Latest / IMI Podcasts / #24: What's Driving Americans to Expatriate or Get Second Citizenships in 2023? With David Lesperance and Mel Warshaw

Transcript

#24: What's Driving Americans to Expatriate or Get Second Citizenships in 2023? With David Lesperance and Mel Warshaw · IMI Podcasts

0:00
SPEAKER_02: I'm very, very pleased to be joined today by first of all my regular co-host Romilium Casares, who's in Miami, and David Les Bromans, a regular columnist at IMI, one of the world's foremost specialists on international tax and immigration, as well as his colleague of many years, or a collaborator, I should say, of many years, Melvin Mel Warshaw.
0:29
SPEAKER_02: Welcome to all of you.
0:31
SPEAKER_02: I think the audience is familiar already with David, but I think they're less familiar with you, Mel.
0:38
SPEAKER_02: So would you take uh 30 seconds and give us the quick rundown, tell the audience who you are, what you work with, and and how you came to do what you're doing today.
0:49
SPEAKER_04: So I am a U.S.
0:51
SPEAKER_04: admitted lawyer.
0:52
SPEAKER_04: I'm not admitted in any other jurisdiction.
0:55
SPEAKER_04: I'm admitted in Massachusetts.
0:57
SPEAKER_04: And my practice is focused almost exclusively on international cross-border tax planning with a U.S.
1:04
SPEAKER_04: connection.
1:05
SPEAKER_04: This includes everything from inbound planning for folks coming to the U.S., involving drop-off trusts, check the box elections, expatriation, which typically involves pre-expatriation trusts, and also planning for green card holders.
1:24
SPEAKER_04: I've also been heavily involved with foreigners wishing to buy U.S.
1:28
SPEAKER_04: real estate in the proper ownership structure and in remediation for those individuals who are not in U.S.
1:37
SPEAKER_04: tax compliance.
1:38
SPEAKER_04: My background is I began my legal career at the Internal Revenue Service National Office in Washington, D.C.
1:44
SPEAKER_04: as an attorney in the general counsel's office.
1:46
SPEAKER_04: I have a master's in tax from Georgetown.
1:49
SPEAKER_04: I spent 16 years at a hundred-person firm in Boston.
1:53
SPEAKER_04: I was then recruited to work at McDermott Will and Emery, one of the preeminent international law firms in the private client area.
2:01
SPEAKER_04: I was in the Boston office.
2:03
SPEAKER_04: Thereafter, I worked at JP Morgan Private Bank in New England.
2:09
SPEAKER_04: And thereafter I spent a little time as the general counsel of a financial service company.
2:14
SPEAKER_04: But my practice today is that of a sole proprietor with no other attorneys working with me in the areas I just described.
2:23
SPEAKER_02: Okay, so throughout a multi-decade career, I imagine you've seen mostly, let's say, in the in the 70s, 80s, 90s, 2000s, it's been mostly foreigners or foreign capital coming to the United States.
2:40
SPEAKER_02: This, what we're seeing now with the outbound Americans or American capital, especially in the form of investment migration, is a relatively new phenomenon.
2:54
SPEAKER_02: I think if you go back 10 years, there weren't that many Americans looking into citizenship abroad, residency abroad, or even relocating abroad.
3:04
SPEAKER_02: Am I right?
3:05
SPEAKER_04: I would agree with you.
3:07
SPEAKER_04: Um if I were to ask clients 20 years ago, would you consider a second citizenship?
3:15
SPEAKER_04: The individual would say no.
3:18
SPEAKER_04: It rarely ever happened.
3:20
SPEAKER_04: What's happened as a result of the polarization of uh news and politics in the United States, we've got two different groups of individuals along political lines.
3:34
SPEAKER_04: Those on the right are fearful of increased taxes and are, in many cases, willing to first relocate from a high-tax state such as California, New York, to a no-tax state such as Texas or Florida.
3:50
SPEAKER_04: Thereafter, that same individual might say, I really don't want to pay U.S.
3:55
SPEAKER_04: taxes anymore.
3:56
SPEAKER_04: Do you have an exit tax program that I can undertake?
4:01
SPEAKER_04: Um, hopefully, they come to me before the year of expatriation.
4:08
SPEAKER_04: It's problematic to undertake exit tax planning in the U.S.
4:12
SPEAKER_04: in the year of actual expatriation.
4:15
SPEAKER_04: On the other side of the political divide, even more recently, David and I have seen those on the progressive side who say, I want a place I can bug out to.
4:27
SPEAKER_04: I want to spend, take, be able to take my family to another jurisdiction.
4:32
SPEAKER_04: I don't have any current plans to exit the U.S.
4:34
SPEAKER_04: I'm willing to pay high U.S.
4:36
SPEAKER_04: taxes for the privilege of retaining U.S.
4:38
SPEAKER_04: citizenship, but I want the ability to physically not be present in the U.S.
4:43
SPEAKER_04: for considerable periods of time during the year.
4:45
SPEAKER_04: And so for that reason, clients are looking at various options.
4:50
SPEAKER_04: Obviously, treaty planning comes into play to the extent someone spends too much time in a foreign country and becomes a tax resident there.
4:59
SPEAKER_04: So that's how the practice has evolved.
5:02
SPEAKER_02: Okay, so you're you're saying then that the Americans now that you advise fall sort of into two camps.
5:10
SPEAKER_02: There are the ones that are happy to or they would like to remain American citizens, and that they'll pay for the privilege by paying U.S.
5:22
SPEAKER_02: tax.
5:22
SPEAKER_02: And then there is the other group which is saying I'm not inclined to pay U.S.
5:28
SPEAKER_02: tax, and therefore I must expatriate to liberate myself from that.
5:33
SPEAKER_04: That's an excellent summary.
5:36
SPEAKER_04: I would also put into the category of prepared to remain a U.S.
5:41
SPEAKER_04: citizen, the uber wealthy.
5:43
SPEAKER_04: So someone like an Eric Schmidt will not want to pay billions of dollars of exit tax and then have their U.S.
5:52
SPEAKER_04: family members go through an inheritance tax.
5:55
SPEAKER_04: It's just too expensive for the uber wealthy to put themselves through an exit tax that's based primarily on worldwide appreciated assets.
6:06
SPEAKER_02: Right.
6:07
SPEAKER_02: So these are the people who have been so-called covered expatriates for a long time already.
6:14
SPEAKER_02: It's kind of too late for them, right?
6:16
SPEAKER_04: Aaron Powell So to be technically clear, one is not classified as a covered expatriate until they renounce U.S.
6:26
SPEAKER_04: citizenship or abandon green card, having been a long-term green card holder.
6:32
SPEAKER_04: Aaron Powell Sorry, yes, but uh uh if they were to expatriate, they would certainly be considered not even close, and there's no amount of planning that I could undertake to get them under the$2 million threshold.
6:46
SPEAKER_04: As you know, the two million dollar threshold is not adjusted for inflation, um, nor is the sixty thousand dollar U.S.
6:53
SPEAKER_04: estate tax on non-resident aliens adjusted for inflation.
6:57
SPEAKER_02: Aaron Powell Right.
6:58
SPEAKER_02: Uh although your the amount you've paid in tax over the last, what is it, five years, uh that isn't just adjusted for inflation, correct?
7:05
SPEAKER_02: But that's relatively adjusted for minor amount.
7:08
SPEAKER_04: And that is only the amount of federal tax paid.
