Earlier this month, Denise Rich, the wealthy socialite, songwriter and former wife of pardoned billionaire trader Marc Rich, renounced her U.S. citizenship in order to expatriate from the United States and save money on taxes.
With an increase in taxes expected to occur in 2013 and the multitude of foreign countries offering a desirable lifestyle (with lower taxes), many other U.S. persons facing large tax bills to the IRS, like Denise Rich, have considered expatriating from the United States.
In a recent Miami Herald article, Miami attorney Alan Weisberg said he has noticed an increase in interest by some clients in exploring the possibility of renouncing citizenship.
However, these individuals often learn that even though renouncing their U.S. citizenship can be a fairly simple process, the tax consequences of expatriating from the United States can be quite onerous. The U.S. Internal Revenue Service imposes an “Exit Tax” on certain high-net worth individuals expatriating from the United States based on the value of the person’s assets at the time of expatriation. The Exit Tax effectively treats the individual’s expatriation from the United States as a taxable event and requires the individual to recognize gain as if his or her assets were sold for their fair market value at the time of expatriation.
At first blush, the idea of paying the Exit Tax can be quite daunting for many U.S. taxpayers. However, with long-term capital gains rates (currently 15%) and other taxes expected to increase in 2013, many U.S. taxpayers view 2012 as the right time to move forward with expatriation. Additionally, with proper planning, an expatriating U.S. taxpayer can lower the value of his or her assets and reduce the amount of the Exit Tax required to be paid upon expatriation.