U.S. citizens and green card holders are taxed on their worldwide income. This means it doesn't matter where you live or where you earned the money. As our tax attorneys often point out, if you hold a green card or are a naturalized U.S. citizen (or a citizen by birth) you must pay tax in the United States, you must file Foreign Bank Account Reports (so-called FBARs), and you must file all tax documents with the IRS. Willful failure to do so can result in criminal charges and/or civil tax fraud penalties.
Many U.S. citizens and green card holders are deciding to expatriate to avoid these types of tax problems. I am going to use the term expatriation today to include not only the process of giving up your U.S. citizenship, but also apply it to those individuals who are Green Card holders and decide to terminate that status.
In 2015, according to the Treasury Department, almost 4,300 persons either gave up their U.S. Citizenship or their Green Cards. In 2016, that number jumped to 5,411. A 26% increase over 2015. Some believe that the statistics published by the Treasury Department are understated since they are a bit lower than FBI statistics. Whatever the exact number, many U.S. persons are giving up their U.S. connections for a variety of reasons. Those reasons often include a desire to save on taxes. but it is not that simple.
Let's try an example:
At this point you may be asking yourself, "if I leave the country, how is the IRS going to collect?" Our next video will hold the answer to this question and more.
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