Cost of Dropping Citizenship Keeps U.S. Earners From Exit

Exit taxes and other costs make it prohibitive for most high-income taxpayers and small-business owners to leave the U.S., though they may want to go because of higher taxes at the federal level and in states such as California. Those who expatriate must renounce their citizenship to avoid U.S. taxes and navigate several sets of Internal Revenue Service rules when setting up a foreign corporation.

A high-income couple worth $100 million whose assets have $50 million in gains may have a $10 million tax liability if they decided to leave this year, said Henry Christensen, a partner at Chicago-based McDermott Will & Emery who manages the firm’s international private client practice.

While the number of people giving up their U.S. passports has been higher in the past few years than in the previous decade, the numbers are a small portion of the population. About 932 people gave up their U.S. citizenship in 2012, IRS data show. That compares with 1,781 in 2011 and 742 in 2009.

Read the full article here.

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