Some of you are considering a pre-collapse Bug Out or a Bug Out just as the collapse appears to be unfolding and heading out of this country. Many people are doing it now to avoid taxes. Consider this article if you are going to do so in order to save money and position yourself in a better position to ride out or survive the collapse.
The prospect of mogul Donald Trump sitting in the Oval Office has driven celebrities and common folk alike to contemplate moving to Canada — or any other country that is not America. Actress Lena Dunham is interested. Samuel L. Jackson is considering South Africa. Jon Stewart wants to leave the entire planet. Google reported a spike in searches for “move to Canada” after the Donald swept the Super Tuesday primaries in March.
And indeed, government statistics show record numbers of people are renouncing their U.S. citizenship. But it’s not Trump that has persuaded them to go. It’s taxes.
The IRS publishes the names of each American who gives up his or her citizenship. The list comes out every three months, and international tax lawyer Andrew Mitchel has tallied them up. In the first quarter of this year, 1,158 people expatriated — more than 10 times the number in the first quarter of 2008, when Mitchel began his count. Last year, a record 4,279 people renounced their citizenship.
Expatriation's have grown steadily since 2008 but began to spike in 2013. That timing undermines the theory that Trump is responsible. (Back then, he was busy suing talk-show host and comedian Bill Maher for calling him the spawn of an orangutan.) But the increase dovetails with the implementation of new federal reporting requirements and penalties for assets held overseas by U.S. citizens.
The rules were passed back in 2010 as part of legislation intended to encourage businesses to hire more employees and jump-start the nation’s economic recovery. Attached to the law was a provision called the Foreign Account Tax Compliance Act (FATCA) that was supposed to “detect, deter and discourage” tax evasion through offshore bank accounts.
The law requires foreign banks to report whether their clients are U.S. citizens. The penalty for not complying is stiff: a 30 percent withholding from the proceeds of the bank's financial transactions in the United States. That has caused plenty of consternation among foreign firms, some of which have reportedly closed accounts belonging to Americans as a result.
The regulations also created new filing requirements for individuals with assets overseas and increased the fines for missing a form. The penalty for failing to file is $10,000 per form. The consequences are even steeper for intentionally not filing a document known as the Report of Foreign Bank and Financial Accounts, which could result in a fine of $100,000 or 50 percent of what’s in the bank account — whichever is greater.
“They’re like, 'Oh my, God, the IRS is going to bankrupt me,'” Mitchel said of his clients. “People get terrified of this, and they don’t want to have anything to do with the IRS, and then they want to renounce.”
Mitchel said that many of his clients have been paying taxes in the country where they live now and may not have bothered filing a U.S. return. Most countries in the world expect you to pay taxes only when you live inside their borders. But two nations — the United States and Eritrea — require its citizens to pay taxes on income while living in other countries. And Mitchel said it’s not just the very wealthy who are chafing under the new regulations. Many of his clients are moderate-income households and retirees living overseas who find navigating the morass of requirements more trouble than it is worth.
Mitchel described one client who plans to retire soon in Australia, where he will not have to pay any taxes on the pension he has built up after 20 years of work there. But under U.S. tax law, he would be required to file a return and pony up to Uncle Sam.
“It’s a very straightforward financial question: Is his U.S. citizenship worth hundreds of thousands of U.S. dollars?” Mitchel asked.
Of course, America may be the land of the free, but leaving it isn’t necessarily cheap: Those who renounce their citizenship could be subject to an exit tax on all of their assets around the world, as if they had sold everything on their last day as an American. Even with a nearly $700,000 exemption, the bill can be hefty, Mitchel said.
The IRS publishes very little data about its former citizens beyond their names, so it’s difficult to tell conclusively whether the new tax laws are the reason that so many Americans have been relinquishing their passports. But the timing of its implementation seems to coincide with the increase in expatriation. And there appears to be widespread recognition that the new reporting requirements have amounted to one giant headache for all involved — including the U.S. government.
“That mountain of data not only puts burdens on the individuals trying to comply, but that also puts a large burden on the IRS to go through the data,” said W. Gavin Ekins, a research economist at the nonpartisan Tax Foundation. “The cost of actually finding a dollar of tax evasion may cost us $5 of actually sifting through the data and compliance costs. From an economics point of view, I’m not sure how valuable the system will be. But maybe it really is from a fairness point of view, and people really believe fairness is worth the cost.”
Article from the Washington Post:
https://www.washingtonpost.com/news/wonk/wp/2016/06/01/why-americans-are-giving-up-citizenship-in-record-numbers/
