Taxes and U.S. Expatriats
Once a US citizen, always a US citizen (almost) as far as taxes are concerned. You will be still liable for US taxes and obligated to file federal tax returns regularly, regardless wherever you might try "escaping" to. Of course you might try to pull off a disappearing act and just not file with the IRS anymore. Quite a few people have pulled that stunt and the FEDs are not particularly happy about it either. To do that you’ll need to steer clear of the American Embassy (by not needing to get a new passport, etc) and not returning home.
You might even consider getting a second nationality through naturalization in a tax-friendlier country and subsequently officially relinquish your US citizenship.
Only “renouncing” your U.S. citizenship would make you subject to the Reid Amendment and immigration would bar you from visiting the U.S. in the future.
If you expatriate with either $500,000 USD in worldwide assets or $100,000 in taxable income in either of the past two years, you are DEEMED (by the IRS) to have left for tax purposes. The result is that unless you can overcome this presumption (by seeking a ruling that you fit into one of 4 narrow exceptions) you will be taxed for ten years as if you were still a U.S. taxpayer (officially called a “U.S. person”) on ONLY your U.S. source income, capital gains and U.S. situs property for gift and estate tax purposes. Obviously part of your pre-expatriation tax planning will be to minimize your future U.S. source and U.S. situs property. Please note that this system may be changed if a new system, which calls for a deemed disposition (like the Canadian rules), which was introduced a week ago Thursday by the Ways and Means committee becomes law. As you can see from even this summary, this is not simple stuff. Get proper CURRENT legal advice on tax and citizenship laws!
David S. Lesperance
Barrister and Solicitor
Legal Counsel to Global Relocation Consultants S.A. and GlobalRelocate.com