An interesting post appeared today on Phil Hodgen’s blog. It appears that expatriation is on the rise. (Who could have known?) Note that the reasons have nothing to do with the payment of tax. They have everything to do with the the inability to live a normal productive life as a U.S. person living outside the United States.
What follows is an excerpt from his post:
Why He’s Bailing Out
Here’s why. Paperwork. The cost and complexity of U.S. tax returns for American taxpayers abroad is insane on stilts. If he has mutual funds, he has Form 8621 problems. Things that are tax-free in his current country of residence are not necessarily tax-free in the USA. And in fact you can usually guarantee that Uncle Sam wants a piece of it. While the tax load can usually be eliminated in the USA (because he pays so much income tax abroad) it is still messy and adds complexity and cost to his U.S. tax return.
But what really kicked it off was a business opportunity. He has the opportunity to enter into a startup business with some friends. Because he is a U.S. taxpayer, the tax compliance costs are monstrous. If they use a corporation, he has a Form 5471 problem. If they use a partnership, he is a U.S. taxpayer with an interest in a foreign partnership. He has FBAR and Form 8938 problems. The financial structure of the proposed startup was optimized for the European tax/fiscal landscape, but worked very badly indeed for US purposes.
So, faced with the alternative of about $10,000 of U.S. tax advice (and possible loss of his startup business opportunity) vs. giving up the green card, he chose the obvious one. Give up the green card and cut ties with the United States.
Paperwork Burden, Not Tax Cost Burden
I want to be crystal clear. This is an important point:
- – He is paying a metric ton in tax.
- – It is annual compliance cost of dealing with CFC, PFIC, foreign tax credit, foreign earned income exclusion, and the like that really gripes him.
- – The U.S. tax complexities would force him to lose an opportunity to participate in a startup business. His tax situation is so anomalous compared to the other participants that he would either have to absorb enormous compliance costs himself, or be barred from participating in the business as too much trouble.
So there you have it. A person who gets things done. Who builds businesses. He’s been pushed out of the USA because of U.S. tax compliance burdens. Not U.S. tax. U.S. paperwork.
U.S. citizenship has been priced out of the market. It can be retained by only the very poor and the very rich!