The 10 year rule on filing taxes after loss of citizenship

Moderator:

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A 1996 anti-expatriation law inspired by the Forbes article asserts limited U.S. tax jurisdiction for a period of 10 years over persons who renounce their U.S. citizenship "with the principal purpose of avoiding U.S. taxes." Also covered by this law are permanent resident aliens ("green card" holders) or anyone else who has resided in the United States for any eight of the preceding 15 years. For the purposes of this law, tax avoidance is presumed to be the true purpose if, at the time of expatriation, an expatriate's net worth exceeds US$552,000 or he or she pays an annual tax bill exceeding US$110,000, figures that are indexed for inflation annually. However, with proper planning, it is relatively easy to avoid U.S. taxes during this 10-year period. The lengths to which politicians will go to penalize expatriates is demonstrated by a never-enforced provision of U.S. law, also enacted in 1996, that permits the Attorney General to bar from returning to the United States anyone who renounces their U.S. citizenship to avoid U.S. taxes. In this manner, Congress lumped individuals exercising their legal right to avoid taxes with narcotics traffickers and terrorists.

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Andy comments:

So, if a lot of Mexican green card holders work in the US for 8 years and goes back to Mexico, our tax law says they have to pay US taxes for the next 10 years..... I wonder if anybody realizes that, or is it just another law that the US will forget about to accomodate our Mexican neighbors ...... Also, note that the 1996 law put a NUMBER on the net worth . If your net worth when you leave is less than $552,000 then you do NOT have to pay US taxes after you renounce your citizenship..... Andy in Eureka, Texas

Whew! thanks for that, Andy. At least I was right as to the 10 year rule applying to the majority of people. Like me. IF I ever decided to emigrate over to the Land of Light where the streams flow clear and the whiskey if the best. ChEAr$, Harlan Lunsford, EA n LA

Two quick additional notes.

Firstly, in 2004 the net worth limit was raised to $2,000,000. And secondly, note that this issue also applies to long-term permanent residents who return to their home countries, not just to ex-citizens.

Was there at one time also an asset tax associated with giving up US citizenship? Or was that just a proposal to substitute something on the order of the estate tax for the

10 years of income taxes? Or am I completely misremembering? Dan Lanciani ddl@danlan.*com

Thanks Simon, but could you post a website or IRS pub number...?? Andy in Eureka, Texas

Search Google for "expatriation tax"; the IRS site (currently) comes up as the first hit. Be aware that this stuff all changed not so long ago, and might be changing again, making some of what you find with a web search either outdated or speculative. Or both, perhaps.