The number of individuals ending their US status, or “expatriating” continues to rise unabated. “Expatriates” as used in this context refers to citizens renouncing US citizenship or “long term residents” giving up a green card. On October 28 the Treasury Department released the names of 732 individuals who “expatriated” during the third quarter of 2020. When this number is added to the previous 2 quarters, the total number of expatriates published during 2020 already equals 6,047, making 2020 a record year for names published (shattering the previous record in 2016 of 5,411 names).
It is possible, however, that the Treasury is just catching up on some backlog in publishing its “name and shame” list since the number of names published in 2019 was quite low at 2,072 and we know from prior lists that the publication of some names is for individuals that expatriated in earlier years. Delays can happen when information is slow in reaching the Treasury Department, for example, from the Department of State that receives information from the various US embassies and consulates around the globe which handle expatriations. And, let’s not forget delays that may be due to COVID-19!
A Big Decision…. But Easy for Some
The individuals I counsel who are expatriating or considering it, cite the uncontrolled COVID-19 pandemic in the US, the political upheaval there and of course, the extreme burdens of citizenship-based taxation. The burdens associated with US tax compliance for the overseas American have impacted their banking and financial freedoms as well as caused stress levels to skyrocket as fears of some kind of “technical” noncompliance simply continue to grow as the tax laws on so-called “foreign” assets become more and more complex.
Looking at President elect Biden’s tax proposals problems are in store for anyone considering giving up US citizenship or long term permanent residency. My blog post here runs through some of the Biden tax proposals and details how they will harshly impact those who are looking at expatriation. The proposals, if enacted, will hit hard at US persons owning foreign corporations, too. Those thinking about expatriation must take immediate action to ensure tax planning is completed before the year-end. I expect that once this information becomes more widely known, we will see an increase in numbers renouncing US citizenship and abandoning green cards.
US Tax Concerns
US tax concerns plague the American living and working overseas. Take for example the US tax issues surrounding foreign pensions and retirement schemes. For the American working abroad, a non-US pension is quite common and part of everyday life. Yet, the US tax rules surrounding this entire area are extremely complex and have vexed tax professionals and US persons abroad for many years. (You can read about the tax issues with regard to foreign pensions at my earlier blog post here). Due to the diversity of such plans among employers and countries, tax professionals have scant guidance on how to treat them. Yet, the penalties for noncompliance with tax and reporting duties on such pensions can be outrageously high.
Think about it – let’s say you are a Saudi Arabian national and are very happy living and working in Saudi Arabia or some other tax-free Middle Eastern country. You plan to remain in the region because this is where you grew up, your family is here and your roots are here. Perhaps you became a US citizen after studying in America over a decade or two ago. You also have ownership in the family business and plan to build it up with your siblings. The US tax laws require you to report extensive information on your US tax return about that foreign-owned business (including for example, provision of profit and loss statements), causing disharmony in your family; you may have to file information returns about the financial accounts owned by that business; you will be paying US tax on your world-wide income (including what tax pros call “phantom income”, such as GILTI, on which tax must be paid even though income was never actually received) and many potential business partners may no longer wish to do business with you because you are an American. Wearing those shoes, a decision to expatriate may become more understandable.
It’s the cold hard truth that the American abroad is not looked upon favorably by the US tax laws. The tax laws view anything “foreign” with a jaundiced eye when it comes to the US taxpayer – be it that the taxpayer has a “foreign” spouse, holds “foreign” financial assets (including a “foreign” mutual fund or “foreign” life insurance policy), runs a “foreign” business, and the list goes on. My earlier blog post provided a rundown of the numerous areas in which the US tax law makes it clear that all things “foreign” are not favored.
Small wonder the fed up American abroad is saying, “Enough is enough”. For many with alternatives, US citizenship is simply no longer worth the emotional and fiscal price tag.
If you are thinking of expatriating, you need a review of your tax compliance over the past 5 years. If you have been using a US-based tax return preparer who lacks familiarity with international tax issues or, if you have been preparing the returns yourself, this is even more critical. You may also need to do some tax planning. Both of these factors should be checked to make sure you will not be tarred with the “covered expatriate” brush. Details at my earlier blog post. We are happy to assist and have the experience you need.
Posted November 19, 2020
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