Cross posted from USxCanada InfoShop
This is a description of a lengthy technical legal article from over two years ago, recently exhumed and annotated by usxcanada. Balanced in an academic sense; the main concern seems to be pursuing the whales; no minnow perspectives here. Regrets that conditions of use do not permit reposting of the full pdf.
Yu Hang Sunny Kwong
Catch me if you can: relinquishing citizenship for taxation purposes after the 2008 Heart Act
Houston Business & Tax Law Journal 9:3 (Fall 2009) 411-444
No link available.
This seven-part article features 281 footnotes. Parts: (1) Brief introduction (2) Cultural and financial aspects of tax-motivated expatriation (3) History of relevant law (4) Present circumstances (5) Essence of the problem (6) Possible improvements on current legislation (7) Conclusion.
The history in part 3 covers: (a) Early history (b) Expatriation Act of 1868 (c) IRC §877 and Foreign Investors Tax Act of 1966 (d) Health Insurance and Portability and Accountability Act of 1996 (e) American Jobs Creation Act of 2004 (f) Legislation 2004-2008 (g) Heroes Earnings Assistance and Relief Tax Act of 2008.
Part 4 covers different tax categories (income, gift, estate, exit, succession) as well as considerations relating to immigration law.
Kwong addresses “the difficulty of enforcing the United States’ system on wealthy taxpayers with enormous resources, patience and influence.” Yet strong “cultural resistance towards tax-driven expatriates” ensures that legislators will continue to persist in attempting to close loopholes.
Kwong concludes: “The only reliable way to remove the incentive to the expatriates is to adjust the expatriation tax regime so that it is revenue neutral.”
Look, it’s as simple as this: I pay up the eyeballs – much more than I would pay if I lived in America. I think ANY SANE PERSON would be AGAINST paying taxes twice. I might not have to pay any tax, but why should I even have to file in the first place??
My other gripe that the majority of articles leave out is the issue now of the FACTA. I don’t want to be told, while living in another country, that I am prohibited from having mutual funds outside of the US, or they would be taxed unfavourablly because they are outside of the US. Gimme a break!
If I really wanted to evade taxes, I sure as hell wouldnt live in Brazil.
Anyone, anywhere-USC or not, is liable for estate tax if they hold more than $60,000 in US assets. This for example includes shares of US companies held in a Canadian brokerage account or a condo unit in Florida. For 2012, there is a large exemption (5 million) based on your total world wide assets. These include your house, RSP , life insurance etc. The exemption for 2013 forwards could go way down or could stay where it is. Even if there are no taxes owing, if your assets are more than 60k, your executor is obliged to file under penalty of ‘imprisonment’. Most executors wouldn’t bother but those with US connections i.e. Canadian Trustcos and employees of the big accounting and law firms are obliged to.
The b******s are so intrusive they demand a copy of your will, your death certificate and on and on.
I just sold my US stocks. The h*** with them.
Given the estate tax obligations if a non-resident-of-the-US want to own any stock in a US corporation? If he does, there is also a risk of conflicts with the estate tax laws of the foreign country where he resides.
I spent a fair bit of time yesterday trying to become clear about the effects of FITA, HIPPA, ACJA, HEART, & HIRE on expatriation. One of the interesting comments I came across concerned the earliest of these – FITA 1966, affecting IRS Code 877,(presumption of tax avoidance and implementation of the alternative tax regime), 2107 (addition of foreign interests to US estate if death within the 10 year perios), and 2501 (gift tax). Sounds (and reads) complicated but shows the attempt to leave no area untouched. The author of the article said “Congress’s reason for introducing the provision was because FITA generally eliminated progressive taxation of the U.S. income of nonresident aliens not effectively connected to a trade or business and did not wish to encourage individuals to surrender their citizenship and move abroad.” I wonder how much of all this stems from the US’s “exceptionalist” point of view i.e., they simply cannot comprehend how anyone could consider leaving so they make it very difficult. Or is it simply be an attempt to punish?
Yikes.. I never even thought about estate tax for non-resident aliens with US assets. I’m very serious, we should make a document stating the overwhelming DISADVANTAGES to any links with the US and translate into all of the world’s major languages.
When I talk to people about the death tax, they are shocked and can’t believe that something like that exists. Good ‘ole US, profiting from someone’s death.
