Expatriate Acts
EXPATRIATION—the act of formally relinquishing your U.S. citizenship and physically handing back your passport—is surprisingly simple. Under Section 349(a) of the Immigration and Nationality Act, those relinquishing their citizenship must appear in person at an American embassy or consulate in a foreign country and make a voluntary written renunciation of nationality. The State Department reviews all oaths of renunciation and must issue a Certificate of Loss of Nationality for it to be legally binding.
Fewer than 1,000 Americans each year follow through with the expatriation process, and most are not necessarily tax-motivated or “taxpatriates,” notes Robert Bauman, legal counsel to the Sovereign Society, an association that promotes offshore investing within full compliance of U.S. tax laws. “Many are people who have married someone outside the country, or people with parents who were U.S. citizens but have no emotional or financial ties to the United States. Very few people expatriate for only tax reasons.”
Those who do should begin by liquidating all U.S. assets, which can take up to several years. Then the individual must move to a no-tax foreign nation to establish residency and start the process for new citizenship, which can take anywhere from one to 10 years. Once a new passport, residence and domicile are secured, the individual surrenders his or her U.S. passport.
The IRS, however, requires some expatriates to file U.S. income tax forms for 10 years and to pay taxes on U.S.-based assets if they have given up citizenship to avoid paying taxes.
Also, the Illegal Immigrant Reform & Immigration Responsibility Act of 1996 gives the attorney general the right to block entry to former citizens who renounced citizenship to avoid taxation. The law, which lumps taxpatriates in the same category with terrorists, drug traffickers, prostitutes and polygamists, has yet to be enforced. “Then-Attorney General Janet Reno said
she couldn’t think of how she could enforce it,” Bauman explains, “so it
has been something of a paper tiger.” However, the fact that it remains on the books should be a consideration—if only a minor one—in the decision to expatriate. |
But William has also experienced the downside of expatriation. Some members of his family disagree with his choice to leave the United States. His sister-in-law thinks it unpatriotic, and his mother worries what neighbors or friends of the family will think. If William ever decides to reapply for U.S. citizenship, he will have to submit to the same process as any naturalized alien. And the INS occasionally bars expatriates from reentering the United States, especially if they have handed over their passports to evade taxes. A decade later, William harbors no regrets about his choice, which has boosted his business. “I can travel to more countries without a visa than an American can,” he says. “There’s no question that I’m better off financially. My tax rates are lower and I don’t have to file in the U.S. anymore. But more than anything, I just feel more free.”
the price of freedom
Many émigrés who hand in their passports are seeking greater independence. Some have strong libertarian leanings, while others vehemently disagree with government policies. David Lesperance, a Canadian attorney who counsels U.S. clients on tax and expatriation issues, notes that some of his clients are concerned about the possibility of the government drafting their children for service in Iraq. Most of them, however, simply want to protect their assets. Some call expatriation the ultimate estate plan, in the belief that once clear of the U.S. government, individuals can avoid income and estate taxes.
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