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Comment by philiphodgen | Hacker News Reader

I was the tax lawyer interviewed for this article. I have helped dozens of people terminate their citizenship or green cards. Ask me anything.

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Being Canadian, this strikes close to home. It seems like the crackdown was directed mostly at the rich to target tax evasion, but it has had the ~1 million American citizens in Canada trembling. Many of these people have not lived in the States at any point in their life (often born into dual citizenship), and all of a sudden they're being threatened with penalties for not filing taxes in the U.S.

My last impression from the U.S. Ambassador was that there would be reasonable reprieve for dual U.S.-Canadian citizens. Has that happened?

No reprieve yet and it appears that the IRS still wants to take 25% of your RRSP if you didn't file the right price of paper with the IRS. I'm meeting with the IRS in Washington on May 7 to propose an easy remedial system. We shall see.

But yeah. The IRS went hunting for whales and caught minnows.

There's a proposed bill that says that if you owe more than 50K the government won't let you leave the country.

Won't this effectively trap people? Is there any legal recourse -- including renouncing citizenship -- for somebody stuck inside the country?

This is our Berlin Wall.

It is all loosey-goosey at the moment but this law could evolve to "The IRS _thinks_ you might owe money so you cannot leave the country."

It is bad news.

This sounds horrible......

Very cool that this article interviewed a hn member.

My understanding is that you still have to pay taxes for 10 years after terminating citizenship, is this true?

Nope. That was the old system. That went away in 2008. The new system is that you are treated as if all your tax chickens come home to roost at once. All your IRAs etc are treated as distributing. You are treated as selling everything you own. It is a giant mark-to-market event in your life.

This applies to "rich" people. This means $2 million net worth and up, or you paid an average of $151k of Fed tax over the previous five years. Under these limits? You are out with paperwork, no tax.

Hi Phil,

It's very common in Australia for a founder to hold shares in their startup through a discretionary trust. What happens if the startup converts to a Delaware corporation and the founder moves to San Francisco, becoming a US person for income tax purposes?

Now they indirectly own shares in a US corporation via a foreign trust and I understand the IRS would tax an eventual acquisition extremely unfavorably. Does this mean that Australians in a similar position (like me!) need to forgo the benefits of using a trust and just hold the shares directly?

Oh Christ.

You have bought a $10,000 tax return. That's all I can tell you.

The mind boggles in a few directions. Migrating assets and corporations across borders is scary. You are now the creator and beneficiary of a foreign trust. Oh. Your superannuation is a foreign trust.

See. THIS is an example of why the US tax system is broken. Not because of the tax rate. Because of the rules. The folly and arrogance of a rules-based system. A logic system built like sediment builds up on the bottom of a lake. If sediment buildup involved corruption in the form of lobbyists.

Thanks Phil!

I went to grad school about 5 mins walk from your office, but right now the plan is to avoid ever again becoming a US taxpayer.

Yay CalTech. If you're ever in Pasadena give me a call.

The reverse situation for Australians is actually quite easy, for the most part if you have no income from or assets in Australia you're not required to file.

For those that do terminate their citizenship, what is the most common country they choose to live in afterwards? In other words, where is the grass perceived to be greener?

Most of my clients end up in high tax countries. Europe. Canada. NZ or Australia.

Makes you question the knee-jerk bias, doesn't it?

How do people tend to find the move after 2-3 years?

I have people come in who want to rant about America going to hell. They want out. I tell them they should go live somewhere for a few years to be sure they want to cancel the passport. Your point is dead on.

I haven't heard any complaints from the people I have worked with, though.

At least with some of those countries, if you're gonna be forced to pay taxes anyway, you might as well get more for your money like healthcare...

Is a shame this wasn't explored more in the article. The headline would make you think that this is about people leaving to pay less tax.

Perhaps a more accurate title would have been;

"Bureaucratic Paperwork Prompts More Americans to Renounce Citizenship

It's more like if you live overseas, it's expensive to pay double taxes. So some people are renouncing citizenship partly to pay less tax, not just to avoid paperwork.

Some people are leaving partly to pay more tax. Sometimes the spiral downwards of paying less tax can be bad for society. eg raises poverty line.

But you don't pay double tax on overseas earnings unless the overseas country requires you to pay less tax than in the US as long as you file the tax return, or at least that was what was written in the article as far as I could tell, so the only people paying more are doing so by not filing and being fined.

What countries would you recommend your clients to go to?

Did you see any trends with people terminating citizenship in regards to demographics? Income level? Race? Political stance?

I go regularly to Asia and the Middle East. There the younger generation is dropping the passport. It used to be that the parents would fly to the USA to have a kid born. Now those kids see the passport as a net liability, not an asset.
Otherwise I don't see a pattern. Family ties to another country, sure. Been living abroad for 20 years, sure.

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