7:11
SPEAKER_04: I see.
7:12
SPEAKER_04: Uh okay, that's an important distinction.
7:14
SPEAKER_04: So if you live in California or New York, those taxes do not count.
7:20
SPEAKER_04: Yeah.
7:21
SPEAKER_02: Um, so just sort of to summarize, uh Americans have become a lot more inclined to globally diversify themselves in the last few years.
7:36
SPEAKER_02: They've become, we've noticed this in IMI, we track all the statistics for all the different uh investment migration programs.
7:43
SPEAKER_02: We've seen in the last couple of years that Americans have become a force to be reckoned with among Caribbean citizenship by investment programs, among European golden visas, uh, as well as among a lot of the Latin American independent means visas.
8:00
SPEAKER_02: And increasingly, they're also giving up their U.S.
8:03
SPEAKER_02: citizenships.
8:04
SPEAKER_02: But what I want to know is, you know, now in 2023, I mean, we we saw major changes around the time of the pandemic, so 2020, 2021.
8:14
SPEAKER_02: Now we're in 2023.
8:16
SPEAKER_02: What are the primary push factors driving Americans sort of out the door?
8:21
SPEAKER_02: Either to get second citizenships and residencies as a backup plan, or to actually move abroad, or to take the extreme step of giving up U.S.
8:32
SPEAKER_02: citizenship altogether.
8:34
SPEAKER_02: You mentioned now polarization in politics.
8:37
SPEAKER_02: Uh that's that's something that a lot of people mentioned in this context.
8:42
SPEAKER_02: Um but what else?
8:44
SPEAKER_02: There's taxes, there is gun violence uh to some extent.
8:48
SPEAKER_02: Um what else, uh, David?
8:51
SPEAKER_01: Yeah, I think it's just the the sense of uncertainty, no matter where you're at in the um uh on that political spectrum that that Mel described, you you don't know what's gonna happen uh in the future.
9:08
SPEAKER_01: And uh um you know using the analogy of uh and my apologies to the two Florida residents in on this uh podcast, but it's kind of like being in the eye of the hurricane.
9:22
SPEAKER_01: Um everything is fairly calm after the November uh election, but you know there's the other end of the wall is gonna hit in November of 2024, which sounds quite a distance away, but you know, it's 22 months.
9:39
SPEAKER_01: And as as Mel said, if you're gonna be doing planning, and part of that planning is to leave, you're gonna want to do things in 2023 in order to put yourself in a position to you know batten down the hatches, which is you're gonna remain an American, or to, or to leave before the other wall of the hurricane hits.
10:00
SPEAKER_01: So it's that level of an uncertain future.
10:03
SPEAKER_01: I mean, you coupled with you know what's gonna happen with the with the debt crisis, um you know, every daily news, you know, who's gonna be quite frankly, who's gonna be the the Republican, who's gonna be the Democratic candidate, you know, that changes from from week to week, kind of the the odds makers there.
10:24
SPEAKER_01: And so that uncertainty I think is driving a lot of uh interest, uh certainly that that both Mel and I are receiving.
10:35
SPEAKER_04: So, Christian, I would add to David's comment that when I look into the eyes of my two 30-ish children, 138 and 135, I see much greater uncertainty.
10:48
SPEAKER_04: I also see anxiety that my wife and I didn't have when we were in our 30s.
10:55
SPEAKER_04: And they might ask themselves the question: well, maybe I should, if I can afford it, have a backup plan, have an alternative so that when I want to bug out, I can work in Canada for a while, or I can work somewhere else for a while because they're they're all working remotely now.
11:19
SPEAKER_04: We have two, a son and a daughter with spouses, and all four of them work remotely.
11:26
SPEAKER_04: It's very different than the prior period when everyone went to an office.
11:32
SPEAKER_02: But okay, you you guys, you've been around um a couple decades more than I have, obviously.
11:38
SPEAKER_02: Uh I've always had the impression that the United States was kind of a polarized society uh between left and right in many ways.
11:47
SPEAKER_02: But are you saying that it's uh I'm saying I have that impression because I'm relatively young, right?
11:53
SPEAKER_02: But um how do you can you give some concrete examples of how you see day-to-day uh polarization increasing and actually affecting people's quality of life?
12:07
SPEAKER_04: So back 30 years ago, if you were to ask Americans, how do you get your news?
12:15
SPEAKER_04: I watch television.
12:17
SPEAKER_04: What networks do you watch?
12:18
SPEAKER_04: I listened to CBS, Walter Cronkite, NBC, John Chancellor, and ABC, Peter Jennings.
12:27
SPEAKER_04: That has all changed now.
12:30
SPEAKER_04: Now, when you ask individuals, how do you get your news?
12:34
SPEAKER_04: I listen to MSNBC, I get my news from Rachel Maddow, or I listen to Fox News, and I always listen to Sean Hannity.
12:45
SPEAKER_02: Right.
12:45
SPEAKER_02: So it this is um a topic that's been explored in depth in a very popular Netflix documentary.
12:52
SPEAKER_02: Some of you have seen it, I'm sure.
12:53
SPEAKER_02: It's called the Social Dilemma, um, where they they explore how essentially the way social media makes money is that it puts in front of you content that they know you'll be interested in, right?
13:09
SPEAKER_02: And so there's this feedback loop by which you're constantly having your biases confirmed by the news that social media serves up to you.
13:21
SPEAKER_02: And so what you're saying, you you go back 30 years, you were all listening to Walter Cronkite, you were all kind of on the same page to a great extent.
13:31
SPEAKER_02: Now, there wasn't much diversity of opinion, maybe, and there were gatekeepers uh to what sort of information would come out there.
13:40
SPEAKER_02: Now it's more of a Wild West, but the net effect is that you know two Americans can look at the same situation and draw wildly different conclusions based on the lens through which they view it, correct?
13:55
SPEAKER_04: I would also add that in the 60s and 70s, although we had some conservative dominated Supreme Courts, there's never been in my lifetime this period in which we're questioning the fundamental impartiality of justices.
14:21
SPEAKER_04: And just this morning, I sent David this morning a blog about a story you'll hear more about about Jane Roberts, the wife of the Chief Justice, working for a global search firm and plac-end lawyers in law firms that argue before the Supreme Court.
14:43
SPEAKER_04: Is that a conflict of interest?
14:46
SPEAKER_04: The Supreme Court issued a statement that simply said that the justices were aware of their ethical obligations.
14:55
SPEAKER_04: That's all it said.
15:06
SPEAKER_03: When you combine the Supreme Court decision with the existing polarization from the election in 2020, the amplification of division, which is the business model of social media, uh not just uh publishing things that you're interested in, but publishing things that get you uh amped up, if you will.
15:26
SPEAKER_03: Uh combined with inflation.
15:27
SPEAKER_02: Outrage, outrage porn, right?
15:29
SPEAKER_02: Outrage porn is called.
15:30
SPEAKER_03: Outrage porn.
15:32
SPEAKER_03: Uh that's one phrase for it.
15:33
SPEAKER_03: Uh you put all that together and being trapped for a year and a half for COVID, and all of a sudden life in Europe or in in Argentina or or Thailand doesn't seem that out of the question, then you sprinkle remote work, uh, which gives the flexibility to do your work from anywhere.
15:56
SPEAKER_03: And all those growth drivers point towards more and more Americans taking advantage of what everybody should, is to have the flexibility to live where they want.
