Increasing Numbers of US Citizens are Leaving
US exit taxes make the land of the free an expensive place to leave. Us exit taxes apply not only to US citizens who decide to renounce their citizenship. They also apply to long term green card holders.
The US is the most difficult tax system in the world to escape from. The IRS really doesn’t like to lose customers. US exit taxes apply to any US citizen who wants to renounce. They also reply to anyone who’s held a green card for 8 out of the last 15 years. Long term green card holders are treated the same as US citizens.
Who US Exit Taxes Apply To
The exit taxes apply to:
a) Anyone with assets of more than $2m
b) Anyone who has not filed tax returns in the last 5 years.
c) Anyone who paid more than $170,000 per year in tax, on average, over the last 5 years.
There are also some exceptions for some who were dual nationals at birth, even if they have assets of more than $2m. However if they have not filed tax returns in the last 5 years, even thse people will be subject to the exit taxes.
US exit taxes were introduced in 2008. The were introduced because more and more Americans were renouncing their US citizenship to escape US taxes
If you are expatriating and fall under any of the categories above you will be considered a covered expatriate by the IRS.
Covered expatriates are obliged to pay tax on all assets they own. This applies whether they sell them or not. Even your main home is subject to this tax if you decide to keep it. All assets will be taxed as if you sold them on the day before expatriation. All assets deemed sold must be marked to market and be priced at a fair market value. This draws a line in the sand on your US tax status.
The $500m Shakedown
Oleg Tinkov was born in Russia. He was naturalized as a US citizen in 1996. He filed tax returns between 1996 and 2013. Tinkov founded a financial services business based in Moscow in 2005. He owned the shares in this business, called Tinkoff Credit Services, through an offshore company.
In 2013 Tinkoff Credit Services did an IPO on the London Stock Exchange. It had a multi-billion dollar valuation. Tinkov sold $192m of stock at this time.
Three days after the successful IPO Tinkov went to the US embassy in Moscow and renounced his US citizenship. When Tinkov filled out the expatriation form he claimed his net worth was only $300,000. On his 2013 US tax return he reported income of $205,317. He did not report any gains from the IPO.
According to the IRS Tinkov had assets of $1.1 billion. They claimed he should have paid US exit taxes of $248,525,339 based on the value of his assets.
The US government had Tinkov arrested in London. He was charged with criminal tax evasion. They requested his extradition from the UK. Tinkov contested the extradition on the grounds of ill health.
Ultimately Tinkov settled the case with the IRS and paid a total of $508,936,184 to the IRS. He pled guilty to filing a false tax return. He did not receive any jail time but the fine of $250m was one of the biggest in US history.
He paid double the US exit taxes due. This was on money that was not earned in the US. He didn’t live in the US at the time. This tax liability came about only because he was a US citizen.
US exit taxes should be taken seriously. The US government has sown that they will pursue former citizens for US taxes even after they renounce their citizenship and are not in the US. Anyone seeking to build wealth outside the US is best to get another citizenship and renounce before it becomes too expensive. If you renounce when your assets are below $2m it won’t cost anything. US green card holders who want to avoid exit taxes should consider relinquishing their green cards before they reach the 8 year mark where the exit taxes are due.
Get in touch with Liberty Mundo for help with asset protection and second citizenship.