Numbers of Tax Refugees Exit USA Permanently
Nestmann Group, Ltd.
by Mark Nestmann: Congress
to U.S. Citizens: Pay Your Income Tax or Forfeit Your Passport
a U.S. citizen or long-term permanent resident (green card
holder), you have a unique responsibility: you must pay tax on your
worldwide income, even if you live outside the United States. Not
to mention capital gains tax, gift tax, and estate tax.
obligations come with U.S. citizenship or permanent resident status.
For instance, you must make detailed disclosures of your non-U.S.
investments annually to the IRS and U.S. Treasury. The Treasury
may share the information it collects with almost any U.S. or foreign
government or police agency.
You face additional
tax pitfalls with reference to your non-U.S. investments and business
activities. U.S. tax provisions for interests in non-U.S.-registered
mutual funds, controlling interests in non-U.S. corporations, and
interests in non-U.S. trusts are but three examples of the many
tax landmines that U.S. taxpayers may inadvertently
A rapidly growing
number of U.S. citizens and permanent residents have fought back
the only way they legally can by giving up their green card,
or their U.S. citizenship and passport. In 2011, IRS records show
that at least 1,788 people went through this process of expatriation.
Thats almost eight times more than the number of people who
expatriated in 2008, and more than the total for 2007, 2008 and
much larger number of non-resident U.S. citizens and green card
holders arent even aware of their ongoing obligation to comply
with U.S. tax and reporting requirements. An estimated seven million
U.S. citizens live outside the United States, yet only a few hundred
thousand of them file U.S. tax returns. One reason for this widespread
ignorance is that its relatively easy to be born a U.S. citizen.
For instance, youre a U.S. citizen if you were born within
the geographic boundaries of the United States, even if your parents
were not U.S. citizens at the time. In most cases, youre also
a U.S. citizen if you were born outside the United States, and at
least one parent was a U.S. citizen or green card holder.
2008, the IRS began to enforce these rules much more vigorously,
especially with respect to non-resident U.S. citizens. For instance,
in Panama, armed IRS agents now roam the countryside looking for
non-compliant U.S. taxpayers living or doing business there. In
Austria, I recently learned of the IRS calling a U.S. citizens
unregistered phone number to remind her of her tax and reporting
Become Compliant? Get Ready to Write a Big Check
how it worked in one case related to me. A Mexican citizen, now
well past retirement age, grew up in a tiny town in Mexico near
the U.S. border. At the time of his birth, the town lacked any medical
facilities, so when his mother went into labor, his parents drove
to the nearest hospital, which happened to be just inside the U.S.
70 or so years, and this gentleman was longing for some relief from
hot Mexican summers. So, he did what countless other wealthy Mexicans
have done he purchased a condo in San Diego. At closing, he
encountered a strange anomaly. The closing documents listed him
as a U.S. citizen. He tried to correct what he believed to be a
mistake, but the broker assured him the documents were correct.
Since he was born in the United States, he was indeed a U.S. citizen.
Our hero thought
that was the end of it, but when he arrived in San Diego for the
summer, he received a notice from the Internal Revenue Service.
The notice informed him that he was obligated to file U.S. tax returns.
And there was no record of him filing a U.S. tax return for the
preceding three years. The notice invited him to respond immediately.
A few days
later, he drove over to the local IRS office to see if he could
resolve the situation. After a brief conversation, he was shocked
to learn that the IRS had already commenced an examination. The
agent started using terms such as willful failure to file,
criminal penalties, and jeopardy assessment.
At this point,
our hero hired a criminal tax defense attorney. He spent about $100,000
in legal fees, and eventually received a notice from the IRS informing
him that he wouldnt face criminal penalties. Still, he had
to pay 25% of the peak value of his unreported non-U.S. accounts
for the period 2003-2010. Unfortunately for him, the value of these
accounts fell about 35% in the global economic turmoil of 2008-2009.
The accounts that were once worth $2 million are now worth about
$1.3 million. Nonetheless, he paid a $500,000 penalty to avoid criminal
he had to file six years of past due tax returns and information
returns disclosing his interests in Mexican corporations and other
Mexican entities. These returns had to be prepared according to
U.S. Generally Accepted Accounting Procedures (GAAP), which means
that the Mexican financial statements for each year had to be converted
to U.S. GAAP. That expense cost him an additional $50,000.
To tally things
up: our heros total cost of accidental U.S. citizenship: $650,000.
Total benefit of U.S. citizenship: none.
say, this Mexican gentleman filed a formal petition with the State
Department to surrender his U.S. citizenship and expatriate. That
eliminates any future U.S. tax or reporting obligations on non-U.S.
income or property, but doesnt affect his past obligations.
Now Locked Out of Non-U.S. Investments
At the same
time, it has become much more difficult for anyone with even the
most remote connection to the United States to invest or do business
offshore. Recently, I met with a U.S. citizen who is also a citizen
of another country. He and his wife plan to move back to that country
On his last
visit to that country, he tried to open a bank account. To his surprise and
horror the first document the banker gave him was a 10-question
survey asking him to disclose all connections to the United States.
Even a single yes answer could disqualify the applicant
from opening an account. Indeed, citizens of this country who have
never traveled to the United States must now complete this form
when opening an account at this bank. Dozens of other clients have
reported similar difficulties.
For all these
reasons, I think the 1,788 expatriations the IRS reported in 2011
is only the beginning of a much larger trend. Indeed, Im surprised
the number isnt 10 times or even 100 times larger.
Benefits of Expatriation
is a major decision. It requires that you have a satisfactory passport
and citizenship from another country. It also means that you no
longer have the automatic right to live and work in the United States.
Even for brief visits, youll need to obtain a visa, unless
your non-U.S. passport qualifies you for visa-free entry.
however, is immense. Once you expatriate, you no longer have any
obligation to pay tax on your non-U.S. income, nor file any reporting
forms to the IRS or U.S. Treasury with respect to your non-U.S.
investments. You also eliminate all the offshore investment restrictions
now imposed on U.S. citizens or green card holders. Plus, youll
no longer be expected to adhere to the numerous embargoes the United
States has declared against its self-declared enemies (e.g., Cuba).
Our firm has
helped dozens of U.S. citizens and green card holders permanently
and legally eliminate future U.S. tax and reporting obligations
through the process of expatriation. We can even help you obtain
a second passport, if you dont have one already. Contact us
today for a consultation.
Nestmann [send him mail]
is a journalist with more than 20 years of investigative experience
and is a charter member of The
Sovereign Societyís Council of Experts. He has authored over
a dozen books and many additional reports on wealth preservation,
privacy and offshore investing. Mark serves as president of his
own international consulting firm, The
Nestmann Group, Ltd. The Nestmann Group provides international
wealth preservation services for high-net worth individuals. Mark
is an Associate Member of the American Bar Association (member of
subcommittee on Foreign Activities of U.S. Taxpayers, Committee
on Taxation) and member of the Society of Professional Journalists.
In 2005, he was awarded a Masters of Laws (LL.M) degree in international
tax law at the Vienna (Austria) University of Economics and Business
© 2012 Mark
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