To Give Up or Not Give Up A U.S. Citizenship for Tax Purposes? That is the Question Many U.S. citizens or green card holders, seeking to avoid the long and heavy arm of Uncle Sam, visit their tax attorney and the first sentence they say is "I want to give up my citizenship/green card". For many reasons, few in fact do so, as other solutions exist. The purpose of this article is to explain the tax consequences of such expatriation. The United States imposes an exit tax on "covered" US citizens and green card holders who renounce their citizenship or green card (collectively, "covered expatriates"). Since June 2008, a person is deemed a covered expatriate if they:   

Have average annual net income tax for the 5 years of more than $157,000 (for 2014) ending before the date of expatriation; Have net worth of $2 million or more on the date of expatriation, or Fail to certify that they have complied with all U.S. federal tax obligations for the 5 years prior to the date of expatriation.

A citizen is usually treated as giving up his or her U.S. citizenship on the date the individual renounces his or her U.S. citizenship at a U.S. embassy or consular office. A green-card holder ceases to be one once, in accordance with U.S. immigration laws, such right to reside lawfully and permanently in the U.S. has been revoked or determined to have been abandoned. The exit tax is imposed on the covered expatriate. Conceptually, the exit tax means that all property (stocks, investments, real estate, etc.) of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date. Any gain arising from the deemed sale is taken into account for the tax year of the deemed sale. The deemed gain is reduced (but not to below zero) by $680,000 (for 2014) and the rest is taxable. Several important issues that arise in the context of expatiation are: 1. Is the gain to be taxable as lower capital gains rates or potentially higher individual tax rates? If the property subject to the exit tax was received as compensation, then the potentially higher individual tax rates may apply to some or all of the gain. 2. Is the expatriate married? If so, is the spouse a U.S. citizen or green card holder? If so, is the spouse expatriating as well? This issue can be of significant importance. 3. Foreign tax credit. Does the taxpayer receive credit from the country of residence when the property is actually sold? 4. Non-tax issues include issues such as will the expatriating person be able to enter the U.S. on a tourist visa in the future. To summarize, the expatriation option of taxation is available but is not to be taken lightly. A person falling under the definition of "covered expatriate" should not consider this option without closely examining the tax implications of such decision, and the alternatives. This article does not constitute legal advice. Please contact us if you have further questions. Monte Silver is a U.S. lawyer based in Israel specializing in U.S. tax matters. He formerly worked for the Internal Revenue Service and the U.S. Tax Court.

Monte Silver, Adv. Mob: +972-544-232-683 email: [email protected]