NCPA - National Center for Policy Analysis

IRS Not Clamping Down On Tax-Expatriates

July 16, 1999

Noting that thousands of rich Americans were renouncing their U.S. citizenship and moving to tax havens overseas, Congress in 1996 passed some stern laws to stop the flow.

First, it imposed a 10-year tax on expatriated Americans. Then it forbade tax-motivated expatriates to ever visit the U.S. again. But the laws really aren't working, experts report.

  • A total of 4,415 people have turned in their citizenship or green cards in the past five years -- more than half of them after the crackdown.
  • Many expatriates deliberately lose citizenship without formally renouncing it -- believing that way they evade the ban on visiting.
  • The law says that if escaping taxes was among your principal motives, the government can collect estate taxes and income taxes on U.S. earnings and investment income for the next 10 years -- and if your net worth tops $500,000 and your income tax bill exceeds $100,000 the law presumes you moved to escape taxes.

But there are loopholes:

  • Any American who becomes a citizen of a land where he or a parent was born is excused.
  • The same applies to anyone holding dual citizenship at birth.
  • A long-term exile who hasn't spent 30 days in the U.S. in any one of the past 10 years is also home free.

One way to escape the presumption that one is going abroad to escape taxes is to seek an IRS ruling under one of the exceptions. Since last spring simply submitting a request for such a ruling has been enough. In the eyes of the IRS, submitting a request in good faith rebuts the presumption.

Source: Brigid McMenamin, "Home Free," Forbes, July 26, 1999.


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