By Anthony Diosdi
With all the talk about large tax increases on wealthy Americans and the recent social unrest in the United States, we have noticed a significant increase in Americans considering expatriating from the United States. If you are considering expatriating from the United States, here are four things to consider:
Number Five- Expatriation is Not Free
Individuals considering expatriating from the United States must understand that it is not free. In order to expatriate from the United States, the individual expatriating will be required to pay $2,350 to the State Department. This payment is due at the time of the expatriation interview.
Number Four- You Will be Required to Appear in Person Before a U.S. Embassy to Relinquish Your U.S. Citizenship or Green Card
An individual expatriating from the United States must attend an interview at a U.S. embassy before the expatriation can be finalized. This interview should be scheduled online for the appropriate U.S. embassy in advance. If you are expatriating, you will be required to bring the following documents and information to the interview:
1. Your U.S. passport.
2. Certification that you are a citizen of the country you have become a citizen of.
3. Evidence of any name changes, if applicable;
4. A completed Form DS-4079.
These documents can be forwarded to the embassy prior to your scheduled interview. Anyone seeking to expatriate must understand that the expatriation interview is just one step in the expatriation process. The interviewer will not tell the individual seeking to expatriate from the United States of his or her U.S. citizenship or permanent residency status at the conclusion of the interview. Instead, the individual seeking to expatriate will be advised in writing by the Department of Homeland Security of their citizenship or permanent residency status.
Number Three- Expatriation is Not Automatic
Prior to the expatriation interview, anyone seeking to expatriate from the United States will be required to provide an unsigned Form DS-4079 to the interviewer. At the conclusion of the interview, you will be instructed to sign the DS-4079. The DS-4079 will be forwarded to the Department of Homeland Security. The DS-4079 is probably the most important document in the expatriation process. An individual seeking to expatriate from the United States must establish by a preponderance of evidence that he or she was a U.S. citizen or green card holder who performed an expatriation act voluntarily and with the intent to relinquish U.S. citizenship or permanent residency. The Department of Homeland Security has rejected requests to expatriate on the grounds that it does not believe the Form DS-4079 was prepared accurately or it does not believe that DS-4079 establishes by a preponderance of evidence the expatriating act was done voluntarily with the intent to relinquish U.S. citizenship or permanent residency. If the Department of Homeland Security rejects a Form DS-4079, it is possible to bring suit in a United States district court to compel the Department of Homeland Security to reverse its position on the theory that it acted arbitrarily in rejecting the DS-4079.
It is extremely important that the DS-4079 be completely accurate and that the form demonstrates that the petitioner establishes with a preponderance of evidence that the expatriating act was done voluntarily with the intent to relinquish U.S. citizenship or permanent residency.
Number Two- You May be Subject to an Expatriation Tax
Anyone expatriating from the United States may have to pay an expatriation tax. That is, if you are classified as a “covered expatriate.” Expatriation tax is reported on an Internal Revenue Service (“IRS”) Form 8854. Under the current law, a covered expatriate is required to recognize gain on all his or her worldwide assets as part of a deemed sale the day before the expatriation. Gain up to $737,000 (for 2020) is exempted. Federal tax law defines “covered expatriates” as an individual who 1) relinquish their U.S. citizenship or lose their permanent resident status (but only if they were a permanent resident during 8 out of the last 15 years), and 2) meet one of the following tests: a) they have a net worth of over $2 million when they expatriate; b) they have an average annual income tax burden of more than $171,000 (for 2020) during the five preceding years; or c) they have failed to certify compliance with U.S. tax obligations over the last five years.
Although in any given case the expatriation tax can be significant, it may be possible to plan to reduce an expatriation tax liability. In order to form the most effective plan to avoid or mitigate the impact of the expatriation tax, planning should begin well before the actual targeted expatriation date.
Number One- if You are a “Covered Expatriate” or Going to be a “Covered Expatriate,” Do Not Gift Away Your Assets
In order to attempt to mitigate their expatriation tax consequences, many “covered expatriates,” believe they can give away assets both before and after they expatriate to spouses or family members. The Internal Revenue Code is full of provisions that tax these gifts made by a “covered expatriate” with a very heavy hand. In order to avoid a very unpleasant surprise, if you are considering expatriating, talk to a qualified tax attorney before making any gifts before and after your expatriation date.
If you are considering expatriating, it is very important to seek assistance from an attorney who is not only well versed in the tax aspects of expatriation but also understands the immigration law governing the expatriation process.
We have not only represented individuals through the entire expatriation process, we also have significant experience advising our clients how to minimize the tax consequences associated with expatriating.
Anthony Diosdi is a partner and attorney at Diosdi Ching & Liu, LLP, located in San Francisco, California. Diosdi Ching & Liu, LLP also has offices in Pleasanton, California and Fort Lauderdale, Florida. Anthony Diosdi advises clients in tax matters domestically and internationally throughout the United States, Asia, Europe, Australia, Canada, and South America. Anthony Diosdi may be reached at (415) 318-3990 or by email: firstname.lastname@example.org.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.