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Tuesday, August 3, 2010

Expatriation and Taxes,Continued

An earlier post explained how taxes have prompted a small number of Americans to give up their citizenship. The Financial Times has another story on this subject:

At the US Embassy in London, there is a waiting list that none of the officials likes to discuss. On the list are Americans hoping to give up their citizenship, as they seek shelter from the Internal Revenue Service ... With many executives living away from their countries of origin, the reasons to change citizenship range from clarifying tax status, making it easier to cross borders, particularly in the case of passport holders from emerging markets who find themselves working in countries such as the US for a prolonged period of time, or discovering that over time their allegiances have changed.

While any individual will need to weigh the pros and cons of any change in status, both in terms of the hassle it can entail but also the long-term consequences, it also poses challenges for employers.

The backlog at the US Embassy, where no appointments are available until February, stems from a rise in the number of American expatriates living in the UK who have been seeking to escape paying US tax on their worldwide income and capital gains since the simplification of US tax laws in 2008.


A few advantages are gained by forfeiting US citizenship, accountants say. Chief among them is that doing so widens one’s investment choices. “It removes the possibility of a super-complicated life of having to juggle two different tax systems,” says Alex Jones, a director at Deloitte, the professional services firm.

“Being American presents you with a very particular and peculiar set of problems from a tax perspective and over the next few years, it could get worse for the wealthy,” he adds.


Not every American who seeks to renounce US citizenship does so for tax reasons. A number of those signed up on the US embassy’s waiting list consider themselves “accidental” citizens who were either born in the US or have an American parent, but have spent little time across the Atlantic.

Others do so for political reasons. “I have one client who gave up her US passport because she was still mad about the McCarthy hearings,” laughs Mr Cassell.

People are tied to their country of birth in deep and complex ways, and severing these links has consequences. If you grow to regret your decision to resign as an American, advisers warn that is difficult to become one again as you will be treated like any other non-resident alien of the US.

“The cons are clear,” concludes Deloitte’s Mr Jones. “If you give up a US passport, you take the chance that you will never be able to go back to live and work in the US again.”