Expats giving up passports because they no longer want to pay taxes

Too right phatbeetle. And the England/Wales v Scotland thing may not necessarily be trivial, because I don't know whether, for example, common law and Scots law differ on domicile issues.

Is there a way to give up Illinois residency? I was able to fill out a form giving up my Ohio residency.

From whom did you get the form that permits you to give up Ohio residency?  I live in a suburb of Cleveland and hope to emigrate at the end of May.  Did you give up your driver's license, bank accounts, etc.

It's not usually an issue with New York. You could conceivably be deemed a 'statutory resident' if you maintained a residence for your use (not rented out). But normally there is a safe haven of being outside the state for 11 months of a year, not counting entering the state to use an airport, etc.

There is a presumption against becoming domiciled abroad in a country where your visa status implies temporary residence. States without a 'safe haven' rule (such as MD, VA, DC) are notorious for seizing assets within their grasp. But the longer one is outside the state without returning, the less the presumption of retained domicile makes sense.

Does anyone know if NY is one of those states?

You mean, a state that imposes tax based on domicile? New York does not do that exactly; but it has the concept of "statutory resident" that you have to watch out for. In most cases if you spend 11 months of a single year outside of New York (with certain exceptions for using an airport or a hospital) and certainly if you do not maintain a place of residence in New York, you will be deemed nonresident for state income tax purposes.

For this reason -- and because New York is deemed a "high tax" state -- changing one's domicile from a state like MD or VA to NY prior to moving abroad is not a bad idea. But be careful of the Machiz trap: http://uniset.ca/other/css/399A2d946.html -- one must, in fact, cut ties with the old state. Page 3 of California's Pub. 1031 has helpful information: http://www.ftb.ca.gov/forms/2009/09_1031.pdf

See the article in today's New York Times, "More American Expatriates Give Up Citizenship" http://www.nytimes.com/2010/04/26/us/26expat.html

But, as (a now old) GAO report, GGD-98-106 "Tax Administration: Nonfiling Among US Citizens Abroad" suggests, far more US citizens simply abandon their connection with the USA. So long as they have no assets in the USA, have citizenship of another country, never visit the USA, and, finally, have no Canadian assets or have Canadian citizenship (because of the US-Canada mutual collection agreement) they are safe from prosecution and enforcement.

With a couple of provisos: (1) more and more tax evasion is being equated to money laundering, and unlike tax evasion that is an extraditable offence (also, Google "Ian Leaf" and see how he managed to get himself extradited from Switzerland (!) to the UK for tax evasion); (2) there is such a thing as "transferee liability" so the heirs, if US-based, of a nonfiler or tax evader can be pursued by the IRS later.

On the last point, there is a limit to what HMRC can do in pursuing the heirs of UK tax evaders (see the European Court of Human Rights cases, E.L v. Switzerland, Eur. Ct. H.R. 1997-V at 1509; A.P. v. Switzerland, Eur. Ct. H.R. 1997-V at 1477). But such Constitutional niceties do not limit the IRS.

The following in the New York Times article got my a bit worried, since I, and many other expats, have US bank accounts:

Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision

so I did some further reseearch and found:

http://www.aca.ch/joomla/index.php?option=com_content&task=view&id=215&Itemid=107

here is NO provision in the Patriot Act which forbids banks from accepting clients who do not live in the US.  However, US banks are looking at the increased diligence provisions in the Patriot Act and using these as an excuse to get rid of any clients who are too difficult to assess

If anyone is still interested, the "giving up passport" debate continues,

http://www.englishforum.ch/finance-banking-taxation/81839-nytimes-more-u-s-expat-giving-up-citizenship.html

Interesting...

I do agree though that you can't say all 700something people gave up their passports/citizenship for the sole (or even added benefit) of not having to pay US taxes.  There could have been 4 or 5 (or even 100) people who claimed that was their reason and the media jumps all over it and declares it some huge epidemic.  I'd be interested to see how many of those people even make enough money/have enough in savings to be required to pay US taxes.

Interesting...

I do agree though that you can't say all 700something people gave up their passports/citizenship for the sole (or even added benefit) of not having to pay US taxes.

I think you would be surprised.  Every expatriation I have been involved in is at least happy for the added benefit of being out of the US tax net and the irritations of filing.

The scenarios I usually see:

Dual citizen from birth, never been to the US (or not a frequent visitor) -- No need to have the US citizenship and the US tax filing having never lived there is an unnecessary complication (limited tax planning, filing hassle, etc.).

Greencard holder/naturalised US citizen who was in US for work purposes (or possibly divorced US person) over several years -- Returned to home country and US tax issue is unnecessary complication and expense.

Person who has established their life fully in another country and now had very limited investment, tax planning opportunities.

In all cases, the tax issue is at least a factor or seen as a lovely side effect.

I have to say, I can understand the thinking behind this.  Imagine if you live in the UK and make £100,000/yr.  Not only are you in the highest UK tax band (is it 40% or 50%?  Either way, a lot) but you also have to pay US taxes based on your UK (pre-tax) income.  By the time you emerge from all of that you'd barely be making £30,000, so what is the point of all those earnings?  Plus, really, what right does the US have to tax income that's generated overseas?  Paying taxes in the country where you live is one thing, but paying them to what is essentially a third party is unfair.  And, since there's no one in Congress representing the interests of Americans living abroad, then really it's taxation without representation, and therefore un-American. 

Can you think of any benefit (aside from the tax breaks you would get) to giving up your American citizenship?  I can't really.  I guess it does make sense if you look at it from that angle.  (Although I'd still like to see some actual statistics...just because I don't believe everything I see or hear until I have cold, hard evidence.)

