A First-Hand Expatriation Guide
for Americans (I)

The following is a guest post by a former U.S. citizen, now global citizen, who I consider to be a true patriot but wished to remain anonymous given the topic. Remember that America’s founding fathers were expatriates as well.

Introduction

Greetings U.S. citizen!

I’m writing to you as a former U.S. citizen who was born and raised in America. I pledged allegiance to the flag every morning at school. I grew up and voted in elections. And I paid my taxes. Lots of them. I was what the government would consider a model citizen-asset: long revenue and short dissent. Most of my friends and relatives live in America, and I often go back to visit them. I still consider myself to be American, even though I am no longer bound to the U.S. government.

So why did I opt out of being a U.S. citizen? I realized a person’s family and cultural roots are not the same thing as affiliation with a political entity. My citizenship was an accident of birth, and I was pledging allegiance to the government before I even knew what the phrase meant. When I decided I no longer wanted to be a subject of the U.S. political machine, I exercised my right to expatriate. My ties to the government are what I severed, not my American roots or my relationships with the many friends and family I have in America.

Much of the information about expatriation on the Internet and in books is outdated or inaccurate. When I first started doing my own research, there was enough contradiction and confusion to make me thoroughly intimidated. The purpose of this guide is to share what I wish I’d known. Highlight topics include:

– What expatriation means for U.S. citizens
– Immediate and lasting benefits of expatriation
– How to get a second passport
– What the “exit tax” is and how to calculate what you’d owe, if anything
– A detailed roadmap of the process
– Choosing where to live after you expatriate
– Visiting America without falling back into the global U.S. tax net

You might be wondering why I wrote this guide anonymously. The reasons are that I don’t want attention, and I don’t want payment of any kind. I’ve been fortunate to be the beneficiary of knowledge from a handful of generous and open-minded individuals who asked nothing in return. This guide is offered in that spirit.

Whether or not you decide expatriation is right for you and your family, it’s not possible to explore the choice without reliable information. Please know that while I believe the information in this guide is accurate, I urge people to verify things for themselves – not only because I can be wrong, but because the expatriation process has changed substantially over the years. And as increasing numbers of people divorce themselves from the U.S. government, it will no doubt change more in the future.

Why American Expatriation is Different

First, what exactly is expatriation? “In 1868, Congress declared that ‘the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.’” (Source: www.justice.gov/olc/expatriation.htm)

There is no right more essential to individual liberty than the right to expatriate. The right to renounce one’s citizenship is the single most powerful check on the growth of any predatory government. That’s perhaps why it is so seldom mentioned.

But to the 6+ billion people who aren’t U.S. citizens, expatriation simply means picking up and moving to another country. A British family living in Melbourne, a Canadian studying in Paris, a German working in Hong Kong…all are expatriates (“expats” for short). The act of moving somewhere else frees them from the tax obligations of their native country. This allows people who are fed up with their government the freedom to vote with their feet and their dollars.

But for U.S. citizens, expatriation is not accomplished by moving to another country. The U.S. government demands taxes from you no matter where you live. “Taxation without representation” was at the heart of the Founding Fathers’ revolt against England. What tragic irony that America would end up being the only country to do this to its citizens today. The other nations of the world respect that if you’re not living in your native country or using the government’s services, then you’re exempt from their tax net. (“Tax net” is the term accountants and tax lawyers use.)

According to the State Department, there are over five million U.S. citizens living abroad. All are forced laborers for the U.S. political establishment. But you certainly don’t have to be living abroad to consider expatriation. I, for one, wasn’t. Whether you’re a young entrepreneurial spirit or a wealthy retiree, expatriation is a choice that can transform the quality of your life.

So in short, expatriation for an American is the legal act of divorcing yourself from the U.S. government. Anything else is just living abroad. But expatriation is not a one-step deal. As convenient as it would be, you can’t expatriate by sending in your U.S. passport with a letter to the State Department declaring you’re no longer a citizen. To make it count with the government, you must fill out their forms and jump through their hoops.

Is There Another Way?

The act of jettisoning your U.S. citizenship is formally called renunciation. Renouncing your citizenship is the ONLY legal way to free yourself from the global U.S. tax net. If you think you know a way to “beat the system” rather than legally opt out of it, I strongly recommend reconsidering. Google “UBS tax scandal” if you’d like an example. These people no doubt thought they were very clever.

I urge you not to fall for the myriad offshore tax planning promotions by lawyers and accountants on the Internet and in books. I investigated many of these, and they all end up in one of three categories: 1) phony scams like the one actor Wesley Snipes fell for; 2) old tax loopholes that briefly may have worked, but have long been closed; and 3) high-cost asset restructuring plans using trusts, partnerships, foundations and other vehicles which trigger enormous reporting requirements and flag you as a “person of interest” to the IRS.

As I write this, there are literally thousands of additional IRS agents being hired. There’s the new IRS “Global High Wealth Industry,” a division created to target wealthy people. And I’d be remiss not to mention the IRS snitching program. You can snitch anonymously, or give your name and collect up to $2,000,000 in rewards. If it seems too Orwellian to be true, download IRS Publication 733 and read the snitch form for yourself. Really, what else is there to say now that governments literally are bribing bank employees to slip them customer databases of confidential account information?

