THIS WAS FIRST PART OF THE SEPT 30, 1996 "ILLEGAL IMMIGRANT AND LEGAL IMMIGRANT RESPONSIBILITY ACT" which was signed by Hillary's husband Bill in the 1996 election. It was originally Republican legislation and i understand that the REPUBLICANS expected President CLINTON to veto it and then Bob Dole was supposed to make a big fuss about Clinton being soft on illegal immigrants. Clinton surprised them, and then made it part of his next six weeks of campaigning.
Canada already has the same law and there is no $600,000 exemption. For gains from the stock market. For those interested, Canada's DEPARTURE TAX applies when a Canadian resident leaves the Country. He or she does not have to give up their citizenship, just cease being a resident of Canada. A big difference though is that Canada does not make a departing Canadian pay tax on Pension accounts or on real estate situated in Canada. A departing Canadian would have to fill in forms T1161 - see it at: http://www.cra-arc.gc.ca/E/pbg/tf/t1161/t1161-07-e.pdf and then
form T1243 at: -http://www.cra-arc.gc.ca/E/pbg/tf/t1243/t1243-07e.pdf-
and if a tax is warranted by the T1243, the next form is the T1244 to delay the payment until actual sale of the assets by posting a bond.
The US rules only apply when you expatriate yourself by going to a US consulate or Homeland Security Office, filling out a form and swearing an oath that you are giving up your citizenship. If you keep your citizenship and continue filing your 1040 tax returns, there is no need to deal with Departure TAX.
However, it can also apply to someone giving up their green card after having it for 8 years. The question has been on Page 5 of the 1040NR return for years. (question P on the 1999 1040NR for instance. This form asked for form 8854 to be filled out and you can see the form at: http://www.irs.gov/pub/irs-pdf/f8854.pdf
and the instructions at http://www.irs.gov/pub/irs-pdf/i8854.pdf for the 2007 return. The 1999 instructions were less draconian but the departure tax has been around for a while. The rules are just being tightened.
In other words, the exit tax has been around for a while and the new legislation is only a further refinement of prior legislation that changed other times over the years with the last one before this being June 3, 2004.
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This was prompted by an email from one of our readers. He sent along a newsletter on the topic by Dr David Tanzer. I have since contacted David Tanzer and received his permission to send this out to all of our lists.
So here it is. Note, that if you are a US expatriate or just interested in this, David Tanzer also has a free newsletter which you subscribe to at the bottom (where else?). Interestingly, My interest is US Mexico, US Canada and Canada Mexico. Dr, Tanzer has his interests in Australia and New Zealand, something I used to be heavily in to in the 1980's but have hardly touched since about 1996.
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DAVID TANZER's Letter follows:
It’s (almost) official: An Exit Tax in America
Congress
passed a new federal law taxing the free movement of people across
America’s borders. President Bush has made it clear that he will sign
it.
Why do Americans
just mindlessly go along with more regulations and intrusions into
their personal lives like lemmings going off the cliff? An
earlier newsletter discussed border controls
affecting Americans leaving & re-entering the U.S. Next on the
agenda: Currency restrictions?
If you believe
this is mere hyperbole, read on.
Even if you have
no intentions of leaving America, you will be harmed by this draconian
new prohibition against the free movement of people and money across
America’s borders. I’ll explain why in a moment, but first here’s how
the new Exit Tax tightens the grip on Americans choosing to live
outside of the U.S., and giving up their citizenship. If the details
aren’t your bag, skip ahead to see how this will still affect you.
The Heroes Act
Americans continue
to tolerate increased intrusions into everyday private affairs and
heightened regulations against the free movement of people and
currency….. border controls, and now an Exit Tax.
Under the pretense
of the Heroes Act – officially the Heroes Earning
Assistance and Relief Tax Act of 2008 – Title III imposes an exit
tax on U.S. persons or long term residents who expatriate from America.
The Declaration of
Independence cites the right to expatriate as a fundamental "law of
nature." And the U.S. Constitution guarantees the right to end U.S.
citizenship, to live and travel abroad freely, and to acquire second
citizenships from other nations. All of these rights have been affirmed
by the U.S. Supreme Court. It’s the law.
No matter that
free trade and open trade policies are good for a nation and the
economic wellbeing of global society. No matter …… this American
Congress and President don’t have time for such meaningless trivia.