16:08
SPEAKER_02: So so the remote work, Roelio, that provides the how.
16:13
SPEAKER_02: But I'm asking about the why, which is you know, you're saying uh polarization.
16:20
SPEAKER_02: But other countries also have social media, right?
16:23
SPEAKER_02: You you mentioned, okay, what why can't I work from a beach in Thailand or go to Portugal?
16:28
SPEAKER_02: They have social media there as well that has the potential to polarize.
16:32
SPEAKER_02: So it must be something more than you know just people getting their news from a more diverse range of sources.
16:38
SPEAKER_01: Well, I think one of the things also is what I'll call the Newt Gingrich factor.
16:44
SPEAKER_01: Back before him, you had Tip O'Neill and you know, they they were they were actually cooperation.
16:51
SPEAKER_01: You had Republicans who today would be considered by the current group of governments rhinos or AOC advocates.
17:03
SPEAKER_01: You had Democrats who were what would be considered today a fiscally conservative Republican, and people were able to work.
17:12
SPEAKER_01: I mean, there was always always antagonism, but then you had Newt Gingrich who said, We are we are drawing the line.
17:21
SPEAKER_01: There's no more working across the aisle.
17:23
SPEAKER_01: It's us and them.
17:24
SPEAKER_01: And that kind of whole contract with America, you know, the the the the um suspension of of you know that they actually went to the wall on on the debt and funding the the government, all those things.
17:39
SPEAKER_01: And since then, that was the Tea Party, which is you know that that's the light version.
17:45
SPEAKER_01: Now we're getting the full the full version, and that and all of these other factors um are absolutely a uh um uh an issue.
17:55
SPEAKER_01: I mean, I've uh as I often uh have said, I I'm about as close, I'm not to Tookville, but I've been observing the American experience my whole life from up front um uh uh up close, and I I can definitely see an increased polarization, certainly in the last number of years and certain in the last two decades, and certainly in the last you know, four to six years.
18:23
SPEAKER_01: Um it certainly has the tribalism has certainly increased significantly.
18:28
SPEAKER_04: Let me I think sorry, go ahead.
18:31
SPEAKER_04: Let me touch on one added factor.
18:34
SPEAKER_04: Um when our children in their 30s were going to school, they were not taught about shelter in place.
18:43
SPEAKER_04: My three-year-old grandson living outside of Washington, D.C.
18:48
SPEAKER_04: in Bethesda, will be taught about sheltering in place.
18:52
SPEAKER_04: That's frightening to a grandparent.
18:54
SPEAKER_04: It's frightening to a parent.
18:59
SPEAKER_02: Shelter in place, as in duck and cover, uh protect yourself from nuclear drugs.
19:06
SPEAKER_04: Mass murders.
19:08
SPEAKER_04: The gun crisis in America is an epidemic.
19:12
SPEAKER_04: And the incidents in California demonstrate that even though that country, that state has perhaps the strictest gun control legislation, it was not able to save the lives of these Asian Americans.
19:31
SPEAKER_04: Right.
19:32
SPEAKER_02: Okay, so uh increased polarization, uh higher taxes, um a certain animosity uh between the left and right that that was more I mean before the differences were not that big between the left and right, um school shootings, uh these are all these are factors, right?
19:56
SPEAKER_02: Uh now what what are what are Americans doing about it?
20:01
SPEAKER_02: I mean, David, you've you pointed out to me a number of times, and you've also written about this in IMI, that among your clients, there's always one segment worrying about the Republicans winning the election, and then the other side is worried about the Democrats winning, and both sides are kind of getting their backup plans ready for either eventuality.
20:25
SPEAKER_02: Um of course it's great for your business because no matter who's in in charge, you have clients.
20:31
SPEAKER_02: But what specifically is it that they are worried about so you know gun crime is an epidemic, okay?
20:40
SPEAKER_02: Opioids, that's an epidemic, right?
20:42
SPEAKER_02: But but Democrats in the White House or Republicans in the White House, that's that's not an epidemic.
20:49
SPEAKER_02: Um what are they doing to yeah?
20:52
SPEAKER_01: So perception is reality for people.
20:55
SPEAKER_01: So the perception is if the Democrats sweep president, have a a bigger majority in the Senate, and and hold the House, they're sitting there saying, well, okay, Biden has already shown us the billionaire tax proposal.
21:12
SPEAKER_01: That's that's taxing annually 20 percent on unrealized capital gains every year.
21:18
SPEAKER_01: The problem with it with a deemed disposition is you need real money to pay that tax obligation.
21:24
SPEAKER_01: There isn't somebody that's actually handing you a check that just said we're deeming somebody to have handed you a check.
21:30
SPEAKER_02: Um and so there is that a r is that a realistic possibility that you would actually have tax on unrealized capital gains?
21:38
SPEAKER_04: Does any other millionaire do that proposal?
21:40
SPEAKER_04: But Biden has already proposed.
21:41
SPEAKER_04: We have it today on the exit tax.
21:43
SPEAKER_04: Why do we have it?
21:44
SPEAKER_04: Because there's not a huge lobby for people leaving the U.S.
21:49
SPEAKER_04: in Washington, D.C.
21:50
SPEAKER_04: So the U.S.
21:51
SPEAKER_04: imposes a deemed capital gain tax on your worldwide appreciation.
21:55
SPEAKER_04: That's a tax on unrealized appreciation.
21:58
SPEAKER_02: Right.
22:00
SPEAKER_02: And that that keeps people in, like you were talking about the uber wealthy, right?
22:05
SPEAKER_02: They that's the reason they don't renounce their citizenships.
22:08
SPEAKER_02: But if you if you had a billionaire tax that is gonna tax you as if you had given up your citizenship anyway, then there's nothing stopping the the Eric Schmitz of the world from um expatriating very quickly, right?
22:24
SPEAKER_01: Exactly, because they would rather pay 23.8% once than 20% every year.
22:32
SPEAKER_01: Every year.
22:32
SPEAKER_01: And that's the that's the Biden proposal uh for the billionaire tax.
22:37
SPEAKER_01: That's the one side.
22:38
SPEAKER_04: The other side I would I would just caution and say that's the Elizabeth Warren Bernie Sanders platform.
22:45
SPEAKER_04: I do not believe that there are 49 Democrats willing to go along with that.
22:52
SPEAKER_04: Joe Biden has proposed increase in the corporate tax rate from 21 to 28 percent.
22:57
SPEAKER_04: I think you could get consensus among Democrats to do that.
23:00
SPEAKER_04: Wall Street will not like that.
23:03
SPEAKER_04: Um back to you, David.
23:05
SPEAKER_01: Uh yeah, and and but the but the the perception is that it could happen.
23:13
SPEAKER_01: And so, you know, you may say that's a that's a low probability, let's say that that's a 10% chance that it all pass.
23:20
SPEAKER_01: Well, if there was a one in ten uh chance that your house would burn down, you'd probably still go get fire insurance and a fire escape plan.
23:29
SPEAKER_01: Um and so that's that's the one side.
23:32
SPEAKER_01: The on the other side is the concern that the Republicans will will sweep.
23:40
SPEAKER_01: And um, you know, we've had clients say, I don't really want to live in uh uh you know, in effect, a MAGA, what I perceive to be a MAGA America.
23:52
SPEAKER_01: Um there's there's rise in anti-Semitism that's demonstrable.
23:58
SPEAKER_01: There's rise in anti-Asian, uh, and you know, there's a lot of uh polarization going on.
