Record numbers of U.S. Citizens and Green Card Holders are expatriating to avoid the complicated and confusing IRS reporting requirements, income tax on world-wide income, and the potentially punitive estate tax. The Federal Register reports that in 2014, 3415 U.S. Citizens renounced their Citizenship, although we do not know how many were subject to the "exit tax" and other penalties.

The London Mayor's recent well publicized dilemma is illustrative of the long arm of the IRS. He was born in the U.S. and is therefore a U.S. Citizen, but he has not lived here since the age of five. The Mayor sold his UK residence for a large profit, not taxed in the U.K. (sale of a first home). The IRS assessed him for the tax on the gain, interest and penalties, and it could also impose severe penalties for his failure to file the FBAR forms to report all his "foreign" bank accounts, and perhaps for failure to file other various forms relating to business interests.

The London Mayor was apparently aware of his U.S. Citizenship, but there are many who are "accidental" American Citizens and unaware of their U.S. tax and reporting obligations. Until recently, such people caught in the U.S. tax web received no special treatment and were subject to penalties and interest, even if they entered the IRS "amnesty" program. Just recently, the IRS created a lower penalty regime for such innocent victims, but qualification is difficult.

The U.S. Citizen considering expatriation should consider the consequences, in addition to the exit tax. There are always personal issues to consider, especially if there are U.S. beneficiaries. Future gifts to U.S. beneficiaries will be subject to the highest gift tax to be paid by the recipient of the gift; normally the gift tax obligation is on the person making the gift. There are other punitive tax rules applicable only to expatriates.

The procedures to renounce U.S. Citizenship are well defined and are not discussed here. There are other ways to lose U.S. Citizenship, such as taking an oath of allegiance to a foreign Country or serving as a soldier in a Country engaged in "hostility" with the U.S. But, these acts which may result in loss of Citizenship for immigration purposes may not affect on-going U.S. tax obligations.

It is not uncommon for a Green Card holder to leave the U.S. and to not surrender the Green Card. While there is no hard and fast rule of when a Green Card holder is no longer considered a permanent U.S. resident, there is judicial precedent that loosely defines a "temporary" visit abroad. Current reported practice by Immigration (perhaps not to be trusted) is that a six month absence will not trigger a revocation procedure, but one's passport may be stamped as a warning. The Green Card holder can possibly take advantage of a re-entry permit, and take other steps to demonstrate an intention to remain a U.S. permanent resident despite a longer absence. Planning is important.

The current aggressive practices of both Immigration and the IRS must be recognized. An extended absence may trigger detention at Immigration at either a U.S. airport or at foreign airports where U.S. Immigration operates. The Green Card may be confiscated and tax authorities may be brought in; if tax returns and required reports have not been filed, there is exposure to serious penalties.  

The procedures to surrender the Green Card are well defined, and once final, such person may escape the U.S. tax system entirely, except for U.S. source income and U.S. "sited" assets.