The act of jettisoning your U.S.A. citizenship is formally called renunciation.
Renouncing your citizenship is one legal way to free yourself from the global U.S. tax net. But if you have unrealized capital gains, it may be quite expensive because you are expected to pay a capital gains “exit tax” as of the day you expatriate. If you think you know other ways to beat the system rather than this way to legally opt out of it, I strongly recommend you reconsider and explore your options with an expert.
See Google “UBS tax scandal” if you’d like an example of what can happen to those who get bad advice—even from Swiss Bankers. I urge you not to fall for the myriad offshore tax planning promotions by lawyers and accountants on the Internet and in books. I investigated many of these, and they all end up in one of three categories:
1) phony scams like the one actor Wesley Snipes fell for;
2) old tax loopholes that briefly may have worked, but have long been closed; and
3) high-cost asset restructuring plans using trusts, partnerships, foundations and other vehicles which trigger the IRS enormous reporting requirements and flag you as a “person of interest” to them. The most important thing to remember is that virtually any tax avoidance strategy or corporate structuring can be interpreted by the IRS as Criminal Tax Evasion. Thus the only protection for those who hope to escape the tax net legally is leaving the jurisdiction permanently and also renouncing citizenship. Once you are living abroad, whether citizenship is formally renounced or not, the power to confiscate your offshore property or bring you back for punishment used to be essentially nil for income tax matters. However, with new treaties, the USA is gaining the power to seize and freeze the assets of Americans residing abroad. They are also working on getting the legal power to kidnap and return tax fugitives to the USA for criminal trial and incarceration. One official quipped “If you open a bank account on the Moon we can grab it.”
As I write this, literally thousands of additional IRS agents are being hired. There’s a new IRS division created to target wealthy people. I’d be remiss not to mention the IRS snitching program. Anyone can snitch anonymously, & if they give their name maybe they will theoretically collect over $10,000,000 in rewards. That’s MIllions! In reality, becoming an informer is a dangerous thing to do. Informers themselves often become government targets. If it seems too Orwellian to be true, Google and download IRS Publication 733 and read the snitch form for yourself. Really, what else is there to say?
Big Brother is regularly bribing bank employees to slip them confidential account information? Strangely enough, in a recent case, the informant who was expecting a multi-million dollar reward for snitching on his own Swiss bank clients is instead destined to spend the next few years in jail for his participation in a “conspiracy” together with those he snitched on. Further, the IRS carefully checks to see if all IRS reward recipients have declared their rewards as income. Not a few have been jailed for tax fraud. Perfidious governments? We have a lot more to say and write about this kind of double-crossing behavior.
WHAT ABOUT FIGHTING TO CHANGE THE SYSTEM?
Given the countless rip-offs and abysmal approval ratings of U.S. politicians over the years, it’s understandable that some people of principle are willing to expose themselves to retaliation by making a stand. I don’t recommend this approach. “You can’t fight City Hall.” Here’s just one example of what happens when someone like Irwin Schiff attempts to fight the system from within the system. Schiff, a hero to many, is in his 80s and is still rotting in prison:
http://en.wikipedia.org/wiki/Irwin_Schiff His main crime was writing a best seller calling the USA tax system an unconstitutional con game. The courts decided otherwise and because he would not recant, three times sent Schiff to jail where he has quietly mouldered away for over 30 years of his life.
Here’s the bottom line: Short of renunciation and expatriation, there is no strategy that legally and completely extricates you permanently from the global U.S. tax & reporting net. If you play fancy “tax avoidance” games, the best case scenario is
1) you’ll spend lots of money.
2) You will have considerable stress dealing with endless lawyers, accountants, reporting and the specter of regular audits and challenges.
3) In the worst case scenario is you may fail to fully comply with the raft of regulations and requirements of the IRS and the Treasury.
4) Result? Getting your assets confiscated, and possibly losing your own freedom.
Grandpa [firstname.lastname@example.org] a PT for 50 years, author of 2 dozen books, a retired lawyer & Wharton grad. Grandpa is willing to discuss your personal situation with you. He can make sensible recommendations without charge — if you are one of his book buyers or a consulting client. There are a few situations where renunciation is a very bad idea. As in most situations involving bureaucracies or governments, “the devil is in the details.”
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