24:06
SPEAKER_01: And you know, it's not gonna be a civil war where you know the South and the North line up at Gettysburg.
24:12
SPEAKER_01: It's gonna be more of small groups or rando's kind of Oklahoma City bombing type of things.
24:18
SPEAKER_01: And it's that fear.
24:21
SPEAKER_01: I mean, we we uh Mel and I have a client who's clearly with taxes would be uh one of the reasons to consider moving abroad, but he said, well, I I'm a hedge fund manager, I understand statistics, I know that my children statistically won't be victims of a mass shooting event, but I know with 100% certainty that they are gonna go through active shooter drills at school.
24:46
SPEAKER_01: Right.
24:46
SPEAKER_01: And I know that every time they go to play soccer with their friends or go to the movies or go to McDonald's, they're gonna be thinking about that.
24:55
SPEAKER_01: And I just don't want that for um my family.
25:01
SPEAKER_04: Chris, let me give you another consideration, and that is that when I was a young lawyer, we would have permanent tax acts that had no sunset.
25:14
SPEAKER_04: However, since it's so difficult to get consensus in the Senate, and remember a bill has to pass both the House and the Senate, and the Senate has the filibuster rule.
25:28
SPEAKER_04: In the last 20 years, tax reform has been undertaken through what's called budget reconciliation.
25:36
SPEAKER_04: And it's a device in which taxes are adjusted, change for 10 years, and then they sunset.
25:44
SPEAKER_04: So now let's take the situation we're living in today, 2023, in which the current estate tax exemption amount is now at 12.92 million and will likely go up by inflation to about 15 million dollars per individual by 2025.
26:05
SPEAKER_04: If there's no law change that intervenes, no intervening congressional action, then the estate tax exemption in 2026 will be about$7.5 million.
26:18
SPEAKER_04: It reverts to the prior law.
26:21
SPEAKER_04: That was the law in 2017.
26:24
SPEAKER_04: That's uncertainty.
26:25
SPEAKER_04: We didn't have that uncertainty 30 years ago.
26:29
SPEAKER_01: What are some of the other known unknowns?
26:33
SPEAKER_01: Well, I mean, one of the things that that you know inspired me to reach out to Mel to do this new column was uh you know, whether um whatever your motivation, when you started to do things like acquire foreign residences or acquire foreign citizenships, and the mechanics as we all know of doing that is you know, making investments or getting bank accounts and things, is US rules, no matter what your reason for going abroad, when you do go abroad, you start running a foul of things from as simple as a foreign bank account report to you know highly complicated things like PFIX and and all kinds of things.
27:18
SPEAKER_01: And so the the the RBI, CBI market, they were used to selling to groups, you know, um who didn't have as complicated a tax system or a security system or a compliance system as the Americans do.
27:38
SPEAKER_01: And so they thought, well, we've been selling to you know mass numbers to um to Chinese, Portugal Golden Visas, for example.
27:49
SPEAKER_01: Oh, now we've got Americans, and they don't realize that that American, no matter what their motivation is, and they see, oh, you know, here's a beautiful place in the Elgar, I'm gonna buy this, I can envision you know playing golf here and going on the beach.
28:04
SPEAKER_01: And unlike the Chinese client, they don't that American client doesn't really realize that that can quickly turn into a nightmare if they're not aware of and comply with the um all of the specific U.S.
28:20
SPEAKER_01: rules.
28:21
SPEAKER_02: Yeah, and then and then the citizenship advisor uh forgets about that, right?
28:26
SPEAKER_02: He's not used to having to consider the tax implications.
28:31
SPEAKER_02: So because he's been selling to Chinese and Arabs and whatnot who are used to, you know, they they move and their tax residency moves with them.
28:40
SPEAKER_02: Um but that's not the case for Americans.
28:43
SPEAKER_02: So there are lots of these traps that Americans can go into.
28:46
SPEAKER_02: And this is what you've been discussing in uh Mel and David in your in your American Exceptionalism column.
28:53
SPEAKER_02: You had the first three articles, a three-part series, uh it's uh titled Americans Moving to Portugal, not as easy as you've been told.
29:03
SPEAKER_02: So maybe you could highlight some of the main trip-ups.
29:08
SPEAKER_04: Before we get into that, let me mention a U.S.
29:12
SPEAKER_04: securities law consideration.
29:14
SPEAKER_04: If you have all of your um investments at Fidelity, that's on the Fidelity U.S.
29:20
SPEAKER_04: domestic desk.
29:22
SPEAKER_04: If Fidelity finds out that you now live permanently outside the U.S., they're gonna tell you to close those accounts and you have to reopen them through Fidelity in London or Zurich, somewhere outside the U.S., because the United States securities laws do not allow Fidelity in the U.S.
29:42
SPEAKER_04: to market foreign securities.
29:45
SPEAKER_04: Most Americans would not know that.
29:50
SPEAKER_01: Yeah, and and and it's as simple as um, you know, when I when I started kind of working with Mel and going through the mechanics, and we use Portugal as an example only because you know there's lots of uh wonderful headlines about, oh, come and live here, and isn't this gorgeous?
30:07
SPEAKER_01: It's just like California, um, et cetera.
30:10
SPEAKER_01: And I said, well, Mel, the first thing you've got to do, whether you're gonna go into a fund or buy you know real estate, is you've got to open up a bank account immediately to to you know a U.S.
30:23
SPEAKER_01: company.
30:24
SPEAKER_01: That's an that's an F-bar issue.
30:26
SPEAKER_01: And the the F-bar issue, if we look at, you know, those are you know, previous to the last changes, or$250,000.
30:34
SPEAKER_01: Now that's$500,000 that you're gonna flow through that account.
30:39
SPEAKER_01: And if you simply and you've never had a foreign bank account before, you always banked within the United States, and all of a sudden you've got this bank account, and it may not have the money for very long.
30:50
SPEAKER_01: It may be a matter of a couple weeks, you put it in, and then it goes to the fund or goes to the closing.
30:56
SPEAKER_01: But, Mel, you know, what what's the penalty for failing to do that?
31:02
SPEAKER_01: And of course, your accountant never is you failed to mention to your local accountant uh that you now have a bank account in Portugal.
31:11
SPEAKER_04: There was a case that was litigated in New York, I believe it was last year, the year before, in which the Internal Revenue Service Justice Department, which litigates on behalf of the IRS in these failure to file F-BAR cases, went to court against a 100-year-old Holocaust survivor from Switzerland who had received accounts from his deceased relatives who died in the Holocaust and kept them in Switzerland.
31:45
SPEAKER_04: And the Justice Department in the U.S.
31:48
SPEAKER_04: wanted to impose a 50% civil willfulness penalty against this Holocaust survivor.
31:55
SPEAKER_04: So the Justice Department has been remarkably successful in litigating these cases and really expanding the definition of willfulness to include reckless behavior, or in several instances, the Justice Department has succeeded in litigating by arguing that merely signing and wrongly answering questions 7A and 7B on Schedule B, do you have a foreign bank account?
32:27
SPEAKER_04: Do you plan to file an F bar?
32:30
SPEAKER_04: That in of itself, some district courts have held, is sufficient to find willfulness.
32:54
SPEAKER_02: You can usually, you know, they'll ask you about it, you can pick up the phone and explain what happened, and there's a little bit more leniency.
33:01
SPEAKER_02: People kind of don't expect you to cheat.
