When US citizenship starts to look like a bad deal

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When Donald J. Trump was elected president in 2016, some people, including many Democrats, talked about giving up American citizenship and moving abroad for political reasons. But now another group of Americans are saying they are considering leaving – both parties who would be affected by the property tax proposed by two senators who want to face Mr. Trump in his reelection race, Elizabeth Warren and Bernie Sanders.

Wealthy Americans often leave high-tax states like New York and California to live in low-tax states like Florida and Texas. Waiving citizenship, however, is a much more permanent, costly, and complicated issue.

Many who do this to save tax and get rid of American financial regulations and filing requirements also make a more comprehensive statement.

"America is the most attractive destination for capital, entrepreneurs and people who want excellent education," said Reaz H. Jafri, partner and head of immigration practice at Withers, an international law firm. "But in today's world where there are other business centers like Singapore, Switzerland and London, the United States is not seen as the only place to be."

According to the US Treasury Department, which publishes expatriation figures, 231 Americans gave up their citizenship in 2008. 742 did the next year. By 2016, the figure was 5,411, 26 percent higher than in 2015. In 2017, it was roughly the same before falling to 3,983 last year.

Immigration lawyers said the numbers would be higher if the embassies had the staff to accommodate the volume of requests. David Lesperance, a Canadian immigration lawyer who lives in Poland and specializes in helping American citizens emigrate, said many embassies around the world needed to catch up on making appointments.

"The current reality is that an American who wants to do without something must first book an appointment in a processing system that has reached its capacity – which is evidenced by the substantial backlog in granting interview slots," said Lesperance in an email. "In fact, order backlogs have risen so much (up to and sometimes over a year) that most US missions no longer publish the appointment information online and have not done so since the system appeared to have reached capacity a few years ago."

As soon as this date is saved, the process seems to have accelerated. Mr. Jafri said he had customers who had been waiting for the letter for over a year to confirm that they were no longer American citizens. Well, he said, this letter can come in two weeks.

"Somewhere in the system, the decision was made to issue them faster," he said. "We have seen no slowdown in the waiver."

In the past, the majority of expatriates were divided into two categories: elderly, wealthy people who hoped to save taxes and the "random Americans" who were born in the United States but lived and worked abroad or those abroad were born, but lived in the United States long enough to fall under the Internal Revenue Service's tax authority.

Now, many inquiries are coming from younger entrepreneurs who are upset about the political situation in the United States and people who want to do business abroad and are not subject to American accounting standards.

"This younger person also sees it as an impact on citizenship, as an impact on investing," said Jafri. "You don't want to be American. You're not happy with how we are perceived overseas."

Mr. Jafri said he had heard of several other reasons as well. There are people who are motivated by fear. "We have people who are totally concerned about the prospect of a Warren presidency and a wealth tax," he said. "And there are people who are equally terrified of Trump's re-election."

There are also business people who are not I.R.S. Verification or assumption that the foreign bank and financial accounts annual report has become too time consuming or too expensive.

"I've never seen this before," said Jafri. "People always said:" When one or the other becomes president, I move to Canada. "

But now the price can be right to go. While the cost of expatriation varies based on a person's wealth, the wealthy bet that winning a Democrat next year means lower exit tax.

There is no exit tax for people with assets of less than $ 2 million or an average salary of $ 165,000 over a period of five years. For everyone else, the exit is calculated on a person's assets as if it had been sold on the day of the expatriation. For example, someone with a portfolio of valued stocks would be taxed at the rate of capital gain.

It gets difficult when people own private companies that need to be valued. Even if they don't sell the business, they have to come up with taxpayers' money to get the I.R.S. But like inheritance tax, there are ways to lower the value of the business, including the argument that a closely held family business is not marketable.

Mr. Jafri said he had a customer who had just paid a $ 58 million exit tax even though it was 40 percent higher before a valuation company made various deductions.

The wealthy who are considering giving up their citizenship fear a wealth tax less than the possibility that capital gains tax could be raised to the normal income tax rate and which effectively doubles what a wealthy person would pay, said Lesperance.

"I have a customer, a relatively young man who has made a lot of money as a founder and is not optimistic about the US in the long run, but what makes him lock himself in and forego something is that he made the numbers. "He said." He said that if there are very few democratic plans to tax capital gains like ordinary income, it makes sense to do without them now. "

Regardless of wealth, anyone wishing to give up their American citizenship must have completed all tax forms in the past five years. This is one of the major stumbling blocks, said Jerald David August, chairman of the Fox Rothschild law firm's international tax and wealth planning group.

"The prototype is a US citizen living abroad who is tired of paying taxes twice worldwide," said August. “The specter of this five-year review and the awareness that there was no full compliance can be intimidating. I have had situations where, after receiving extensive advice, clients have decided not to pursue expatriation. "

Had they done so without having an impeccable tax return, they would have been forced to change the tax return or, worse, be checked for tax evasion.

Even if their returns are compliant, any money they give to children who are still citizens are subject to an inheritance tax of 40 percent.

"If someone in the United States had never set foot and died and left someone with $ 100 million to move to the United States, the children would not have paid the tax," said August. "But if they left with $ 10 million, the US remains responsible for taxing the person who left."

Those who leave must also think about their reputation on the part of the finance department publishes a list of people who emigrate abroad.

When Eduardo Saverin, a Brazilian-born and American-educated Facebook founder, gave up American citizenship shortly before the social network went public, he was criticized for tax evasion. However, his spokesman said he had lived in Singapore for several years. Various estimates said that giving up his citizenship before Facebook's IPO saved him $ 700 million in taxes.