’t comply, the government can prosecute you. Even if another country provides you with citizenship, the IRS can still come after you.
Next, once you leave and give up your citizenship, coming back could pose problems. If you are tax compliant, expatriation should not present a problem but if you leave in the middle of the night and owe Uncle Sam, you may not be able to return. This is critical to many people who leave behind loved ones in the United States.
Expatriation without renouncing citizenship presents its own set of problems. The United States is unique in its insistence that all Americans must file tax returns in the US no matter where they live and report their world wide income. For example, while Brazil might not care about a Brazilian living in the U.S., Uncle Sam wants to know where you bank and how much money you earn no matter where you live and work.
If you ultimately decide that expatriation and giving up your citizenship are your only options, speak to a tax lawyer well versed in offshore tax reporting. There may be some transfers and gifts that you can make that will minimize any exit tax bill. Make sure you also talk to an immigration lawyer. Once you renounce its difficult to change your mind.
Thinking of leaving America the beautiful or just have questions about expatriation and foreign reporting issues? Give us a call. We will explain your responsibilities and explore your options. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting problems.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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Post by Brian Mahany, Esq.