The U.S. taxes its citizens on all income, regardless of where they live and earn this income. With the impending presidential election, the notion of some citizens renouncing their citizenship and moving abroad to some place like Canada based upon the result regularly appears in mainstream and social media.
The Immigration and Nationality Act provides the details regarding U.S. citizens and their right to voluntarily renounce U.S. citizenship. But renouncing American citizenship is a serious matter as signing an oath of renunciation is an irrevocable act for anyone over the age of 18. The number of expatriates that renounced their citizenship in 2015 was eighteen times as many Americans that renounced their citizenship in 2008, which broke a record for the third year in a row.
It’s one thing to give up U.S. citizenship status because either Donald Trump or Hillary Clinton wins the election, but it is illegal to renounce citizenship to avoid paying taxes. The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 makes it illegal for individuals who renounce their citizenship for the purpose of avoiding the payment of taxes to enter the United States. The Act provides special rules for making the determination whether an individual has renounced citizenship for the main purpose of avoiding the payment of taxes.
*If you expatriated after June 16, 2008, I.R.C. § 877A applies instead of I.R.C. § 877. Taxpayers are subject to an immediate exit tax, which deems for tax purposes that the taxpayer has sold all property for its fair market value the day before departure from the United States.
*If you expatriated on or after June 17, 2008, the new I.R.C. § 877A expatriation rules apply to you if any of the following statements apply.
- Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).
- Your net worth is $2 million or more on the date of your expatriation or termination of residency.
- You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
I.R.C.§§ 877 and 877A mandate that individuals who renounced their US citizenship or terminated their long-term resident status for tax purposes after June 3, 2004 are required to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation. If these requirements are not satisfied, the individual is subject to the I.R.C.§§ 877 and 877A expatriation tax provisions, regardless of whether or not the individual meets the monetary thresholds in I.R.C. § 877 or I.R.C. § 877A.
The U.S. Government will pursue you for unpaid taxes regardless of where you live, whether it’s in Canada or Mongolia. If you have questions about the tax requirements related to a renunciation of citizenship, call THE TAX EXPERTS AT THE Thorgood law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
