Exit Tax, Redux
Recently I wrote here in the A-Letter about how the new exit tax legislation passed by both houses of Congress (and now sent to President Bush for his signature) requires U.S. citizens to pay a tax on all unrealized gains of their worldwide estate - including most offshore trusts. But how would you do that without selling off the assets to cover the tax? Perhaps I may have been overly critical. In most respects, the new law actually makes it easier for many U.S. citizens and long-term permanent residents to sever all tax obligations to the U.S. government, forever. It also makes it relatively simple for persons who became U.S. citizens through an accident of birth (e.g., by having a U.S. parent or being born on U.S. soil) to end their U.S. tax obligations. So long as you don't have unrealized capital gains over US$600,000 (including gains in most types of pension and retirement plans), this process of "expatriation" is now much simpler than under previous law. See my blog right now to find out how.However, if you're a U.S. citizen with unrealized gains over US$600,000, and you don't want to sell those assets and pay the tax on them before you expatriate, the exit tax truly is onerous. Its provisions on unrealized gains in retirement plans are particularly unfair. But for anyone else who might wish to expatriate, the new provisions are a breath of fresh air in the sordid 40-year history of anti-expatriation legislation. One thing is certain. The anti-expatriation laws are unlikely to become any more lenient in the future. Moreover, capital gains taxes are almost certain to increase in an Obama administration. That means exit tax on gains - realized or not - will go up as well. The clock is ticking for would-be expatriates. If you're seriously considering expatriation, now is probably the best time to begin your planning.
Recently I wrote here in the A-Letter about how the new exit tax legislation passed by both houses of Congress (and now sent to President Bush for his signature) requires U.S. citizens to pay a tax on all unrealized gains of their worldwide estate - including most offshore trusts. But how would you do that without selling off the assets to cover the tax? Perhaps I may have been overly critical. In most respects, the new law actually makes it easier for many U.S. citizens and long-term permanent residents to sever all tax obligations to the U.S. government, forever. It also makes it relatively simple for persons who became U.S. citizens through an accident of birth (e.g., by having a U.S. parent or being born on U.S. soil) to end their U.S. tax obligations. So long as you don't have unrealized capital gains over US$600,000 (including gains in most types of pension and retirement plans), this process of "expatriation" is now much simpler than under previous law. See my blog right now to find out how.However, if you're a U.S. citizen with unrealized gains over US$600,000, and you don't want to sell those assets and pay the tax on them before you expatriate, the exit tax truly is onerous. Its provisions on unrealized gains in retirement plans are particularly unfair. But for anyone else who might wish to expatriate, the new provisions are a breath of fresh air in the sordid 40-year history of anti-expatriation legislation. One thing is certain. The anti-expatriation laws are unlikely to become any more lenient in the future. Moreover, capital gains taxes are almost certain to increase in an Obama administration. That means exit tax on gains - realized or not - will go up as well. The clock is ticking for would-be expatriates. If you're seriously considering expatriation, now is probably the best time to begin your planning.
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