Anticipating restrictions on moving capital out of the U.S.

 I just came across the following article that was written long ago – 1994. It’s interesting that certain prescient people correctly anticipated the effects of FATCA: The New Berlin Wall – that is the difficulty in moving capital outside the U.S. The article also mentions that Sir John Templeton – one of the world’s great investors and human beings. Sir John Templeton renounced his U.S. citizenship and moved to the Bahamas. John Templeton was a clear thinker who had the ability to anticipate the future. Hope you enjoyed the “The Wisdom of John Templeton”.  Consider whether his wisdom included the wisdom of  renouncing U.S. citizenship. U.S. Citizenship – It’s time for it to go!

Capital: Avoiding U.S. taxes by renouncing citizenship by Brigid McMenamin Excerpted: Forbes, Feb 28, 1994

One in five Americans has considered leaving America. Three million would do so right this minute if they only knew how. What will the US Government do to stop capital displacement? What about fears of a brain drain effect as Americans leave America in record numbers? The Americans leaving are not a hopeless huddled mass; they constitute America’s best and brightest… this article simply exposes the tip of the iceberg, the silent exodus is alive and well, and it’s proportions are massive.” – Roger Gallo Author of Escape From America Flight You are upset with the latest tax increased that you are seriously thinking about quitting the country. Does this make any sense at all? ENGLEWOOD, COLO, attorney Ronald Rudman recently got a call from one of his more prominent clients, a well-known entrepreneur. The businessman wasn’t asking for help on a new public offering or a leveraged real estate deal. “He wants to move his entire estate outside the U.S.,” says Rudman. A lot of people are thinking about this most drastic of tax avoidance techniques: becoming an expatriate. And a lot of them lose interest when they find out that to accomplish much of a tax saving they have to renounce U.S. citizenship. That’s pretty extreme stuff, but it has been done before. Famed fund operator John Templeton, a Tennessee native, moved to Nassau in 1969 and gave up his U.S. citizenship. He is a British subject; living in the Bahamas, he pays no income or estate tax. “Expatriation is the ultimate estate plan,” says Donald Baker, senior partner of the giant Chicago-based law firm Baker & MacKenzie. Baker represents a seventyish couple who are beginning to move their assets out of the country to avoid federal estate tax of 55%. “They don’t want to leave half their assets to the government,” explains Baker. But he says they’re also afraid income taxes will shoot up as much as 10% if Clinton gets his health care scheme past Congress. “The people who are in power want to confiscate other people’s property,” says Baker. Why do you have to change citizenship? Because the U.S., unlike almost every other country, levies income and estate taxes on its citizens living abroad. Unless you plan to cheat on your taxes, just moving abroad won’t accomplish anything. Former citizens, moreover, can be nailed for income tax on U.S. income, including capital gains from real estate situated here and from stocks in U.S. corporations. This exit tax may apply for ten years after you leave, unless the Internal Revenue Service decides that tax avoidance was not one of the “principal purposes” of your departure. Good luck trying to prove that. Some people who are not yet ready to renounce citizenship have taken the less radical measure of moving assets abroad. This group includes a former congressman, entrepreneurs who started whole new industries, physicians and wealthy investors. Again, unless you want to lie on your 1040, merely moving your money into a Swiss bank won’t save you U.S. income taxes while you remain a U.S. citizen. Rather, some of these partial exiles are fearful of future restrictions on capital movements. A Florida entrepreneur who already has about 25% of his wealth overseas, primarily in foreign currencies, is worried the government may someday draw the line on asset transfers. So before that happens he’s moving another big chunk–perhaps as much as 80% of liquid assets–overseas. “Taking it out [of the country] might be a very difficult thing someday,” the entrepreneur says. People are worried about more than taxes. One of Rudman’s clients is a man who was a pioneer in the managed health care industry. Faced with President Clinton’s threat to take over the entire industry and impose new regulations and even criminal sanctions, he began to sell off his business last year and asked Rudman to help move his assets abroad. “They feel they have been targeted,” explains Rudman, “and they wonder what’s next. It’s fear: fear of government, fear of a period of prolonged economic decline.” If you are ready to quit your citizenship, first find another country that will have you, warns Marshall Langer, a London-based American lawyer who specializes in international taxes and often helps people expatriate. He recommends such countries as Ireland or Israel, where you may within a few months be entitled to citizenship based on ancestry. Next best is a place like Canada, which welcomes entrepreneurs, investors and retirees after three years of residency. And because these countries don’t tax nonresident citizens, once you get a new citizenship, you may then easily move to Bermuda, the Bahamas or the Cayman Islands. There you can live free of income, capital gains and death taxes.


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