Tag Archives: U.S. exit tax

From Jackson-Vanik To The HEART Act – The Evolution Of American Hypocrisy

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Introduction

The above tweet references a 2012 post from the Isaac Brock Society pointing out the hypocrisy of “Jackson-Vanik” and the United States. “Jackson-Vanik” – enacted in 1974 – was a U.S. law which imposed sanctions on countries who imposed unreasonable restrictions (exit taxes) on the rights of their citizens to emigrate to new countries.

By 1996, the United States (led by the Clinton administration) was imposing Exit Taxes on certain Americans who renounced U.S. citizenship. James Dale Davidson writing in “The Sovereign Individual” (1997) compared the justification (or lack thereof) for U.S. Exit Taxes to the rationale for Exit Taxes imposed by the East Germany, as follows:

If you accept the premise that people are or ought to be assets of the state, Honeker’s wall made sense. Berlin without a wall was a loophole to the Communists, just as escape from U.S. tax jurisdiction was a loophole to Clinton’s IRS. Clinton’s argument about escaping billionaires, aside from showing a politician’s usual disregard for the integrity of numbers, were similar in kind to Honeker’s, but somewhat less logical because the U.S. Government, in fact, does not have a large economic investment in wealthy citizens who might seek to flee. It is not a question of their having been educated at state expense and wanting to slip away and practice law somewhere else. The overwhelming majority of those to whom the exit tax would apply have created their wealth by their own efforts and in spite of, not because of, the U.S. Government.

James Dale Davidson – The Sovereign Individual page 117. (This book contains some of the most prescient observations about citizenship-based taxation I have ever seen.)

(Enacted as a revenue offset to the HEART Act in 2008, the United States of America now has the most brutal exit taxes imposed in the history of the world. In effect, it confiscates non-U.S. assets, acquired by people who did not live in the United States. Because of the confiscatory intent of the U.S. Exit Tax Regime, the Internal Revenue Code includes numerous reporting requirements whenever an individual renounces U.S. citizenship. To learn about the inner workings of the Section 877A Exit Tax – see the series of posts here.)

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Part 8 – “The U.S. “Exit Tax vs. Canada’s Departure Tax – citizenship taxation vs. residence taxation”

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The above tweet references the following comment:

At least the departure tax has a sliver of logic to it, and an appropriate name. To have to pay a US “exit tax” when I left empty handed over thirty years ago, beggars belief. Perhaps if they called it an escape tax or freedom tax that would make more sense.

Composing this series of posts about the U.S. S. 877A “Exit Tax” made me realize that “Exit Taxes” are a prism through which to view a country’s tax system. Any kind of tax imposed on leaving the “tax jurisdiction” of a country will reveal much about the fairness of a tax system. Yet there has been little discussion of “Exit Taxes”. In theory an “Exit Tax” is imposed when one emigrates from one country and immigrates to another country. This is how “Canada’s Departure Tax” works. It is NOT how the U.S. “Exit Tax” works.
I recently came across an interesting book written by Nancy Green and Francois Weil titled:
Citizenship and Those Who Leave: The Politics of Emigration and Expatriation
citizenshipandthosewholeavegreen
The description includes:

Exit, like entry, has helped define citizenship over the past two centuries, yet little attention has been given to the politics of emigration. How have countries impeded or facilitated people leaving? How have they perceived and regulated those who leave? What relations do they seek to maintain with their citizens abroad and why? Citizenship and Those Who Leave reverses the immigration perspective to examine how nations define themselves not just through entry but through exit as well.

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Attn: Former U.S. Citizens: Are you STILL or have you EVER BEEN a U.S. "Tax Citizen"?

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Synopsis:
This is a long post. In fact, it is too long for the average reader. Therefore, I wish to summarize the purpose and possible (but not certain conclusion) of the post in a few simple sentences.
Here goes:
If you were born in the United States (and became a U.S. citizen at birth) who moved to Canada and naturalized as a Canadian Citizen prior to June 3, 2004:
1. Without informing the U.S. State Department or applying for a Certificate of Loss of Nationality; and
2. You are hearing from the media and some members of the tax compliance community that you are either still a U.S. citizen and/or are somehow liable for U.S. taxes; then
You should NOT believe that you are still a U.S. citizen and/or are that you are subject to U.S. taxation without getting proper counselling.
In other words you should NOT:
– apply for a Certificate of Loss of Nationality
– file U.S. tax returns
– renounce U.S. citizenship
without a thorough investigation of your situation. You may or may not be a U.S. citizen who is subject to U.S. taxation.
Extreme caution is warranted. Every case is fact specific.
Please note that this post is NOT legal advice of any kind whatsoever. You meed to discuss your specific circumstances with a competent adviser of your choice.
To understand why, read on …
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The "plain language" of S. 877A – To whom does the U.S. Exit Tax apply?

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The “Plain Language” of the S. 877A Rules – To Whom does S. 877A apply? What is the “Relinquishment Date?
Synopsis:
Many Americans abroad are confused by the difference between “relinquishment” and “renunciation”. I recently wrote a post explaining that:
1. Renunciation is one form of “relinquishment”; and
2. The issue is the “relinquishment date” and not the form of “relinquishment”.
This post will explain exactly why the date of relinquishment matters.
To put it simply:
Those with a “Relinquishment Date” after June 16, 2008 may be subject to the confiscatory provisions of the S. 877A Exit Tax.
This post will make the argument that the “plain language” of the combined effects of S. 7701(a)(50) and S. 877A(g)(4) compel the conclusion that those with a “Relinquishment Date” prior to June 3, 2004 are NOT subject to the S. 877A Exit Tax.
My analysis follows.
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Could The 2015 Obama budget proposal for "dual citizens" have been implemented without Congressional approval?

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Note: This post was originally written in 2015. Parts of this post have been updated in January of 2021. (The original post is here.) The changes reflect the evolution of my thinking. I now believe that Treasury could (or could have) accomplished much of this proposal through Treasury regulations.

Part 1 – The Obama 2015 Budget Proposal – Change you can believe in?

This was the subject of significant discussion at the Isaac Brock Society. It was also the subject of an insightful blog post by U.S. Tax Lawyer Virginia La Torre Jeker.

It is possible that (at long last) the U.S. government is beginning to recognize that there is a difference between “technical citizenship” and a voluntary U.S. connection indicative of “substantive citizenship” that might (but is not required to) justify taxation of U.S. citizens abroad in the 21st century.

The relevant provision (page 282) includes:

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