February 23rd, 2012 by Abby Keane
Off late, there is a significant number of people talk of leaving the US for good. Though most do not end up doing it, things are slightly changing. Per estimates, the number of persons who renounced their US citizenship (or US permanent residency) was on the higher side in 2011. If one goes by the estimates, there is a 16% increase from 2010.
The IRS has redoubled its efforts to have US taxpayers report their worldwide income and to disclose their foreign financial accounts. It also doesn’t help that the IRS has placed voluntary disclosure efforts during the past few years to bring taxpayers into compliance. Though such programs are a good thing, tax payers still feel that the IRS has not done enough to forgive all penalties.
For these and other reasons best known to themselves, some American citizens and US permanent residents have decided to quit, apparently in large numbers. US citizens or permanent residents who withdraw themselves from allegiance to the country after June 16, 2008, are considered as having sold all their worldwide property for its market value the day before leaving the country. Per estimates, 3 million to 6 million Americans reside abroad. Considering this, the number of renouncements might look small. But the recent increase in this number shows a growing dissatisfaction with the way the US government treats such people and their money. Remember that US is the only industrialized nation that taxes its overseas citizens. They have to pay tax in both their country of citizenship and country of residence.
This gain is taxed as capital gain, but this “exit tax” is certainly unforgiving. Not all who withdraw themselves from allegiance to the country face the exit tax. It is only for covered expatriates. In addition, certain persons born with dual citizenship who did not have a substantial presence in the US are exempt from this. Some minors who expatriated before the age of 18-and-a-half also qualif for an exemption. Though they qualify for an exemption, they are still required to file an IRS Form 8854 Expatriation Information Statement.
If you have less than $651,000 gain from the deemed sale of your assets, you are free from the exit tax. This exemption amount is adjusted for inflation. If your income from the sale of your assets exceeds this amount, you must set apart the income in proportion to all appreciated property. The exclusion must be set aside to each item of property with gain on a proportional basis.
Even if you are required to pay an exit tax, some are allowed for exemption. You have to submit a few forms. You have to file IRS Form 8854. Additional special forms may be required and it differs case to case. It is better to get some advice on these issues, both from a tax lawyer and an immigration lawyer.