That is exactly right, geeeze. If you live outside of the United States, whether a US citizen or a foreign citizen, and when you die your estate includes stocks, bonds or whatever in a US corporation, or if you own any real estate or anything else located in the US, the US portion of your estate is subject to US estate taxes. When this becomes widely known I suspect that will be a powerful incentive for foreigners living outside of the US to divest themselves of such US investments. This deserves to be disseminated everywhere in the world.
While I think the expatriation list is an invasion of privacy it would be neat to have it shown to the American public what consulates in particular people renounced at. My guess it is very heavily concentrated in Canada, UK, Australia(There is a large number of US Israel duasl but I doubt many renounce). My guess based on their numbers China is probably high up on the list too.
I thought the video below is also kind of interesting showing a visit by New Zealand Prime Minister John Key to Air New Zealand’s office in Shanghai thanking the staff including expatriates for the good work they do for New Zealand. Key himself lived outside of New Zealand for many years in London and Singapore and across the Tasman Australian Prime Minister Julia Gillard was born in the United Kingdom.
What about internationally traded stocks such as Astrazeneca or Diago eventually left to me by my British husband in his UK brokerage account? Surely, they couldn’t hit me with death taxes in this situation?? (assuming I retain my US citizenship).
I guess the question is whether they could collect. If your aren’t already a UK citizens start the process NOW even if you aren’t immediately going to give up your US citizenship. In Canada they can’t collect from Canadian citizens and my guess would be it would be the same in the UK.
I don’t think they tax you when you inherit it , but once the assets they have been left to you, they are yours. if you are a US citizen, they will be subject to whatever estate tax is in place when you die.
If they are stocks in a US corporation and their value excedes the modest excluded limit, then your estate would be subject ot US estate taxes regardless of your citizenship. And, even if you are not a US citizen and are living outside of the US and you sell stock and realize a capital gains profit on the sale, that profit is, I am reasonably sure is subject to US capital gain taxation. Does anyone who specializes in US tax law have the solid facts on this?
Yes Roger, that’s why I keep saying (I said twice yesterday) it would be nice to draft up a document stating the *facts* about US citizenship. Then we could translate into multiple languages and post it here on the blog.
I’m NOT 100% AGAINST US Citizenship. It’s great for people who want to go live there. But I think the US does a lousy job of informing people of their “responsibilties” when they go there, and EVEN WORSE at informing Americans abroad.
@Roger, the only good decision that Obama made to up the estate tax levels. I think now it only affects people with 3 million plus. It used to be MUCH lower! Even still, why should the government gain from someone dying? That’s just morbid.
@ geeeez Estate taxes is double taxation because the deceased presumably paid income taxes on everything that is in the estate. Estate taxes threatens the passing on of family businesses to the next generation. Even in Canada, where there is no death taxes, taxes on retained earnings in a companies is due the day the person dies. The result is that in both the United States and Canada, a business owner will probably have to have an expensive life insurance policy if he wants his children to be able to keep the family business after his death. Thus, insurance guys like Warren Buffet really like the estate taxes. But it is devastating to small business owners and makes it extremely difficult to pass on companies to the next generation without a serious plan of succession. God forbid the owner dies without one.
You are so right and I totally agree. In view of the US policy of citizenship-based taxation and the more recent FATCA legislation there is a crying need for a comperhnsve document, available to any and everyone on the Internet, which contains the plain-truth facts for persons, for example:
1. Foreigners contempating accepting employment in the US with temporary work visas or permanent residence (green cards) with respect to not only their residence in the US but the tax obligations they will incur if and when they decide to return to their homeland, or relocate to another country either for employment reasons, or to retire.
2. The same for foreign citizens who become naturalized US citizens
2. US citizens and foreign permanent residents who relocate to live, work or retire in a foreign country.
3. US citizens who become are dual citizens of another country or who become naturalized citizens of another country and renounce or relinquish their US citizens.
I doubt that the IRS would accept the responsibility for perparing and disseminating such a doument. But because US tax laws are so unique that those of other countries, all of which have residence-based taxed systems, there is a definite need for such a document so that US Citizens contemplating relocating abroad andforeigners contemplating relocating to the US will be able to do so.
Mona. Us citizens are liable for gift and estate taxes anywhere in the world. In your case, not on what your husband left you but on what you might leave when you finish the back nine. Under the ‘Bush tax cuts’ the life time exemption is 5 million. However they are due to expire in a year or so and the new exemption COULD be lower. In any case there is an onerous, intrusive, and expensive obligation for the estate of all US citizens to file. Many don’t bother but big time accounting firms and legal firms are often afraid not to.