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| Flags of Convenience |
The Perpetual Traveler
Michael Verdon
05/02/2005
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While most Americans view expatriation with disdain, they hold financially motivated expatriation in howling contempt. In 1994, Forbes ran an article on a group of wealthy U.S. citizens who had expatriated to preserve their estates for their heirs. These “taxpatriates,” as they came to be called, included the founder of Carnival Cruise Lines, Ted Arison, who kept his Israeli citizenship and moved back to Israel; billionaire John Dorrance III, an heir to the Campbell Soup fortune, who moved to Ireland and tendered his U.S passport; and Kenneth Dart, heir to Dart Container, whose fortune was valued at $1 billion at the time. He became a citizen of Belize and works in the Cayman Islands. Congress reacted to the subsequent outcry, rushing through a series of laws designed to make expatriation, particularly for the wealthy, more difficult.
Most affluent individuals who give up their citizenship move to either no-tax or low-tax countries (although under IRS rules, taxpatriates must pay U.S. taxes for 10 years after renouncing their U.S. citizenship) in order to avoid what they believe are unfair estate taxes. However, several attorneys interviewed for this article report that their expatriate clients move most of their assets offshore, making it tricky for the IRS to enforce its 10-year rule.
Anthony, whose family owned a specialty steel manufacturing business worth $30 million, says he decided to pursue expatriation when he realized that he wanted to leave most of his money to his children and grandchildren—not the federal government. Because the United States is the only developed nation with taxes based on citizenship rather than residency, Anthony knew that he could not simply leave the country and establish residency in a tax haven such as the Bahamas. He would still be liable for any dividends or investment income, and his estate would be subject to U.S. tax laws.
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