33:03
SPEAKER_02: They they presume you just made a mistake and and they they give you the leeway to correct it, unless it's you know gross negligence or something like this.
33:12
SPEAKER_02: But but why why is it that they are I mean, it seems an American thing, uh also a Spanish thing.
33:19
SPEAKER_02: Uh this the Spanish IRS uh Hacienda is also very aggressive.
33:23
SPEAKER_02: Um why why is it so aggressive and why are they so aggressively pursuing it abroad?
33:29
SPEAKER_04: Well, there have been egregious cases, David and I know of several, where individuals have flaunted this.
33:37
SPEAKER_04: And uh the never underestimate the U.S.
33:41
SPEAKER_04: government.
33:41
SPEAKER_04: There's a case that's now pending, I believe it's here in Florida, where the U.S.
33:47
SPEAKER_04: government has asked the judge for authority to proceed against assets located in Germany or Switzerland held by an individual who um had civil willfulness violations under FBAR.
34:05
SPEAKER_04: We can let you know the name of the case um afterwards, and you can post it if you want, but it there have been there are publicized cases of this nefarious activity.
34:17
SPEAKER_04: The difficulty is the Justice Department does not go to one central court to litigate these cases.
34:23
SPEAKER_04: So, as I indicated, the jurisdiction lies in the district court where the individual resides.
34:29
SPEAKER_04: So that allows the Justice Department, with all its resources, to litigate these cases in every single state.
34:36
SPEAKER_04: And as a result, we have a mismatch and incoherent system of decisions.
34:44
SPEAKER_04: And except for one narrow situation, none of these cases have risen all the way to the Supreme Court for resolution.
34:53
SPEAKER_01: Right.
34:54
SPEAKER_01: Well, and I I think one of the other things is if you can remember back to kind of 2005-2006, the whole UBS banking scandal.
35:04
SPEAKER_01: And and that, if you look back before that, was in the in I believe 19 uh uh just before the turn of the century, they came in with the qualified intermediary regime, which was the financial institutions like UBS, Credit Suisse, HSBC, Vagelin, uh all these, all these banks, um, were supposed to go through and determine who their US person clients were and report, withhold, and remit.
35:35
SPEAKER_01: And, you know, UBS was found to have kind of said, well, we've got these long-term people uh here and we're going to uh you know put them in a special black box and not tell the US and basically flaunt the QI agreement that they signed.
35:54
SPEAKER_01: UBS paid and then uh all the other banks paid uh uh major prices for that.
36:00
SPEAKER_01: And as a result, we got what I'll refer to as QI on steroids, which is FATCA, which was either the the the you you can say, well, they they they were looking for an excuse to make it tougher and bring in FATCA, or they were so upset that they were they that they the original rules were flaunted that they decided we're gonna beef it up.
36:23
SPEAKER_01: And you now have um you know much more aggressive where where the the the the attitude is we're gonna we're gonna assume when we're the IRS that you are willful and stuff.
36:39
SPEAKER_01: It's now up to you to prove really that you're you don't have that motivation.
36:44
SPEAKER_04: Wow.
36:44
SPEAKER_04: To be clear, Chris, there are remediation programs uh sponsored and sanctioned by the IRS, provided your client can demonstrate non-willfulness and provided you get to the IRS before the IRS gets to you.
37:01
SPEAKER_04: That is part of my practice.
37:03
SPEAKER_04: I spend a significant amount of time with clients who are non-compliant with their U.S.
37:10
SPEAKER_04: international tax compliance reporting, and we go to them voluntarily, and for those living in the U.S., the deal with the devil, if you will, is by voluntarily self-assessing a 5% miscellaneous penalty on your unreported income and unreported foreign bank accounts, the IRS agrees not to pursue any other penalties.
37:34
SPEAKER_04: Well, for many clients, that's a terrific deal.
37:37
SPEAKER_04: That's a good deal.
37:38
SPEAKER_04: They must not be willful.
37:40
SPEAKER_04: They must have a reasonable cost.
37:42
SPEAKER_04: I relied on my U.S.
37:43
SPEAKER_04: tax professional.
37:44
SPEAKER_04: That's a very common one, and if you can prove it, that can work.
37:48
SPEAKER_04: I've also argued U.S.
37:51
SPEAKER_04: international tax compliance is so complicated that it's beyond the understanding of a normal layman.
37:58
SPEAKER_04: I've argued that too.
37:59
SPEAKER_04: The gypsum pardon?
38:02
SPEAKER_04: Successfully?
38:03
SPEAKER_04: You've argued it successfully?
38:05
SPEAKER_04: Here is the difficulty with the streamlined program.
38:09
SPEAKER_04: If you're paying a penalty or you owe tax, the IRS cashes your check, and you never hear from them again.
38:15
SPEAKER_04: It goes into a black box, you don't get a closing letter.
38:19
SPEAKER_04: So I haven't heard back on any of my streamlined submissions.
38:24
SPEAKER_04: What I do is I prepare the certification narrative signed under pains or penalties of perjury, explaining what I say is the good, the bad, and the ugly of your case.
38:34
SPEAKER_04: You have to make a full disclosure, including the bad facts.
38:38
SPEAKER_04: I then retained under my attorney-client privilege a U.S.
38:42
SPEAKER_04: accountant who will prepare all of the delinquent returns or amended returns, and we tie it with a little bow and we send it off to the IRS and hopefully that's the end of it.
38:57
SPEAKER_02: Well, okay, but you you don't get a confirmation from the IRS to say that's the end of it.
39:03
SPEAKER_02: You just have to cross your fingers.
39:05
SPEAKER_02: Okay.
39:06
SPEAKER_02: So you know, reading through your articles about Americans' movement of Portugal and the pitfalls that that can entail, uh I kind of thank my lucky stars that I'm not a U.S.
39:18
SPEAKER_02: expat because the tax reporting requirements just appear to me uh so byzantine and the penalties for inadequate or incorrect filing uh various tax forms, of which there are many, is harshly punished, right?
39:35
SPEAKER_02: Uh can you help me?
39:37
SPEAKER_02: You you mentioned FBAR uh violations, but can you help me highlight some of the more some other of the more common tax reporting mistakes that U.S.
39:48
SPEAKER_02: expats make when they're moving to Portugal or other EU countries for that matter?
39:53
SPEAKER_04: So I had a situation recently where a U.S.
39:57
SPEAKER_04: citizen made investments in Europe and did not disclose them on a Form 8938, a statement of specified foreign financial assets.
40:08
SPEAKER_04: I've had situations where clients owned foreign mutual funds and they were U.S.
40:14
SPEAKER_04: green card holders or U.S.
40:15
SPEAKER_04: citizens, and they did not file Form 8621s.
40:19
SPEAKER_04: Those are particularly dangerous because once you have a PFIC, it's always a PFIC.
40:25
SPEAKER_04: I've had clients, I have a client situation in Canada where the couple left Canada, they thought, but owned all their businesses in rental real estate in Toronto.
40:37
SPEAKER_04: This particular family never uh filed a Form 5471 for their family-owned corporation in Canada.
40:48
SPEAKER_04: And the tax system in the U.S.
40:51
SPEAKER_04: is as follows.
40:52
SPEAKER_04: If you have a controlled foreign corporation, if you have foreign mutual funds or foreign private equity, or if you receive certain distributions from foreign trusts, the U.S.
41:05
SPEAKER_04: has these three anti-deferral tax regimes, which punitively tax any U.S.