The Exit Tax works
as though you have died. It’s calculated similarly to the Federal
Estate Tax. It requires American taxpayers to identify all assets and
debts to determine their net worth, and then to compute a theoretical
gain or loss on all assets.
The Exit Tax
applies to anyone with a net worth of more than $2 million. It also
applies to a taxpayer whose average U.S. income tax liability for the
past five years is above approximately $124,000. Net worth is without
inflation adjustment, which means increasingly more individuals will
fall victim. It treats all property as being sold, and all deferred
income retirement accounts as being distributed.
There is an
exclusion of $600,000 for any unrealized gain or deferred income. Then
a 30% withholding tax is automatically withheld before deferred income
accounts are distributed.
It also imposes a
separate tax on gifts and bequests to family or anyone else, from
expatriates, exceeding $10,000, and payable by the recipient of such
gift or bequest. (If you wish to see a copy of the Act, drop me an
email.)
The Exit Tax is
dramatic and it happened very quickly. It was introduced on May 16,
2008, passed by the House on May 20th, and passed by the
Senate on May 22nd, all within 6 days. True, certain members of
Congress have been trying for years to push this draconian law against
the free movement of people and property, but in the past it met with
justifiable opposition. I wrote earlier in Offshore
Living & Investing that the Exit Tax was the next
inevitable step, and here it is.
But worse yet,
there is already a federal law prohibiting the right to visit family or
friends in the U.S., for persons the government decides have renounced
citizenship for tax purposes (8 USC 1182(a)(10)(E)). As of yet it has
not been enforced by the Attorney General. And no matter, the law is
arguably unconstitutional and contrary to U.S. Supreme Court decisions,
it is still law today.
With the creation
of the Department of Homeland Security (DHS) and “No-Fly” restrictions
against listed persons, the next logical step is enforcing the existing
law prohibiting re-entry into the U.S., and instituting currency
restrictions.
The U.S. has
joined the ranks with the likes of regimes imposing notorious departure
taxes that stripped Jews of their property before they were allowed to
escape Nazi Germany. And it rings a familiar tone to oppressive Russian
citizens fleeing the Soviet Union, and the apartheid-era South Africa.
You can tell a
country by the company it keeps.
These draconian
regulations have a drastic effect on all Americans, even if they are
not intending to pack up and leave, or send their monies to safer ports
offshore.
Why the Exit Tax is Horrible for all Americans
Even if you don’t
plan to leave America, why is the Exit Tax still bad for you?
Neither Congress
nor the President - or either of the candidates for President - has any
grasp of what free market economics means. Look at the economy and the
government … a real mess! The greater the problem, the more they
believe they can regulate themselves out of economic, political and
social problems. And it’s unlikely that it will get better any time
soon.
The Government
will continue to become disparate for more revenue with unfunded Social
Security, Medicare and Medicaid expenses. There is a need for more
taxes for the failed pay-as-you-go systems with fewer, younger-aged
workers to pay taxes for the increasing needs of a larger number of
retiring baby boomers.
Regulations on the
free movement of people and money are all examples of protectionism.
Virtually all modern economists agree that protectionism is harmful,
and free trade is in the long-term best interest of everyone. Adam
Smith long ago famously warned against protectionism.
What is
protectionism? And why worry about protecting your
assets?
Protectionism is
the policy of restraining activities or trade between nations for the
purpose of attempting to “protect” the economics within a country. This
occurs through methods such as regulations, prohibitions, tariffs,
restrictive quotas, and a variety of other restrictive government
regulations. Protectionism is closely aligned with anti-globalization,
and is contrary to free-trade where there are no artificial barriers to
entry or exit.
Today, it is the
stated policy of most First World countries to eliminate protectionism
through free trade policies. Despite this, the U.S. is compelled to
create fresh, new protective regulations, believing it can regulate
itself out of its mess.
Nearly all
economists today are supporters of free trade, because economic theory
demonstrates that gains from free trade outweigh any losses. The free
movement of people and property is born out by the facts that it
creates more jobs – and ultimately more taxes - than it destroys,
because it allows countries to specialize in the production of goods
and services in which they have a comparative advantage.
To the contrary,
protectionism results in a welfare system which provides no long-term
benefits.
