George Gervin's Afro
08-12-2013, 10:39 AM
http://online.wsj.com/article/SB10001424127887323585604579007860126146566.html?m od=WSJ_MIDDLENexttoWhatsNewsSecond
U.S. Expats Balk at Tax Law
American Citizen Renunciations Are Soaring
More U.S. citizens are giving up their American passports as the government cracks down on tax evaders. The WSJ’s Deborah Kan speaks to lawyer Eugene Chow about the main reason why many don’t want to be American anymore.
HONG KONG—The U.S.'s crackdown on global tax evaders is leading to a record number of people renouncing their citizenship, and its effects are being felt keenly in Asia—now the world's wealthiest region by household assets.
A growing number of Americans are exploring whether to renounce their U.S. citizenship or give up their green cards to avoid onerous tax obligations.
Globally, more U.S. citizens have renounced their citizenship in the first and second quarters than all of 2012 combined, and 2013 is already on track to becoming a record year for renunciations. A total of 1,130 names appeared on the latest list of renunciations from the Internal Revenue Service, according to Andrew Mitchel, a tax lawyer who tracks the data. That is far above the previous high of 679, set in the first quarter, and more than were reported in all of 2012.
While those numbers are still a fraction of the estimated six million Americans living abroad, lawyers say the main trigger for cutting ties with U.S. recently is the Foreign Account Tax Compliance Act, or Fatca, which requires foreign institutions to disclose the overseas assets of U.S. green-card holders and citizens to the U.S. government.
The U.S. Congress estimates that tax evasion by U.S. citizens results in losses of up to $100 billion a year. The main objective of Fatca is to identify people who may be evading taxes through offshore investment vehicles.
"When I became an immigration lawyer 30 years ago, people really were excited about going to America. Now, more than half of my clients are people thinking of other alternatives rather than people seeking to immigrate to America," said Eugene Chow, the principal of Chow King & Associates.
In Hong Kong, where the individual tax rate is capped at 15%, becoming a citizen is an attractive prospect. But some U.S. citizens say they are exasperated by a growing raft of paperwork that forces U.S. citizens living abroad to declare the minutiae their financial holdings and other assets. "My decision was less about the actual amount of taxes I had to pay, and more about the system," said one investment banker, who renounced his U.S. citizenship and is now a Hong Kong citizen. "I'm not an ultrawealthy dude. It was the hassle with all the paperwork"
Jay Krause, head of the wealth planning group in Asia for law firm Withers, says his lawyers in Hong Kong and Singapore are busy processing voluntary U.S. tax returns under the IRS's offshore voluntary disclosure program, which is also designed to weed out tax evaders and people who haven't filed their taxes in years. Many of his clients are citizens or green-card holders who haven't lived in the U.S. for years but kept the green card or passport for travel purposes. "They stuck it away in a drawer and didn't think about it," he said.
The U.S. Government Accounting Office said found that 10,439 offshore voluntary disclosures were filed and closed, with the median taxpayer reporting $568,735 in offshore accounts and owing $95,982 in taxes, interest and penalties.
Since the 2009 program, the IRS launched similar measures for voluntary filings in 2011 and 2012, which are still in place. Mr. Krause said the highest tax bill he has seen was "in excess of $35 million."
After filing their taxes, many Withers clients are giving up their green cards and U.S. citizenship, deeming the tax liability to be too onerous. Among them are American expatriates who see their Singaporean and Hong Kong peers paying a far lower income tax and aren't subject to capital gains taxes, Mr. Krause said.
Rather than pay a hefty exit tax in exchange for renouncing U.S. citizenship, many wealthy Asian families are simply paying up their missed taxes, paying penalties of 27.5% on the value of previously undeclared assets. Scott Michel, a tax and estate lawyer based in Washington DC with Caplin & Drysdale, said he has filed taxes up to $60 million on behalf of one family. "Some clients, many of the wealthier ones, decide to bite the bullet," he said. "That's a lot of money to pay for peace of mind, but people do it."
Wealthy families with U.S. citizenship—many of whom haven't lived on U.S. soil in years—are finding ways to work around Fatca regulations. Many are opting to set up special "foreign grantor trusts" to escape paying taxes while maintaining citizenship. In that scenario, one family member who doesn't have U.S. citizenship is designated as the settlor—typically, the head of a family business—and places assets in a designated trust for the benefit of the children who do have U.S. citizenship. The income generated from those assets isn't subject to U.S. taxes. But there is a caveat: The trust must be fully revocable, which means the settlor has the right to withdraw the assets from the trust whenever he or she pleases.
The foreign grantor trust is becoming a favored method for passing on wealth, said Jay Krause, head of the wealth planning group in Asia for law firm Withers. Such trusts are "highly advantageous" to families living abroad, he said.
Still, many long-term U.S. expats are grappling with the new regulations and the longer-term implications it could have for the U.S. in general. "The U.S. system does not incentivize anyone to go overseas anymore," said the banker in Hong Kong who renounced his citizenship. "As a country, your sphere of influence is impacted."
Mr. Chow says the new regulations have altered the entire premise of his business. "My mentor, who is in his early 80s, said to me, 'You became an immigration lawyer to fulfill the American dream, and now you are helping people leave."
