Winning Back-Office Strategies to Boost Your Business Agility
VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
by Bill Leary, Director, International Tax at Doeren Mayhew
While thousands of people around the world wait for an opportunity to legally immigrate to the United States, an increasing number of U.S. citizens are deciding to leave this country permanently.
It is not only the ultra-rich who are renouncing their citizenship, although they often make news. In some cases, ordinary people decide to retire outside the United States, with the complicated U.S. tax system serving as the impetus for many.
Several years ago, the routine procedure of renouncing U.S. citizenship was described:
During a 10-minute renunciation ceremony in a booth with bullet-proof glass windows, embassy staff ask exiting Americans whether they are acting voluntarily and understand the implications of giving up their passports. They pay a fee … and may incur an “exit tax” on unrealized capital gains … or their average annual US tax bill … during the past five years.
They receive a certificate within three months, telling them they are no longer American citizens and entitled to the services and protection of the US government.
A U.S. citizen or resident alien must pay taxes on worldwide income and continue to complete ever-more-complex reporting. U.S. estate taxes are also a motivator for those hoping to pass their wealth to the next generation. Even if you renounce your U.S. citizenship or turn in your green card, you may find your U.S. assets subject to income and estate taxes for years in the future. Nonresidents carefully monitor their time in the United States to manage their U.S. tax exposure.
There are also increased reporting obligations for those with foreign financial accounts and assets. Overlooking these filings can result in stiff penalties and possible jail time. The corrective medicine – voluntary disclosure – is an expensive, drawn-out process for U.S. taxpayers who attempt to correct past oversights or misunderstandings with the IRS about foreign investments. Also, foreign pension plans and deferral arrangements are reportable foreign assets and may be currently taxable in the United States. Many expatriates mistakenly consider them to be tax deferral arrangements like IRAs.
Finding help with U.S. taxes and planning strategies outside the United States is not as easy as buying Turbo-Tax® or visiting a local accountant. In foreign countries, knowledge of U.S. tax compliance obligations comes at a premium. In addition, an expatriate has to pay local taxes, which may be creditable against U.S. tax provided work through the complex integration of the two systems.
Foreign banks have become reluctant to deal with U.S. citizens because of the complex U.S. disclosure rules that apply to them. Passport renewals also require compliance with U.S. tax rules.
For resident aliens holding a green card the situation is not better, and they may have a greater incentive to turn in their cards. Even if you leave the United States without surrendering your green card, your U.S. tax obligations continue. For some, holding on to the green card offers security – if necessary, you can automatically return to the United States. The truth is that if you don’t return to the United States regularly, your green card is administratively frozen – why hold on to it?
Bill Leary is a Director in the International Tax Group at Doeren Mayhew. For assistance navigating tax complexities in the United States or abroad, contact our international tax accountants in Michigan, Houston or Ft. Lauderdale.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
A quick registration is required to view our resources.
You will only be asked to do this one time (unless you don't save your browser cookies).