How much is it worth these days NOT to be a U.S. citizen? Quite a lot, apparently.
As an undergraduate in Economics 101, I was taught that supply and demand curves intersect at:
- the “market-clearing price”,
- that’s where the number of buyers equals the amount of a product that sellers can profitably supply;
- raise that price, though, and there are usually fewer buyers at the market-clearing point;
— only those, to whom the product is worth a great deal.
What does it mean when:
- the price of a product goes up by 422%, but
- the number of buyers triples?
- It means that product has suddenly become a lot more valuable to those people.
- And that’s exactly what’s happened in the “market” to expatriate from the U.S.
Scrambling for the Exits: expatriation & renunciation
U.S. citizens can expatriate legally:
- a process of legally ending their citizenship;
- this form of expatriation is formally known as “renunciation”
- You fill out a form,
- A State Department official subjects you to 2 interviews, similar to those “retention specialists” who try to convince you not to cancel your cable contract;
- You settle accounts with the IRS,
- hand over your passport and leave;
- The next time you visit the U.S., you’ll need a visa
- which in some cases, isn’t granted.
What is going on with renunciation now?:
- in 2014, the State Department raised its fee for this process from $450 to $2,350,
- claiming the previous price didn't fully capture the costs involved;
- But something funny happened,
- The number of citizens renouncing their citizenship more than tripled from the previous few reporting periods.
- That suggests that the intrinsic value of ceasing to be a U.S. citizen has skyrocketed,
- enough that people are willing to pay a lot more to do it.
The real cost to expatriate, however, can be much higher than the State Department fee:
- Uncle Sam will be sorry to see you go,
- So sorry, in fact, that he’ll want to keep a part of you for himself.
- To renounce U.S. citizenship you must prove 5 years of U.S. tax compliance — all returns submitted and taxes paid.
- But if you have a net worth greater than $2 million or
- an average annual net income tax for the 5 previous years of $157,000 or more
- (that’s tax, not income),
- you’ll have to pay an exit tax!
- It’s levied at the prevailing capital gains rate, and
- calculated as if you sold your property the day before you cease to be a citizen, even if you don’t.
- (Fortunately, the first $680,000 of these theoretical “capital gains” is exempted from the exit tax.)
- On top of the exit tax, anyone to whom you give or bequeath any of your U.S. assets must pay tax at the prevailing gift/estate tax rate
- (they were unified under the American Taxpayer Relief Act of 2012).
- You can take the annual gift/estate tax exclusion ($14,000 for 2015), but
- the lifetime federal estate and gift tax exemptions ($10.9 million) won’t apply.
- Let’s say you want to give $100,000 to your remaining U.S. citizen child at or after your expatriation.
- The kid would have to pay $34,400 of your gift in taxes to the IRS (($100,000 – $14,000) X .40).
- Normally, there wouldn't be any tax at all unless you exceeded your lifetime limit, and even then,
- the tax would be less — and you’d pay it, not your child.
Even on the Way Out, You’ll Need an Attorney
- The U.S. has more lawyers per 100,000 persons than any other country on the planet.
- From birth to death, we rely on them to navigate the perilous waters of both private and public regulation and litigation.
- Failing to use an attorney can cost you, either by failing to comply with little-known rules or by failing to take advantage of similarly hidden opportunities.
Expatriation is no exception:
- If you ever decide that you want to take this step, you will need a good attorney, who specializes in these matters.
- For example, the calculation of your exit tax will involve applying:
--- short-term capital gains rates to some assets and
--- long-term rates to others.
--- And there are ways to reduce gift and estate taxes, too.
There are plenty of reasons to expatriate in addition to the outrageous U.S. tax system:
Over the last several years, we've watched:
- the decimation of our privacy (http://click2.sovereignsociety.com/t/Cg/AA/AA/AA/AA/cMk/AQ/r3M6),
- the reduction of our civil liberties,
- the militarization of our police forces (http://click2.sovereignsociety.com/t/Cg/AA/AA/AA/AA/cMo/AQ/5LGx) and
- the looming threat of a wealth confiscation (http://click2.sovereignsociety.com/t/Cg/AA/AA/AA/AA/cMs/AQ/kIYQ)
- as our country wallows in debt.
Whatever yours might be, if and when you do, make sure you get help from the experts, such as those on our Offshore Confidential “Rolodex”.