Bu bye....
U.S. Expats Balk at Tax Law
American Citizen Renunciations Are Soaring
More U.S. citizens are giving up their American passports as the government cracks down on tax evaders. The WSJ’s Deborah Kan speaks to lawyer Eugene Chow about the main reason why many don’t want to be American anymore.
HONG KONG—The U.S.'s crackdown on global tax evaders is leading to a record number of people renouncing their citizenship, and its effects are being felt keenly in Asia—now the world's wealthiest region by household assets.
A growing number of Americans are exploring whether to renounce their U.S. citizenship or give up their green cards to avoid onerous tax obligations.
Globally, more U.S. citizens have renounced their citizenship in the first and second quarters than all of 2012 combined, and 2013 is already on track to becoming a record year for renunciations. A total of 1,130 names appeared on the latest list of renunciations from the Internal Revenue Service, according to Andrew Mitchel, a tax lawyer who tracks the data. That is far above the previous high of 679, set in the first quarter, and more than were reported in all of 2012.
While those numbers are still a fraction of the estimated six million Americans living abroad, lawyers say the main trigger for cutting ties with U.S. recently is the Foreign Account Tax Compliance Act, or Fatca, which requires foreign institutions to disclose the overseas assets of U.S. green-card holders and citizens to the U.S. government.
The U.S. Congress estimates that tax evasion by U.S. citizens results in losses of up to $100 billion a year. The main objective of Fatca is to identify people who may be evading taxes through offshore investment vehicles.
"When I became an immigration lawyer 30 years ago, people really were excited about going to America. Now, more than half of my clients are people thinking of other alternatives rather than people seeking to immigrate to America," said Eugene Chow, the principal of Chow King & Associates.
In Hong Kong, where the individual tax rate is capped at 15%, becoming a citizen is an attractive prospect. But some U.S. citizens say they are exasperated by a growing raft of paperwork that forces U.S. citizens living abroad to declare the minutiae their financial holdings and other assets. "My decision was less about the actual amount of taxes I had to pay, and more about the system," said one investment banker, who renounced his U.S. citizenship and is now a Hong Kong citizen. "I'm not an ultrawealthy dude. It was the hassle with all the paperwork"
Jay Krause, head of the wealth planning group in Asia for law firm Withers, says his lawyers in Hong Kong and Singapore are busy processing voluntary U.S. tax returns under the IRS's offshore voluntary disclosure program, which is also designed to weed out tax evaders and people who haven't filed their taxes in years. Many of his clients are citizens or green-card holders who haven't lived in the U.S. for years but kept the green card or passport for travel purposes. "They stuck it away in a drawer and didn't think about it," he said.
The U.S. Government Accounting Office said found that 10,439 offshore voluntary disclosures were filed and closed, with the median taxpayer reporting $568,735 in offshore accounts and owing $95,982 in taxes, interest and penalties.
Since the 2009 program, the IRS launched similar measures for voluntary filings in 2011 and 2012, which are still in place. Mr. Krause said the highest tax bill he has seen was "in excess of $35 million."
After filing their taxes, many Withers clients are giving up their green cards and U.S. citizenship, deeming the tax liability to be too onerous. Among them are American expatriates who see their Singaporean and Hong Kong peers paying a far lower income tax and aren't subject to capital gains taxes, Mr. Krause said.
Rather than pay a hefty exit tax in exchange for renouncing U.S. citizenship, many wealthy Asian families are simply paying up their missed taxes, paying penalties of 27.5% on the value of previously undeclared assets. Scott Michel, a tax and estate lawyer based in Washington DC with Caplin & Drysdale, said he has filed taxes up to $60 million on behalf of one family. "Some clients, many of the wealthier ones, decide to bite the bullet," he said. "That's a lot of money to pay for peace of mind, but people do it."
Wealthy families with U.S. citizenship—many of whom haven't lived on U.S. soil in years—are finding ways to work around Fatca regulations. Many are opting to set up special "foreign grantor trusts" to escape paying taxes while maintaining citizenship. In that scenario, one family member who doesn't have U.S. citizenship is designated as the settlor—typically, the head of a family business—and places assets in a designated trust for the benefit of the children who do have U.S. citizenship. The income generated from those assets isn't subject to U.S. taxes. But there is a caveat: The trust must be fully revocable, which means the settlor has the right to withdraw the assets from the trust whenever he or she pleases.
The foreign grantor trust is becoming a favored method for passing on wealth, said Jay Krause, head of the wealth planning group in Asia for law firm Withers. Such trusts are "highly advantageous" to families living abroad, he said.
Still, many long-term U.S. expats are grappling with the new regulations and the longer-term implications it could have for the U.S. in general. "The U.S. system does not incentivize anyone to go overseas anymore," said the banker in Hong Kong who renounced his citizenship. "As a country, your sphere of influence is impacted."
Mr. Chow says the new regulations have altered the entire premise of his business. "My mentor, who is in his early 80s, said to me, 'You became an immigration lawyer to fulfill the American dream, and now you are helping people leave."
Bu bye....