Well-known
economists, such as Milton Friedman, Ludwig von Misses, David Ricardo
and Paul Kurgan argue that free trade helps third-world workers, even
though they are not subject to the stringent health and labor standards
of developed countries. This is because "the growth of manufacturing
has a ripple effect throughout the economy" that creates competition
among producers, lifting wages and living conditions.
And Alan
Greenspan, former chair of the Federal Reserve, criticized
protectionist proposals as leading "to an atrophy of our competitive
ability. ... If the protectionist route is followed, newer, more
efficient industries will have less scope to expand, and overall output
and economic welfare will suffer."
Looking back
through American and European history, each time it was implemented, it
caused even greater economic hardship to the economy.
Protectionism has
also been accused of being one of the major causes of wars in the 17th
and 18th centuries among European countries, whose governments were
predominantly mercantilists and protectionists. The American Revolution
- which came about primarily due to British tariffs and taxes – and the
protective policies preceding World War I and II, were not good for
America….. nor were the economic impositions leading up to the American
Civil War.
And when people
and property cannot move freely across borders, armies will.
In the long run,
protectionism steps - as witnessed by Exit Taxes, Border Controls,
Privacy Intrusions, Currency Regulations, and other encumbrances -
offer no advantage to Americans. This is why it's essential you take
steps to learn about protecting your
assets before it’s too late.
Vote with Your Feet
Each new
regulation sets the stage for the next step in the prohibition of the
free movement of people and property.
History teaches us
that when people move elsewhere to realize their dreams and ambitions,
the typical response for a government is to impose exchange controls.
This is painfully evident even during our lifetime, as witnessed in
South Africa and in Russia, and the generation before us in Hitler’s
Germany.
And in the past
century, more people fled from Europe and Latin American countries to
the U.S. to better their financial lot and avoid burdensome taxes back
home than for any other reason, including religious or political
freedom. Flight is a natural response to governments that mismanage
internal affairs.
People vote with
their feet when they wish to improve their life. People move their
families and hard-earned assets to new horizons to avoid oppressive
government. Money and people move to where they are treated best.
Avoiding oppressive taxation and mismanaged government is a motivating
force for people to pack up and leave.
It’s only natural
that as more Americans become aware of the increasing number of
restrictions on their freedom of movement, and prohibitions on their
personal property, more and more will take action to move before things
get worse. And that’s why an increasing number of smart individuals
learn about offshore
living and investing while there is still time.
By official count,
this past year over 250,000 Americans left the U.S. to other horizons,
for many different reasons.
As more people
head for the exits, it becomes increasingly crowded and more
restrictive. And as more people leave, the more oppressive a government
becomes with restricting the free movement of people and property. And
the protectionism spiral only worsens as economic problems choke the
system.
Instead of more
restrictive regulations, Congress needs to fix the American system, and
fix it fast. An increasing number of Americans are looking for the
American Dream offshore. For some, they believe it is already too late.
Will the last one
leaving please turn out the lights?
Until next time.
David
Tanzer
David A Tanzer,
Esq.
JD, BSc, Ph.D (Hon)
For more
information visit www.DavidTanzer.com
or email to [email protected]. David is
the author of “How to Legally Protect Your Assets”
and “Offshore Living and
Investing.”
David A Tanzer & Assoc., PC.
[email protected]
[email protected]
www.DavidTanzer.com
Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272
Auckland, New Zealand:
Tel. (64) 9 353-1328
Fax (64) 9 353-1328
Brisbane, Australia:
Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999
(Licensed to Practice Law in U.S. States & Federal Courts;
Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer;
&
Assoc. Member
Queensland Law Society, AU - Foreign Lawyer)
(C) Copyright 2008
David Tanzer all rights reserved.
The comments herein
are not intended to constitute a legal or tax opinion regarding any
specific legal or tax issue as additional issues may exist; does not
reach a conclusion with respect to any specific legal or tax issue
addressed herein or any additional issues not included; and cannot be
used for the purpose of avoiding legal or tax obligations or penalties
with respect to issues in or outside the scope of matters discussed
herein.
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The following was my reply to an Oct 27, 2007 question
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.
$1,700 would be for two people with income from two countries
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files. As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files. It can take us a valuable hour or more to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance.
