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U.S. Expat Mistakes : Part III



The same vein runs through most expat conversations. U.S. taxes are burdensome and compliance is difficult. Keeping up with the rules and regulations takes up a big chunk of the expats’ time.

Many financial institutions in countries which have Inter-Governmental Agreements {IGAs} with the U.S. find keeping up with U.S. Bank Secrecy Act reporting requirements so cumbersome that they  do not want U.S. citizens to be their patrons. 

Expats find these circumstances to be overwhelming and decide to surrender their U.S. citizenship. The most common mistake expats make when renouncing their citizenship is not understanding covered expatriate rules and what the consequences of being non-compliant with taxes before taking this huge step.

Here in part three of the series, let’s take a look at covered expatriation rules. Part one of the series is here and part two here.

I had written about tax consequences of expatriation in my post here. To rehash this for 2017, there are three ways one can become a covered expatriate:

A. If one’s tax liability for the previous five years is above $162,000 or one passes the tax liability test.

B. Or if one passes the net worth test, i.e., one’s net worth is $2,000,000 or more at the time of renunciation.

C. You fail the certification test, that is your tax paperwork and payment obligations for the five years before expatriation is incomplete.

What Happens If You Renounced Your Green Card or U.S. Citizenship AND Were A Covered Expatriate At The Time?:

Covered Expatriates pay tax when they renounce their Green Card or Citizenship. Covered Expatriates cannot make tax-free gifts or bequests to U.S. persons. They may not be allowed to re-enter the United States, thanks to the Reed Amendment.

Do not become an accidental covered expatriate, if you are thinking of renouncing your citizenship or surrendering your Green Card, consult with a tax professional familiar with these rules BEFORE you start the process.

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I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.

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