Chapter 6: I have made the decision to renounce citizenship – does the US “Exit Tax” apply to me?

Okay, I lied it’s now more than 9 parts. But anybody considering renouncing U.S. citizenship needs to consider the issue of whether you will be subjected to an “Exit Tax”. By the way, this is IN ADDITION to the $2350 renunciation and the tax compliance fees. Prepare to be absolutely shocked by this!!!

Here are the posts:

Part 1 – April 1, 2015 – “Facts are stubborn things” – The results of the “Exit Tax”

Part 2 – April 2, 2015 –“How could this possibly happen? “Exit Taxes” in a system of residence based taxation vs. Exit Taxes in a system of “citizenship (place of birth) taxation”
Part 3 – April 3, 2015 – “The “Exit Tax” affects “covered expatriates” – what is a “covered expatriate”?”

Part 4 – April 4, 2015 – “You are a “covered expatriate” How the “Exit Tax” is actually calculated”

Part 5 – April 5, 2015 – “The “Exit Tax” in action – Five actual scenarios with 5 actual completed U.S. tax returns.”

Part 6 – April 6, 2015 – “Surely, expatriation is NOT worse than death! The two million asset test should be raised to the Estate Tax limitation – approximately five million dollars – It’s Time”

Part 7 – April 7, 2015 – Why 2015 is a good year for many #Americansabroad to relinquish US citizenship – It’s the “Exchange Rate”

Part 8 – April 8, 2015 – “The U.S. “Exit Tax vs. Canada’s Departure Tax – Understanding the difference between citizenship taxation and residence taxation”

Part 9 – April 9, 2015 – “Why understanding the U.S. “Exit Tax” teaches us all we need to know about “citizenship taxation”

Part 10 – April 10, 2015 – “The S. 877A Exit Tax and possible treaty relief under the Canada-U.S. Tax Treaty”

Part 11 – April 11, 2015 – “S. 2801 of the Internal Revenue Code is NOT a S. 877A “Exit Tax”, but a punishment for the “sins of the father (relinquishment)”

Part 12 – April 12, 2015 – “The two kinds of U.S. citizenship: Citizenship for “immigration and nationality” and citizenship for “taxation” – Are we taxed because we are citizens or are we citizens because we are taxed?”

Part 13 – April 13, 2015 – “I relinquished U.S. citizenship many years ago. Could I still have U.S. tax citizenship?”

Part 14 – April 14, 2015 – “Leaving the U.S. tax system – renounce or relinquish U.S. citizenship, what’s the difference?”

Part 15 – May 22, 2015 – “Interview with GordonTLong.com – “Citizenship taxation”, the S. 877A Exit Tax, PFICs and Americans abroad”


reposted from: Citizenshipsolutions blog

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Introduction:

usexittax-300x168

There is much discussion of the U.S. rules which operate to impose taxation on the residents of other countries and income earned in those other countries. You will hear references to “citizenship taxation”, “FATCA Canada“, PFIC, etc. It is becoming more common for people to wish to relinquish their U.S. citizenship. The most common form of “relinquishment is renunciation”. The U.S. tax rules, found in the Internal Revenue Code, impose taxes on everything. There is even a tax on “renouncing U.S. citizenship”. I don’t mean the $2350 USD administrative fee which everybody has to pay. (Isn’t that really a tax?). I mean a tax on your assets. To be clear:

You must pay a price to NOT be a U.S. citizen.

This tax is found in S. 877A of the U.S. Internal Revenue Code.

It’s defined as the:

“Tax responsibilities of expatriation”

Few people are aware of this tax. Fewer still understand how it works. As FATCA operates to enforce U.S. taxation on many Canadian citizens, and increasing numbers wish to NOT be U.S. citizens, the importance of understanding the U.S. “Exit Tax” increases.

It is particularly important to understand what triggers the “Exit Tax”. You will be subject to the “Exit Tax” if you are a “covered expatriate”. You must know what that means and why, sooner or later, everybody will become a “covered expatriate”.

The “Exit Tax” is not a simple “token tax”. For Canadians, the tax can be a significant percentage of their net worth. Furthermore, the tax is payable NOT on actual gains, but on “pretend gains”. (Where would the money come from to pay the tax?)

Hang on to your seats. You will be shocked, amazed and horrified by this.

Since the advent of FATCA in Canada, this issue has become increasingly important.*

To be forewarned is to be forearmed!

This is a 15-part series which is designed to provide you with some basic education on:

How the U.S. S.877A Exit Tax rules work; and

How they particularly affect Canadians with a U.S. birthplace, who have lived most of their lives in Canada.

Although this series began on “April Fools’ Day”, I assure that this is NOT a joke.

You can access all of the above posts by clicking the link in the above tweet.

For general information about the renunciation process visit:

Renunciation Guide

John Richardson

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