Expatriation – Relinquishing U.S. Citizenship and Green Card Status
U.S. citizens and permanent residents pay income tax on their worldwide income. If sufficiently wealthy, their worldwide assets are taxed when they die. This is true no matter where they live in the world.
Every year, more and more people are relinquishing their U.S. citizenship or giving up their green card (permanent resident) visa status. This means that they are leaving the U.S. tax net. As they leave, the United States seeks its last chance to impose tax.
This is the “exit tax.” Section 877A of the Internal Revenue Code.
If you are rich enough (as “rich” is defined by the U.S. government) or your tax paperwork is not in order, the Internal Revenue Service pretends that you sold everything you own on the day before you relinquished your citizenship. After applying an exemption amount ($651,000 in 2012) you pay tax on the “pretend” sale.
The Internal Revenue Service pretends that you received all of your IRA balances on the day before you relinquished your citizenship. That’s all taxable income to you.
There are a number of other special tax rules that may create an enormous tax liability to the United States, just because you gave up your U.S. citizenship or green card visa.
Even if you are not rich (again, “not rich” is defined by the U.S. government, not by you), you will still face a mountain of tax paperwork to do correctly and on time. Failure here will cause you to be taxed as if you are
We know these tax rules–perhaps better than anyone else–because we counsel so many people on this process. Let us help you with this process–from your initial questions when you are first thinking about taking this action, through the tax planning before you relinquish citizenship, and the tax returns afterwards.
Schedule a consultation (in person, on the phone, or on Skype) with Phil. Think of this like going to the doctor and getting a diagnosis and recommendation for a cure. Understand the process and the paperwork. Find out what you can do to reduce or eliminate the exit tax. Leave with a plan of action.
Read the book
Phil wrote a book about the exit tax -- The Exit Tax: U.S. Taxation of Former Citizens and Long-Term Residents. It is a nontechnical explanation of the exit tax rules and is available for the Kindle, iPad, as a downloadable PDF, and as a paperback book.
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Read the FAQs
Read the Frequently Asked Questions about the expatriation process and especially how the tax rules work. It's free.