U.S. Tax and Expatriation Tax Laws – They Are What They Are . . .
The point of this post is a fairly simple one. The law is complex, it has evolved significantly over the years and continues to evolve; if for no other reason how the IRS enforces it. Some people might not like the law.
As those who have read and followed Tax-Expatriation.com know; it is not a place to seek legal advice. It provides lots of information – a comprehensive source of information. See, limitations. It also does not attempt to contemplate every scenario when a particular point is made; e.g., as the IRS modifies how they interpret rules or how they enforce them.
For instance, for a fairly comprehensive article about how the law works, see Accidental Americans” – Rush to Renounce U.S. Citizenship to Avoid the Ugly U.S. Tax Web” International Tax Journal,CCH Wolters Kluwer, Nov./Dec. 2012, Vol. 38 Issue 6. The net worth threshold (US$2M) and income tax thresholds (US$124,000, indexed for inflation) are spelled out in that article. It does not have the indexed inflation amounts. See, The “Average Annual Net Income Tax” Amounts for “Covered Expatriate Status” – Increases to US$160,000 for the Year 2015
Every individual who renounces their U.S. citizenship is taking, in what is my view, a very important decision. Many individuals do not like U.S. tax laws; nor the expatriation tax laws. Many individuals around the world do not like their home country tax laws; nor other laws.
This blog is not intended to be a policy blog debating whether the U.S. tax laws are good laws or bad laws. It’s designed to provide information about the law and important developments and relevant information.
Finally, the “blogosphere” is full of people who attempt to write about the law as if they understand it; particularly the complexity of Title 26, the regulations and a host of case law that spans almost 100 years. These opinions are a dime a dozen. Many get it terribly wrong – particularly in this politically charged topic – and will make statements and provide information that sounds attractive to the uninformed. The following is the type of decision that is made every day.
Path 1: If someone tells USC, Mr. X (or if he reads) the following, he might find it quite attractive: “You will have no U.S. tax liabilities if you simply do “steps Y and Z.” Plus, the U.S. federal government will never know and/or they will never be able to collect the taxes from you anyhow. Simple. Would you rather pay $0 or a bunch of money to the U.S. federal government?”
Path 2: On the other hand, if a qualified legal adviser accurately advises USC, Mr. X of the following, he may not find the answer so attractive: “Sorry, given your factual circumstances, you will have US$ 100,00X of immediate income tax liabilities if you simply do steps “Y and Z.” Plus, by doing so, if you ever bequeath or gift your U.S. citizen children, they will have to pay 40% (under current law) of the value of such inheritance or gift in U.S. taxes. This latter tax obligation will not be your obligation, but rather your U.S. citizen children.”
Not surprisingly, Mr. X may well want to take Path 1, because it is the answer he prefers. If Mr. X does steps “Y and Z”, he will now live with the U.S. legal consequences. He well might not like those legal consequences and think they are unfair, unjust or borderline immoral for any government to impose, but that is how laws often work.
U.S. Tax and Expatriation Tax Laws – They Are What They Are . . .