Expatriation Won't Eliminate Debt or Prevent Extradition

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Here’s a question I recently received from a reader. I’m posting it because I think it illustrates some common misconceptions about expatriation.

Q. I am a middle-aged male with dual citizenship from the United States and an EU country. I have been saddled with debt due to job loss. If I relinquish my U.S. citizenship, and live and work in an EU member country, can the U.S. government garnish my income or arrest me due to outstanding debt? Would I be able to collect U.S. social security and pensions in the EU?

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A. The loss of US citizenship will not affect existing financial obligations in the United States. But, as a practical matter, if you’re living outside the United States, and don’t have property in the United States, it will be difficult for ordinary creditors to collect on debts you owe.

If you have tax debts, the IRS may have the right under tax treaties or tax information exchange agreements to obtain financial records in that country. Should the IRS discover evidence of tax evasion or other crimes, it could then request the Department of Justice to institute an asset freeze request. This could be done under a mutual legal assistance treaty (MLAT), should one be in effect with that country. DOJ could also seek to extradite you to the United States to stand trial. However, MLAT and extradition requests are generally reserved for serious crimes. Unless you owe the IRS a large sum of money, you’re unlikely to be pursued once you expatriate.

Expatriation doesn’t affect your eligibility for social security or pension payments. Military pensions are an exception: they usually terminate upon expatriation. Your IRA may be another exception: if you’re a “covered expatriate” (click here for definition), it terminates upon expatriation.

Social security payments are subject to withholding up to 30% on the first 85% of your monthly benefit. The payments are subject to levy for unpaid taxes, student loans, and child support obligations, and other debts due the U.S. government. An ordinary creditor, however, can’t levy your social security payments.

October 14, 2010

Mark Nestmann is a journalist with more than 20 years of investigative experience and is a charter member of The Sovereign Society's 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 Administration.