Aug 8, 2017
Last week, the IRS published the names of individuals who had relinquished their U.S. citizenship or their long-term residency status (green cards) over the last quarter. The report showed that Americans are continuing to give up their citizenship at a dramatic rate, as 1,759 people expatriated between April and June 2017. This is the second highest quarterly number on record (after the fourth quarter of 2016).
There are dangerous tax traps for those wishing to exit the U.S. The Wolf Group highly recommends that those individuals who are considering relinquishing their citizenship or green cards understand all the tax implications involved before doing so.
If you are considering leaving the United States for good, you must be concerned about whether you will be subject to the so-called Exit Tax. The Exit Tax may apply to you if you have a worldwide net worth of greater than $2 million or if you have an average annual income tax liability for the previous five years of $162,000 or more.
If you become subject to the Exit Tax, the IRS will treat you as if you had sold all your property at its fair market value, and any gain (less an exemption) will be taxed at capital gains rates in your final U.S. tax return. You may also be subject to U.S. Exit Tax on your ownership of Individual Retirement Accounts and foreign pensions.
The Wolf Group’s Perspective
In our practice, we see a myriad of reasons as to why Americans or green card holders wish to relinquish their citizenship or green cards. Even if the reasons you are leaving have nothing to do with taxation, you still may be subject to a large punitive Exit Tax. The Wolf group has assisted dozens of clients with the tax implications of exiting the United States by helping them to understand the relevant factors, properly time their departure, calculate the tax impact of different scenarios, and mitigate the tax cost and risk of expatriation.