This post is based on (but is NOT identical to) a July 17, 2017 submission in response to Senator Hatch’s request for Feedback on Tax Reform
“Re the impact of the S. 877A “Exit Tax” on those “Americans living abroad” who relinquish U.S. citizenship:
Why is the United States imposing an “Exit Tax” on their “non-U.S. pensions” and “non-U.S. assets”? After all, these were earned or accumulated AFTER the person moved from the United States?”
Part A – Why certain aspects of the Exit should be repealed
In a global world it is common for people to establish residence outside the United States. Many who establish residence abroad either are or become citizens of other nations. Some who become citizens of other nations do NOT wish to be “dual citizens”. As a result, they “expatriate” – meaning they relinquish their U.S. citizenship. By relinquishing their U.S. citizenship they are cutting political ties to the United States. They are signalling that they do NOT wish the opportunities, benefits and protection from/of the United States.
Yet Internal Revenue Code S. 877A imposes a separate tax on “expatriation”. The “expatriation tax” is discussed in a series of posts found here.
Specific examples of HOW the “Exit Tax Rules” effectively confiscate pensions earned outside the United States are here.
Assuming, “covered expatriate status” and NO “dual-citizen exemption to the Exit Tax“, the S. 877A “Exit Tax” rules operate to:
- Virtually “confiscate” non-U.S. pensions that were earned when the individual was NOT a United States resident; and
- Allow for the retention of “U.S. pensions” which were earned while the individual WAS a resident of the United States.
(One would think that the result should be THE EXACT OPPOSITE!”)
Specific request: The S. 877A Exit Tax should be repealed. If the United States is to impose a tax on expatriation, the tax should not extend to “non-U.S. pensions” earned while the individual was NOT a U.S. resident. Furthermore, the tax should NOT extend to “non-U.S. assets” that were accumulated while the individual was NOT a U.S. resident.
But, that’s assuming that the United States should have ANY kind of “Exit Tax!”