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Who are the Expatriates?
Most Americans assume that the typical expatriate is a sixth generation American with no prior international connection, who decides one morning that he doesn’t want to pay taxes any longer, moves out of the country by noon and mails his passport back to the State Department that evening. It’s this perceived choice of tax avoidance over patriotism, with no other possible motive, that causes Republicans to regard expatriates as unpatriotic and Democrats to consider them tax cheats. Yet, the very interesting 2003 report on expatriation by the Congressional Joint Committee on Taxation[sup]4[/sup] was unable to identify a single member of any of the wealthiest U.S. families who fit into the above pattern. Practitioners in the area agree that such cases are very rare. Instead, expatriates fall overwhelmingly into one of three categories:
1. Members of a multinational family, who may have been born outside the United States, moved to the United States at some point and became naturalized and are now moving back to their home or to another country.
2. “Accidental Americans” who were born in the United States to non-U.S. parents and have spent most of their lives outside the United States. (For more information, see “The Accidental American,” by Gavin F. Leckie in the November 2011 issue of Trusts & Estates, p. 58.)
3. American citizens who moved abroad, often to marry or work, have lived in another country for many years and acquired a non-U.S. family and decide to become a citizen of that country and give up their U.S. citizenship.
Occasionally, a wealthy American with no prior international ties explores the possibility of expatriating, acting on rumors he’s heard about huge tax savings. He may be surprised to learn that he must both move out of the United States and give up his U.S. passport. Once he’s told of these two requirements, he may drop the idea. If he doesn’t, I recommend that he live outside the United States on a full-time basis for two years before proceeding further with expatriation. Very few people who’ve never previously lived abroad pass this test and proceed to give up their U.S. passport.
Some years ago, a wealthy American from Sarasota, Fla. obtained citizenship in a Caribbean country, gave up his U.S. passport and left the United States. However, he and his family found that the substantial tax savings they realized didn’t cure their homesickness for Sarasota. This expatriate then proceeded to incur favor with the ruling political party of his adoptive country, and in return, he found himself appointed as Consul General in the new consulate that country proposed to open in, of all places, Sarasota. (Accredited diplomats may live in the United States without paying U.S. tax.) Regrettably for him, the scheme made the newspapers before his diplomatic credentials were accepted by the U.S. State Department, and he never managed to move into the new consulate.
Some readers may view this story as an example of the lengths to which certain people will go to save taxes. I would instead interpret it as explaining why so few wealthy Americans do, in fact, expatriate: They want to live in the United States. Most wealthy Americans have figured out that there’s no point in saving taxes if they can’t live where they want.
Tax Cheats
Many Americans (and the press in particular) voice the opinion that expatriates are “cheating” on their taxes. Yet, in fact, Congress has imposed taxes on expatriates for over 50 years. As indicated, there have been several changes in the law, most recently in 2008. Why is someone who gives up his citizenship, complies with all of the applicable U.S. laws and (in many cases) pays an exit tax that may be very substantial, nonetheless, considered to be a “cheat”?
Of course, once that person leaves the United States and pays his exit tax, he’ll no longer be subject to global U.S. income and estate tax, unless he moves back.[sup]5[/sup] But so what? He’ll often be subject to taxes in his new country, which may be higher if the country is Canada or France, for example. An individual who moves out of New York doesn’t continue to pay New York state income tax on income that’s not connected to New York. This reduction may be more than offset if he moves to a state with higher taxes, such as California, or he may realize a net benefit if he moves to a low tax jurisdiction, such as Florida. As long as he legitimately moves, nobody is shocked by this result or decries his change of residence as “cheating.”
http://wealthmanagement.com/wealth-planning/why-do-americans-hate-expatriates
Most Americans assume that the typical expatriate is a sixth generation American with no prior international connection, who decides one morning that he doesn’t want to pay taxes any longer, moves out of the country by noon and mails his passport back to the State Department that evening. It’s this perceived choice of tax avoidance over patriotism, with no other possible motive, that causes Republicans to regard expatriates as unpatriotic and Democrats to consider them tax cheats. Yet, the very interesting 2003 report on expatriation by the Congressional Joint Committee on Taxation[sup]4[/sup] was unable to identify a single member of any of the wealthiest U.S. families who fit into the above pattern. Practitioners in the area agree that such cases are very rare. Instead, expatriates fall overwhelmingly into one of three categories:
1. Members of a multinational family, who may have been born outside the United States, moved to the United States at some point and became naturalized and are now moving back to their home or to another country.
2. “Accidental Americans” who were born in the United States to non-U.S. parents and have spent most of their lives outside the United States. (For more information, see “The Accidental American,” by Gavin F. Leckie in the November 2011 issue of Trusts & Estates, p. 58.)
3. American citizens who moved abroad, often to marry or work, have lived in another country for many years and acquired a non-U.S. family and decide to become a citizen of that country and give up their U.S. citizenship.
Occasionally, a wealthy American with no prior international ties explores the possibility of expatriating, acting on rumors he’s heard about huge tax savings. He may be surprised to learn that he must both move out of the United States and give up his U.S. passport. Once he’s told of these two requirements, he may drop the idea. If he doesn’t, I recommend that he live outside the United States on a full-time basis for two years before proceeding further with expatriation. Very few people who’ve never previously lived abroad pass this test and proceed to give up their U.S. passport.
Some years ago, a wealthy American from Sarasota, Fla. obtained citizenship in a Caribbean country, gave up his U.S. passport and left the United States. However, he and his family found that the substantial tax savings they realized didn’t cure their homesickness for Sarasota. This expatriate then proceeded to incur favor with the ruling political party of his adoptive country, and in return, he found himself appointed as Consul General in the new consulate that country proposed to open in, of all places, Sarasota. (Accredited diplomats may live in the United States without paying U.S. tax.) Regrettably for him, the scheme made the newspapers before his diplomatic credentials were accepted by the U.S. State Department, and he never managed to move into the new consulate.
Some readers may view this story as an example of the lengths to which certain people will go to save taxes. I would instead interpret it as explaining why so few wealthy Americans do, in fact, expatriate: They want to live in the United States. Most wealthy Americans have figured out that there’s no point in saving taxes if they can’t live where they want.
Tax Cheats
Many Americans (and the press in particular) voice the opinion that expatriates are “cheating” on their taxes. Yet, in fact, Congress has imposed taxes on expatriates for over 50 years. As indicated, there have been several changes in the law, most recently in 2008. Why is someone who gives up his citizenship, complies with all of the applicable U.S. laws and (in many cases) pays an exit tax that may be very substantial, nonetheless, considered to be a “cheat”?
Of course, once that person leaves the United States and pays his exit tax, he’ll no longer be subject to global U.S. income and estate tax, unless he moves back.[sup]5[/sup] But so what? He’ll often be subject to taxes in his new country, which may be higher if the country is Canada or France, for example. An individual who moves out of New York doesn’t continue to pay New York state income tax on income that’s not connected to New York. This reduction may be more than offset if he moves to a state with higher taxes, such as California, or he may realize a net benefit if he moves to a low tax jurisdiction, such as Florida. As long as he legitimately moves, nobody is shocked by this result or decries his change of residence as “cheating.”
http://wealthmanagement.com/wealth-planning/why-do-americans-hate-expatriates