41:11
SPEAKER_04: citizen or any U.S.
41:12
SPEAKER_04: green card holder if they're involved in any of them.
41:20
SPEAKER_01: And and the other uh one that a lot of countries don't have to deal with is gift tax.
41:28
SPEAKER_01: So um, you know, we'll we'll often have cases where um parents will have given to kids, homes, businesses, et cetera, et cetera.
41:42
SPEAKER_01: Um and especially for those people who have never lived in the United States, who never even realize that there's citizenship-based taxation or never realized that they that they were Americans, or thought they had left but didn't realize they were covered expatriates, uh it's it's really moving abroad or um expatriating can be a wonderful strategy if properly executed.
42:13
SPEAKER_01: If you've got somebody, you know, like Mel who who who you know has got forty years of seeing uh people step on landmines and knows how to avoid it, um and that then that really uh helps.
42:28
SPEAKER_01: And and it one of the things, you know, that that as I help clients get you know different residences and citizenships, um, and it's really you know, uh always working with with somebody like Mel who's an expert to make sure that that's properly executed.
42:47
SPEAKER_01: Even if they're just gonna, I'm gonna be an American living abroad uh for a short period of time or for a few years versus kind of the full-blown expatriation.
42:57
SPEAKER_01: There there are so many issues.
43:01
SPEAKER_01: You know, if you do it right, it's wonderful.
43:03
SPEAKER_01: If you don't do it perfectly, it can be nasty.
43:08
SPEAKER_04: And and green card holders in particular are not necessarily familiar with our laws.
43:14
SPEAKER_04: And I recently asked the client, told the client they needed to consult with David because this particular situation involves someone who had abandoned his green card in 2013 to live in Europe, and he wants to come back.
43:30
SPEAKER_04: His whole family's here.
43:32
SPEAKER_04: But I said, well, I will take care of the streamlined foreign offshore procedure submission because I looked at his 2013 income tax return and there was no form 8854 attached by his U.S.
43:46
SPEAKER_04: return preparer.
43:47
SPEAKER_04: So there was no expatriation statement form that has to be attached to the last 1040.
43:54
SPEAKER_04: So we will come back and we will do that, and he will then certify, but the certified Certified to five years of tax compliance means we'll have to go back to 2008, 2009.
44:06
SPEAKER_04: But I want him to talk to David because I want this individual to know the questions he's going to be asked when he applies for a new green card about his prior U.S.
44:17
SPEAKER_04: tax compliance.
44:19
SPEAKER_01: Right.
44:20
SPEAKER_01: Right.
44:21
SPEAKER_01: And it's also we we oftentimes will get clients, you know, who, you know, whether they're uh Mexican clients who are concerned about uh AMLO or people, you know, it's a very attractive jurisdiction.
44:37
SPEAKER_01: Um and I'll oftentimes get families to say, well, we want a green card.
44:41
SPEAKER_01: It's like, hold on.
44:43
SPEAKER_01: What's the situation?
44:45
SPEAKER_01: Well, I want my daughter to go to MIT, and I want my son to go to uh Stern School.
44:54
SPEAKER_01: And um it's like, okay, fine, they can move in, go into the United States.
44:59
SPEAKER_01: They could they will become taxpayers either on substantial presents and or if they fall in love with somebody, a green card or et cetera.
45:08
SPEAKER_01: But what do you as the parents want?
45:10
SPEAKER_01: Well, we want access to go and visit grandchildren, we want uh maybe to run a business, et cetera, et cetera.
45:17
SPEAKER_01: Well, let's keep the family wealth out of the U.S.
45:21
SPEAKER_01: tax net.
45:22
SPEAKER_01: So we often get these um cases where we'll t treat the different generations differently.
45:30
SPEAKER_01: And then you and then you get into, okay, passing it on, there's generational skipping tax and and inheritance tax, and you know, uh you can have a lot of complications.
45:43
SPEAKER_01: Uh uh Mel and I were just talking with another colleague in New York, and it was quite common.
45:48
SPEAKER_01: I remember it back in the 1990s, it was after the Gulf War, and you would have all these Gulf nationals who'd fly to New York and they would stay at the Plaza or the Pierre and have their child born in the United States and be a U.S.
46:02
SPEAKER_01: person.
46:03
SPEAKER_01: Well, that that was 30 years ago.
46:05
SPEAKER_01: Now those kids are being, you know, it's time for them to be handed over the business.
46:12
SPEAKER_01: Well, they're U.S.
46:13
SPEAKER_01: persons.
46:14
SPEAKER_01: That business who you've never had to disclose to anybody because you live in a non-taxing jurisdiction, is now a controlled foreign corporation.
46:23
SPEAKER_01: I mean, it's now brought in this huge complication.
46:27
SPEAKER_01: And and it was a it was a good strategy to get a backup.
46:32
SPEAKER_01: You just got the wrong backup.
46:34
SPEAKER_04: Right.
46:34
SPEAKER_04: And most green card holders, Chris, are unaware, as David and I heard know about, that the income tax rules for green card holders is an objective test.
46:46
SPEAKER_04: If you have your green card and you live anywhere, once you've been to the U.S., you're taxed on your worldwide income.
46:53
SPEAKER_04: Now, we know ways to get around that by making treaty elections in the 70 countries in which there are treaties.
47:00
SPEAKER_04: If the facts support that the center of your vital interests are not in the U.S.
47:05
SPEAKER_04: but abroad, you can claim uh you're not a resident under one of the treaties, and um, but you have to file an 8833 with a 1040 NR.
47:16
SPEAKER_04: Um, but for gift estate and GST, generation skip tax purposes, it's a completely different, totally subjective test.
47:24
SPEAKER_04: What's your domicile?
47:26
SPEAKER_04: The U.S.
47:26
SPEAKER_04: definition of domicile is physical presence with no intent to leave.
47:32
SPEAKER_04: So therefore, if someone has a green card and is physically present in the United States for U.S.
47:39
SPEAKER_04: transfer tax purposes, there is a presumption that is rebuttable that says if you're physically present in the U.S.
47:47
SPEAKER_04: and you have a green card, you're presumed to be a U.S.
47:50
SPEAKER_04: domiciliary.
47:51
SPEAKER_04: Okay.
47:52
SPEAKER_04: Now, if I leave the U.S.
47:53
SPEAKER_04: and I move to Australia and I buy a home there and I have no plans to go back to the U.S., in that situation, the individual still has their green card.
48:03
SPEAKER_04: They could still do some expatriation planning, but they're not a U.S.
48:09
SPEAKER_04: domiciliary.
48:10
SPEAKER_04: They're domiciled in Australia.
48:13
SPEAKER_04: So therefore, the only gift tax which would uh be subject to U.S.
48:18
SPEAKER_04: gift tax or gift tax reporting would be if that Australian domiciliary were to make gifts of U.S.
48:24
SPEAKER_04: real estate or U.S.
48:27
SPEAKER_04: jewelry located or artwork located in the United States.
48:32
SPEAKER_02: Can you explain to me?
48:34
SPEAKER_02: You've mentioned a few times now uh treaty planning.
48:37
SPEAKER_02: So can you explain to me how an American might move abroad and reduce their U.S.
48:45
SPEAKER_02: tax burden while retaining their U.S.
48:49
SPEAKER_02: citizenship through this type of treaty planning?
48:52
SPEAKER_04: So the purpose of treaties, among others, is to prevent double taxation of the same income.
