Very few people over the past few years have exercised their constitutional right to renounce their citizenship. Of those that did, most did so in order to escape the United States tax laws regarding their assets. Due to the high profile nature of these cases, Congress has reacted by making the expatriation tax rather severe.
Any income earned by the person who expatriated is subject to taxes for the last ten years. Even if they sell a house after they expatriated, the income earned from that home is considered taxable.
The individuals who are subjected to these provisions are United Stated citizens giving up their citizenship, U.S. residents who lived here eight of fifteen years prior to terminating their residency and those who take up residency in another country while they are U.S. residents.
The IRS assumes reasons for expatriation is tax avoidance if the person who does it has an annual income of over $100,000 or his net worth is over $500,000.
The expatriation tax doesn't apply to individuals who can prove in a ruling with the Secretary of Treasury that their reason for expatriation was not to evade taxes. The following is considered:
1.You had dual citizenship and then chose the other country for permanent citizenship
2.You are under the age of 18 ½ years
3.You become a citizen of the country of your birth, your spouse's birth or your parent's birth
4.For the last ten years you have been present in the United States for less than 30 days each year
5.If you have a principal residence, business or trade in the other country
6.If your wife or husband remains a U.S. citizen
7.What assets you hold in the United States
8.What kind of a tax system exists in your new country
As of yet, considerations regarding U.S. residents are unknown. They should be available soon. A little piece of good news is that foreign tax credit is provided for taxes paid in another country on income that is taxable in the United States. Remember credit is dollar for dollar unlike deductions.
