Presidential Elections, Renouncing Citizenship, and Exit Taxes

Presidential Election, Renouncing Citizenship, Expatriation & Exit Tax

Presidential Elections, Renouncing Citizenship, Expatriation & Exit Taxes

With the way the political world has been going lately- and the upcoming U.S. presidential election- it is no wonder that many U.S. taxpayers are considering leaving the United States and moving to a foreign country. By giving up their U.S. person tax status, some taxpayers may even avoid being taxed on their worldwide income in years to come.

But is it worth it?

Unfortunately, the grass is not always greener, and sometimes renouncing U.S. citizenship may cause a bigger problem than otherwise intended.

Some key issues involving renouncing US citizenship around the presidential election are the following:

• • • The president does not hold all the power,

    • Many changes candidates boast about never come into existence,

    • Having access to the United States can be a good thing,

    • Renouncing U.S. citizenship can be a complicated process, and

    • Expatriation may result in a (costly) exit tax

While many taxpayers will get understandably overwhelmed around election season, it is important not to make a hasty decision when it comes to U.S. person status. This is especially true because it may be difficult to re-obtain that status in the future, especially for taxpayers who may have family members and elderly relatives living in the United States having immediate access to the U.S. can be a good thing.

Here are four (4) things to consider regarding renouncing US citizenship around the presidential election.

Checks and Balances

To win votes, politicians will pretty much say anything. Most politicians talk out both sides of their mouths — and most of the promises they make never come to fruition. With that said, even if the President has the intent to make certain changes that you may not agree with, that does not mean that it will go through the proper channels and become law. Thus, just deciding to renounce because the candidate who was elected is not the one that you chose may not be the best decision for your specific overall tax and living situation. So before renouncing or terminating your U.S. status, it is important to take a step back and carefully, evaluate why you were a U.S. person in the first place, before deciding to renounce.

Understand that Expatriation is a Process

When a Taxpayer is considered a U.S. Citizen or Long-Term Lawful Permanent Resident, just giving up your citizenship or terminating your permanent resident status is not that simple. Rather, there is a very formalized process that taxpayers must go through both with the immigration (USCIS) and the tax authorities (IRS). Especially for taxpayers who are considered U.S. citizens, the process of formally renouncing their US citizenship from an immigration standpoint can be very complicated — and generally requires the taxpayer to be overseas to renounce at one of the foreign consulate/embassies.

Be Aware of the Exit Tax

For taxpayers who want to renounce their US citizenship and formally expatriate, they may become subject to exit tax. Exit tax calculations contain many twists and turns — and involve more than just unrealized mark-to-market gain. Especially for taxpayers who have foreign pension plans, investments and trusts, and other types of assets, they may become subject to an exit tax, even if they have no unrealized mark-to-market gain. In addition, to satisfy the exit tax, some taxpayers may have to dip into investments and turn various investments into liquid, which they may not want to do — especially if the investment is bearing fruit. Therefore, it is important to look at the overall financial result of expatriating before renouncing/expatriating.

Plan B

Please be careful of non-attorney, non-tax professionals posting online about creating your Plan B and getting you out of the United States. The reality is that most of these plan B’s cost six and seven figures to be done properly — and when looking at the overall net effective result of expatriating and forming a Plan B (or not expatriating but still purchasing a Plan B), far outweighs the benefit that they are trying to sell you on. Plus, many of the ‘Plan B‘ sales techniques used by non-legal professionals do not work. While expatriation may be a good option for some taxpayers, it is typically because they have family or business overseas already and not simply because they are trying to escape a perceived danger in the United States as the result of an election. And, since it has become much more difficult for taxpayers to reacquire U.S. person status, they should be careful before formally renouncing/expatriating.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their taxes and international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.