But what about fighting to change the system? Given the countless rip-offs and abysmal approval ratings of U.S. politicians over the years, it’s understandable that some people would want to make a stand. I don’t recommend this approach. Here’s just one example of what happens when you fight the system from within the system. This fellow is in his 80s and is rotting in prison: http://en.wikipedia.org/wiki/Irwin_Schiff

Here’s the bottom line: Short of expatriation, there is no strategy that legally extricates you from the global U.S. tax net. If you play fancy asset shell games, the best case scenario is you’ll spend lots of money and shoulder considerable stress dealing with endless reporting and the specter of audits. The worst case scenario is you may fail to fully comply with the raft of regulations and requirements of the IRS and the Treasury. The result? Getting your money, and possibly yourself, confiscated.

A Better Way

So what’s the better way? Just opt out of the system. Take your freedom, your money and your peace of mind with you. Life is too short and too precious to battle Brobdingnagian bureaucracies armed with multi-billion dollar budgets, swarms of armed enforcers, and the power to make and repeal laws to suit their interests.

The best way to fight the system is to peacefully step out of the ring. Legally cut off its access to your money, your time, your future productivity – and if you have children – their inheritance. The top 10% of taxpayers already pay 70% of the taxes, and the rates are headed higher. These people are walking away in greater numbers, and when that walk turns into a run, I promise you’ll want to be watching what happens next from afar.

Exercising the right of expatriation continues to become increasingly difficult and costly. The U.S. political juggernaut steamrolls rights all the time. The Patriot Act alone makes a doormat out of the Bill of Rights. When the NSA was outed for tapping people’s phone calls, emails, and text messages without warrants, was anyone actually surprised? (If you haven’t thought much about privacy, here’s the crux: The right to privacy isn’t about whether or not you have something to hide. It’s about the right not to be spied on.)

As time passes, the right to expatriate may exist in name, but the costs and consequences of exercising that right may be chilling. When considering any right, just remember that it used to be legal to own slaves in the land of the free…but illegal to own gold. And drink a martini.

From a Walk to a Run

So when might a walk turn into a run for the exit? It already may have begun. The New York Times recently ran an article titled “More American Expatriates Give Up Citizenship.” The article notes that there were more than twice as many renunciations in the last three months of 2009 than in all of 2008. The article cites these numbers from the Federal Register, the government publication which records renunciations.

But here’s what the article doesn’t say. Talk to expatriation attorneys and they’ll tell you many of their clients never show up in the Federal Register. I believe the numbers are underreported to avoid the embarrassment of revealing how many people are renouncing citizenship. But even the reported numbers in the Federal Register are growing geometrically. As the article suggests, I believe we’re seeing “the tip of the iceberg” of what’s to come. When I expatriated, I asked the consular official who processed my paperwork how busy they were handling these. The official said they were busier than they’d ever been.

Here’s a more deductive way to illustrate that the walk may be turning into a run. You cannot renounce your citizenship in the U.S. It must be done outside the country at a U.S. embassy or consulate. The New York Times article says, “Waiting periods to meet with consular officers to formalize renunciations have grown.” That’s true – but also an understatement. There are hundreds of U.S. embassies and consulates scattered around the world where people can go to expatriate. The full list, along with their web sites, is here: www.usembassy.gov

Now from that long list, take the London embassy, for example. It processes multiple renunciations every day. If you contact them to book an appointment, good luck. The wait time is reportedly almost a year. So given that they’re overbooked, if the embassy only processes three renunciations per day, that alone would account for all 743 listed in the Federal Register for 2009. Given the hundreds of other U.S. embassies and consulates you can visit to expatriate – many with substantial wait times – it seems obvious that the number of people renouncing is woefully underreported.

So Who Does This?

To begin with, the Founding Fathers. They are the original American expats. The Declaration of Independence was their renunciation of British rule. And what an insight when they wrote that all governments derive their power from “the consent of the governed.” These men withdrew their consent. The renunciation of one’s citizenship is an individual’s declaration of independence.In a more modern context, expatriation is often associated with the rich. Probably the most well known person to renounce his U.S. citizenship is self-made billionaire and philanthropic giant John Templeton.

But expatriation is not just for John Templeton and hedge fund managers. The New York Times article focuses on the millions of U.S. citizens who already have been living abroad for years. They’re expatriating because they no longer want to be treated as “toxic citizens” due to the raft of Patriot Act provisions and other regulations which make U.S. citizenship an albatross when living abroad.

Then, there are people like myself and other expats I know. People who have lived in America all our lives, but came to the conclusion that we would be freer, happier and wealthier no longer being wards of the U.S. government.

Over the past few years, technology has opened up the choice to expatriate to millions of Americans. Keeping connected as an expat has never been easier. The ubiquitous presence of the web – with services like Skype, Facebook, WordPress, Twitter, and YouTube – lets you keep in touch with family and friends wherever they are. And airfare has never been cheaper. Powerful electronic devices have opened up the business world too. From speedy laptops to Bloomberg terminals, from Blackberries to iPhones, more professions and more transactions can be done without regard to your physical location than ever before. Other wonders like Amazon, iTunes, online banking and online trading have been revolutionary as well.

It’s also worth mentioning that expatriation is perfectly suited to the lifestyle possibilities outlined in Tim Ferriss’s best-selling book, The 4-Hour Workweek. For Americans who have the goal of earning their income online – and of course for those who are doing it already – expatriation opens the door for you to earn your income tax-free while you travel and enjoy the world.