Tax consequences of becoming a US citizen.

[Trei, Peter]

> Greg Broiles[SMTP:gbroiles at parrhesia.com]
> 
> 
> At 11:52 AM 7/9/2002 -0400, An Metet wrote:
> >What are the tax implications of a US resident green card holder, with 
> >substantial assets both in his original nation and in the US, of becoming
> 
> >a US citizen?
> 
> Take a look at <http://www.thetaxguy.com/faq.htm>. Non-US citizens may be 
> classified as residents, nonresidents, or as dual status aliens; they also
> 
> frequently can choose whether they would prefer to file as residents or 
> nonresidents; this is an area where professional assistance is very
> helpful.
> 
> Subsequent replies to this question have, in an unproductive fashion, 
> confused US citizens living outside the US and former citizens living 
> outside the US; the 10-year rule applies to people who have given up their
> 
> US citizenship. People who remain citizens while living elsewhere are 
> subject to US tax on their worldwide income (but, some income is excluded,
> 
> and some income which is taxed by other jurisdictions won't be taxed again
> 
> by the US) for as long as they're alive.
> 
[I'm a US citizen who lived for many years abroad, so I have some awareness
of the issue].

Greg's pretty well got it spot on, but I'd like to refine things a bit. If a
US
citizen lives abroad, the USG will try to extract taxes from both his US
*and* foreign income, beyond certain minimums (the only other countries
which do this are the Phillipines and Egypt, both of which have large
numbers of citizens working in other countries (so they have an excuse, 
the US doesn't)). 

If you emigrate and give up your US citizenship, any assets you take
with you above a certain limit (?? $400k ??) are subject to a sort of 
'exit tax'. This is an idea the US adopted from the Soviet Union,
where it was used to harrass Jewish emigrants. What is more, 
the IRS will still claim to be able to tax your non-US income for 
10 years after you give up your citizenship (with caps, I think 
the same as an expat).

This law was put in place not too long ago, after there was a brief
storm in a teacup over certain multimillionaires giving up their
citizenships for tax purposes. In a populist stunt, the USG put in place
laws to punish these emigrants. In doing so they set the asset cap
so low that many people leaving for perfectly legitimate reasons were 
caught up in it. The political rhetoric around the issue was very 
nasty - it was clear that the congresscritters could not conceive 
that any person could have a legitimate, above-board reason to 
want to give up US citizenship.

Of course, at the moment the USG only occasionally chooses to flout
the sovereignty of foreign nations on issues of non-US citizens, and
it is still pretty rare for the USG to kidnap people abroad. Therefore, 
if you've given up your US citizenship, and are abroad, you have the
option of telling the IRS to pound sand before the 10 year limit is up.
If you do this, they will try to seize any US assets you may have,
and will arrest you for tax evasion if you ever set foot on US soil.

As Tim would say, check the archives. About 3 years ago, one or
two list members said they were giving up their US citizenship, 
and taking up Mozambiquian (sp?) citizenship, to enable them to
write and export cryptographic software without being subject to
US control. There was an extensive discussion of the topic at that
time.

So, to the subject of the original question: I don't think taking up
US citizenship, then retiring abroad, makes a hell of a lot of
sense from a tax point of view, unless the Social Security payments
are important, the total assets taken out are low, and the expected
non-US income falls below the minimum the US allows expats 
tax-free. There are a lot of other effects of US citzenship vs 
US citizenship, but those are my non-lawyer speculations on the
tax implications.

Peter Trei