I found references to the whole "giving up citizenship to avoid taxes" idea that date back to the early 80s (the articles below are from 2002 and 2006 but there are loads if you google).  This doesn't appear to be a new concept and quite possible one of the only reasons people have given up their American citizenship since Vietnam (when there were over 2000 who renounced).

http://www.freerepublic.com/focus/news/727504/posts

http://www.impactlab.com/2006/12/19/giving-up-citizenship-to-avoid-taxes/

Can you think of any benefit (aside from the tax breaks you would get) to giving up your American citizenship?

I don’t want to give up my US citizenship. I have accounts in the States, and I don’t mind at all paying tax on the interest they generate to Uncle Sam. I really don’t like tax-dodgers anywhere.

I also remember in 2002/2003(?) when the US was on an “AMT rampage”. I ended up paying a lot of tax (for me) because you were only allowed 90% of your limitation on the 1116AMT at that time. My (NRA) spouse no longer allows me to discuss US taxes in the house after my eruption over that one.

Historically, the courts determined that the US had the right to tax citizens abroad (it’s been contested before) due to the benefits they receive from the US for “protection” provided to them whilst they are there. It’s nice to be able to go up to London for a new passport, the Federal Benefits Unit, etc. But if Luxemburg decides to invade the Midlands, it will be the UK Forces that protect my house, not the US Embassy. If a pothole needs fixing in the road in front of my house, it will be the local council that fixes it, not the US Embassy. If my house catches alight, ….you get the picture. If I can not decipher the linguistic maze of correctly filling in my US tax form for income I’m quite willing to declare, the IRS generously allows me to call internationally to Philadelphia and receive advice which the IRS itself admits could be incorrect. The tax information also points out that if I don’t do it correctly, the penalties could be severe.

I take a very deep breath every year as I drop into a pillar box all the intimate details about me and my finances, the data of which I’m advised by the Treasury, can be shared with any “authorised” organization anywhere in the world. It will never be misused. I seem to remember a government agency CD or 2, or a laptop, that went missing a few years ago with several millions of UK individual’s details on them. Of course, that was the UK not the US, and we’ve never heard of it happening in the US.

Sorry, I’m not a happy bunny. I feel sorry for the IRS (!), who encourages non-filers to get back into the system, but who now are required to tell the non-filer they will be walloped if they do. Passport…..maybe not yet. But it draws closer with every piece of new “let’s tax those obviously tax-dodging American easy targets abroad” legislation.

So, yes. I can think of a few benefits.

Can you think of any benefit (aside from the tax breaks you would get) to giving up your American citizenship?  I can't really.

I'm sorry, I didn't answer your question. The answer was implied, but perhaps not implied strongly enough. The benefit...peace of mind. Cold flannel on the head for me someone.....

The peace of mind alone would be worth it, though it would be too late for me now. I've never owed a penny in US tax, nor am I likely to, but the costs of sorting out my previous filing mistakes are already halfway to five figures, and that's before possible penalties.

I'm so tired of people like me (an accidental dual citizen who has spent nearly my entire life outside the US) being described as tax evaders, people who are 'hiding money abroad' etc. My money is not 'hidden abroad', it's in plain view in my boring High Street bank. Where else would it be?? Filing mistakes that would carry no penalty for a citizen living in the US potentially carry horrendous ones for me - it's a nightmare.

I don’t want to give up my US citizenship. I have accounts in the States, and I don’t mind at all paying tax on the interest they generate to Uncle Sam. I really don’t like tax-dodgers anywhere.

I also remember in 2002/2003(?) when the US was on an “AMT rampage”. I ended up paying a lot of tax (for me) because you were only allowed 90% of your limitation on the 1116AMT at that time. My (NRA) spouse no longer allows me to discuss US taxes in the house after my eruption over that one.

Historically, the courts determined that the US had the right to tax citizens abroad (it’s been contested before) due to the benefits they receive from the US for “protection” provided to them whilst they are there. It’s nice to be able to go up to London for a new passport, the Federal Benefits Unit, etc. But if Luxemburg decides to invade the Midlands, it will be the UK Forces that protect my house, not the US Embassy. If a pothole needs fixing in the road in front of my house, it will be the local council that fixes it, not the US Embassy. If my house catches alight, ….you get the picture. If I can not decipher the linguistic maze of correctly filling in my US tax form for income I’m quite willing to declare, the IRS generously allows me to call internationally to Philadelphia and receive advice which the IRS itself admits could be incorrect. The tax information also points out that if I don’t do it correctly, the penalties could be severe.

I take a very deep breath every year as I drop into a pillar box all the intimate details about me and my finances, the data of which I’m advised by the Treasury, can be shared with any “authorised” organization anywhere in the world. It will never be misused. I seem to remember a government agency CD or 2, or a laptop, that went missing a few years ago with several millions of UK individual’s details on them. Of course, that was the UK not the US, and we’ve never heard of it happening in the US.

Sorry, I’m not a happy bunny. I feel sorry for the IRS (!), who encourages non-filers to get back into the system, but who now are required to tell the non-filer they will be walloped if they do. Passport…..maybe not yet. But it draws closer with every piece of new “let’s tax those obviously tax-dodging American easy targets abroad” legislation.

So, yes. I can think of a few benefits.

Have to agree with this.

If you truly try to play by the rules, it costs a bomb - in particular saving for retirement.  UK pension contributions are essentially taxable, and almost no US or UK mutual funds are now sensible investments due to PFIC rules/restrictions (US) and distributor status requirements for the UK. 

Combine this with my children having a tenuous claim to US citizenship under US law (i.e., since my spouse is a NRA, and the children were born abroad they are subject to residency requirement in order to keep their passport in adulthood).

It's beyond ridiculous.