49:00
SPEAKER_04: We have some friends.
49:01
SPEAKER_04: Their daughter was an executive at American Express.
49:04
SPEAKER_04: She was asked by American Express to move to England in London, and she uh was had UK source income, subject to UK tax immediately, and she was also a U.S.
49:19
SPEAKER_04: citizen.
49:20
SPEAKER_04: So on her UK income tax return, she reported and paid a higher rate of tax than on her Form 1040 as a U.S.
49:31
SPEAKER_04: citizen, and so therefore her accountants in the United States would file and attach a Form 1116 to claim a foreign tax credit on her Form 1040, so that effectively, if the top British rate were 40%, arguably she could receive a full credit and pay no tax on that same compensation income in the United States.
50:02
SPEAKER_04: And then also she had foreign earned income exclusion, which would further ameliorate her situation.
50:08
SPEAKER_02: But that's exactly the foreign-earned foreign earned income exclusion, that's the first hundred and something thousands.
50:15
SPEAKER_02: That's correct.
50:16
SPEAKER_02: But okay, but so there's no way so so what you're explaining then is that in in her case, because her overall tax burden was higher in the UK, uh, there was nothing for her to pay in the United States.
50:29
SPEAKER_02: But that's correct.
50:31
SPEAKER_02: But flip it the other way around.
50:34
SPEAKER_02: Uh let's say she moved to, I don't know, some some relatively like Czech Republic, some relative a place with relatively lower taxes.
50:44
SPEAKER_02: How about she moved to the Cayman Islands?
50:47
SPEAKER_02: Well, no, because that's a tax haven.
50:49
SPEAKER_02: That's it's different.
50:50
SPEAKER_02: Uh but but but take an ordinary country that probably has treaties with the uh has a dual taxation treaty with the United States.
50:58
SPEAKER_04: Right.
50:58
SPEAKER_02: If if the if the overall tax burden for that person in that foreign country is lower than it would have been in the United States, you must pay the difference to the United States, or is there any way around that?
51:13
SPEAKER_04: That's correct.
51:14
SPEAKER_04: So let's say that this individual moved to uh uh a lower tax rate country.
51:21
SPEAKER_04: Let's say they posed a tax of 20% on individuals, and the top rate was 37% in the U.S.
51:29
SPEAKER_04: and this individual earned at the top rate, the individual paid 20% to Poland, and 17% would go to the U.S.
51:38
SPEAKER_04: Right.
51:41
SPEAKER_01: Yeah.
51:41
SPEAKER_01: Now there's another use of tax treaties.
51:46
SPEAKER_01: For example, we've got uh a case that Mel and I are working on right now where the chap will expatriate but he wants to spend some time in the United States.
51:59
SPEAKER_01: And so there is something uh called a substantial presence test.
52:04
SPEAKER_01: It's a it's a percentage of two years last year and this year the concentration this year.
52:08
SPEAKER_01: Well, let's for the sake of discussion, let's say it's 120 days.
52:13
SPEAKER_01: Um and he would like to spend more time.
52:17
SPEAKER_01: Well when you trigger the substantial presence test, there's a presumption that you have you you are a US person for tax purposes, but that's a rebuttable presumption if you have can show a closer connection, or if you've uh in that other jurisdiction, you've got a uh a treaty position that you can take.
52:38
SPEAKER_01: Um that's another use.
52:40
SPEAKER_01: So you've got another use, for example, the the the Rishi Sunak case, where um he got a green card and he's the second uh occupant of number 10 Downing Street to have had a U.S.
52:55
SPEAKER_01: tax issue.
52:56
SPEAKER_01: Uh Boris Johnson had to renounce his citizenship um after it was pointed out to him that uh he owed U.S.
53:03
SPEAKER_01: tax and he was about to go on a book tour.
53:05
SPEAKER_02: Um but he he had a layover or something in in Texas?
53:10
SPEAKER_01: So Boris Johnson was born in New York.
53:13
SPEAKER_02: His parents were and then uh Yeah, but he only discovered it because he had some kind of layover at a U.S.
53:20
SPEAKER_02: airport, no.
53:20
SPEAKER_01: Yeah, he was writing so he had sold a house in the U.K., um which um he would have had a principal residence exemption from UK tax, but the U.S.
53:34
SPEAKER_01: says that's a that's a part of your worldwide assets you've sold.
53:38
SPEAKER_01: Thank you very much.
53:39
SPEAKER_01: Where's our chunk of you know, the appreciated uh uh uh assets on that?
53:46
SPEAKER_01: And uh and and Boris first, you know, being Boris Johnson said, you know, pound sand until it was pointed out to him that that's not really a smart thing to do, especially when you're about to start a book tour.
53:57
SPEAKER_01: And at that point, I think he was he was only the the the uh the mayor of the city of London at that point.
54:03
SPEAKER_01: But but the Sunak case um he had a green card.
54:10
SPEAKER_01: He le uh when he was in the United States, went to school there, then worked for Goldman Sachs, then went back to the UK.
54:17
SPEAKER_01: And the question was, did he was he a long-term green card holder, as Mel said?
54:23
SPEAKER_01: He's clearly well over two million in in worldwide assets, so he triggered that.
54:28
SPEAKER_01: But the question is uh was he was he a long-term resident?
54:33
SPEAKER_01: And so that uh again, proper use of a of a tax treaty while he still had the immigration status, if he properly did the the uh the eighty-eight thirty-three correct if he took a treaty election saying, Oh, I'm I'm a UK under the US UK, um, then he would have stopped the clock on the on the march towards being a long-term green card holder and there thereby triggering the expatriation tax.
55:04
SPEAKER_01: So there's the tax treaties can come into you know a lot of um different uses.
55:10
SPEAKER_01: And so they're a useful tool.
55:12
SPEAKER_01: And I think it's also one of the things in that planning stage, you know, if you're gonna leave the U.S., particularly if you're an expatriate or you're gonna give up a green card, um where you don't want to jump out of the U.S.
55:28
SPEAKER_01: pot and somebody else's tax fire.
55:31
SPEAKER_01: And can you, if you move to a tax treaty jurisdiction, um you know, can you use that as another tool in either mitigating double taxation or you know, effectively avoiding triggering, for example, the expatriation tax?
55:49
SPEAKER_04: Let me give you an example, Chris, where treaties don't work.
55:53
SPEAKER_04: Where it doesn't solve the problems.
55:55
SPEAKER_04: The U.S.
55:57
SPEAKER_04: has many fewer estate tax treaties.
56:02
SPEAKER_04: So take the example of someone who is a U.S.
56:06
SPEAKER_04: citizen, but they own property in the UK, they die.
56:13
SPEAKER_04: Well, the UK nil rate ban is about 420,000 US dollars, give or take.
56:21
SPEAKER_04: The U.S.
56:21
SPEAKER_04: estate tax exemption is 12.9 million.
56:25
SPEAKER_04: So at the first death in the U.S., what is quite typical is anything in excess of 12.9 million passes to a marital deduction trust.
56:34
SPEAKER_04: No tax in the U.S.
56:36
SPEAKER_04: at the first death.
56:37
SPEAKER_04: That's not the concept in the UK where you can, as I understand, you can shelter the first$420,000.
56:45
SPEAKER_04: Um, and I suppose there are some marital assets that can pass without imposition of inheritance tax in England, but you can run into this mismatch because the two countries have vastly different exemption amounts.
