Us tax advice regarding giving up us citizenship

Advice Regarding Giving up US Citizenship

Many clients approach us having decided or considering giving up their US citizenship.

To do this "properly", it is essential to obtain professional advice to avoid potential pitfalls of renunciation, such as the Exit Tax.

If you're a US citizen living outside the United States, you still have yearly IRS tax filing obligations. Part of the journey of renouncing US citizenship is to certify that you are US tax compliant for the five years prior to giving up citizenship.

A typical process is to regularise your US tax position by filing late US tax returns and related forms before renouncing. There are several ways to go about this, and the IRS offers amnesty programs that facilitate the filing of late US tax returns and related forms. You should contact us to discuss the best option for you.

It would be best to approach the decision to give up your citizenship with caution, as failure to become compliant with US tax returns and renounce US citizenship will likely result in you being considered a “covered expatriate”.

A covered expatriate is subject to an exit tax which is essentially a tax on the deemed disposal of assets (including your home) at the fair market value on expatriation. Currently, net capital gains can be taxed as high as 23.8%, including the net investment income tax.

Even as a covered expatriate and even having paid the exit tax, the obligation to file prior year US taxes and related forms remains, as does your exposure to failure to file penalties.

You may also be a covered expatriate and subject to an exit tax if your net worth is more than US$2 million or if your average net annual US income tax liability is more than US$162,000.

If you are a long-term green card holder, these rules also should seek advice before acting.

Please contact us for more information.