57:00
SPEAKER_04: And the U.S.
57:01
SPEAKER_04: imposes the bulk of the tax of the death of the second spouse.
57:04
SPEAKER_04: That may not necessarily be the case in the UK.
57:08
SPEAKER_02: Yeah.
57:08
SPEAKER_02: It's interesting for me to note that someone like Boris Johnson, who is obviously a person of some uh considerable intellectual capacity and who presumably has access to top shelf advisors, even for him, this uh US tax system for US citizens living abroad is is so complex that even he uh falls into these pitfalls.
57:38
SPEAKER_02: Um and I want to understand a little bit more about the people who are now trying to expatriate.
57:48
SPEAKER_02: Uh David, you've commented on this a number of times, pointed out that the lines are extremely long.
57:55
SPEAKER_02: The US has uh an obligation, as I understand it, to to grant you an appointment for your expatriation interview.
58:05
SPEAKER_02: Uh during COVID, you were saying that well, that they were using the pandemic as a pretext not to grant those appointments.
58:15
SPEAKER_02: You pointed out that many of the countries uh the the they sit behind, you know, the immigration officer or the people at the consulate, they sit behind reinforced bulletproof glass.
58:30
SPEAKER_02: So there's really no reason they should be concerned about getting infected by by COVID.
58:36
SPEAKER_02: So that was a flimsy pretext, let's say, for for denying those interviews.
58:42
SPEAKER_02: You've also mentioned that, I mean, you I think you estimated that the that the line now, the waiting list for uh expatriation interviews were in the dozens of thousands, so tens and twenties or thirties of thousands.
58:57
SPEAKER_02: Um it's opened up a little bit now, but there are still U.S.
59:01
SPEAKER_02: consulates around the world that won't grant expat appointments.
59:05
SPEAKER_02: Isn't that correct?
59:06
SPEAKER_02: Can you give us kind of a status update on that?
59:08
SPEAKER_01: Yeah, I mean it was almost all of them uh were closed because uh and they claim because of COVID, except for, for example, and Mel and I had a client who was a Silicon Valley client who was able to actually get into New Zealand and he expatriated in Auckland because the U.S.
59:27
SPEAKER_01: Embassy in Auckland in those days couldn't say, oh, we've got a COVID problem.
59:32
SPEAKER_01: Um and to give a contrast, for example, uh just in Warsaw, the Canadian Embassy is literally across the street from the American Embassy.
59:41
SPEAKER_01: The uh Canadian counselor section, which is U.S.
59:44
SPEAKER_01: Citizen Services in the American uh vernacular, um basically the same setup of glass, you know, bulletproof little thing that you talk through.
59:54
SPEAKER_01: And uh the Canadians, when COVID came in, the Canadians closed down for three days, which was they went from kind of you know, first in line, you know, 30 people in the waiting room, next up, next number come to the window, to you had to book online.
1:00:09
SPEAKER_01: So it took them three days to set up, you know, an online system where you booked appointments.
1:00:14
SPEAKER_01: So they were closed for three days where they weren't processing things for Canadians, uh, like passport renewals.
1:00:22
SPEAKER_01: The Americans, so I got my passport renewed in October.
1:00:28
SPEAKER_01: The Americans have been closed since March.
1:00:31
SPEAKER_01: We're still close.
1:00:33
SPEAKER_01: Right.
1:00:34
SPEAKER_01: No U.S.
1:00:34
SPEAKER_01: citizen services.
1:00:35
SPEAKER_01: And so I asked the Canadians, kind of I said, Well, what's happening across the street?
1:00:39
SPEAKER_01: They go, I don't know.
1:00:40
SPEAKER_01: We we all go to the same restaurant.
1:00:44
SPEAKER_01: These guys are always there, and they're still there when we leave.
1:00:48
SPEAKER_01: So, you know, the the idea of a of we're worried about our our officers.
1:00:53
SPEAKER_01: Um, and this of course was before that US embassy got busy with you know Ukrainians and you know Russians because they closed the Russians.
1:01:03
SPEAKER_01: But but anyway, it's now opened up.
1:01:05
SPEAKER_01: Not all of them are uh are open.
1:01:09
SPEAKER_01: Some of the busier offices, for example, we've got a case going on in London right now.
1:01:14
SPEAKER_01: That's a 16-month uh waiting list.
1:01:19
SPEAKER_01: Um we got we just got an invitation for a client we applied in in Brussels um in November of 2011.
1:01:27
SPEAKER_01: We just got the appointment uh now.
1:01:30
SPEAKER_01: Of course, we won't be able to do that.
1:01:31
SPEAKER_01: Sorry, you said it can't be 2011.
1:01:36
SPEAKER_01: 2021.
1:01:36
SPEAKER_01: Sorry, 2021.
1:01:38
SPEAKER_01: 2021.
1:01:39
SPEAKER_01: And um and now of course we we've moved him elsewhere.
1:01:44
SPEAKER_01: He's long expatriated.
1:01:46
SPEAKER_01: Um but so offices like the Canadian offices or but then again, you know, other offices um are very fast.
1:01:57
SPEAKER_01: Uh some of them they're not supposed to, but they give a preference or a requirement that they want the person to have some kind of local contact.
1:02:04
SPEAKER_01: Others say if you can get into the country to get to our embassy, that's fine.
1:02:11
SPEAKER_01: So that is you know really a bit of a uh of a just staying on top of what all the the embassies and and counselates are.
1:02:21
SPEAKER_01: Now the the bad thing was they couldn't expatriate.
1:02:25
SPEAKER_01: The good thing was it gave Mel time to put pre-immigration uh pre-expatriation strategies in place.
1:02:35
SPEAKER_04: Let me add one other piece of information that you may or may not know about, and that is that a couple of years ago, the U.S.
1:02:44
SPEAKER_04: Treasury Department Inspector General, with jurisdiction over the Internal Revenue Service, issued a scathing report to Congress.
1:02:55
SPEAKER_04: So it's a public report stating that the Internal Revenue Service is doing a very poor job of enforcing the U.S.
1:03:05
SPEAKER_04: tax laws as they relate to foreign nationals and also individuals leaving the U.S.
1:03:13
SPEAKER_04: And in particular, they dug into the compliance with Form 8854 expatriation statements and found very significant noncompliance.
1:03:26
SPEAKER_04: In the last budget of the Biden administration that was accepted by Congress, Congress agreed to fund the Internal Revenue Service at a very high level to help them with their legacy inferior infrastructure and technology, but also to hire more personnel to help them collect more revenue.
1:03:54
SPEAKER_02: These are the 87,000 new IRS agents we've been hearing about.
1:03:59
SPEAKER_02: So I don't be deployed to Yes.
1:04:06
SPEAKER_02: So international LDI.
1:04:09
SPEAKER_04: LDI is large business and international.
1:04:48
SPEAKER_04: So this is low-hanging fruit for them.
1:04:50
SPEAKER_04: Your words.
1:04:52
SPEAKER_02: Correct.
1:04:54
SPEAKER_02: That's it for today, folks, but we'll be back soon with another episode of the Mobility Standard.
1:05:00
SPEAKER_02: In the meantime, I want to remind you to follow our work on HighMyDaily.com, the world's number one publication for investment migration, home to the internet's greatest collection of investment migration data, real estate, expert opinion, and the intelligence you need to be a successful investment migration professional.
1:05:19
SPEAKER_02: Thank you for listening.