The media in the US frequently flares up about the latest “Expatriation List’. This infamous list often portrayed by the press as a barometer of American attitude towards the current political scene.
“the huge increase in US expats renouncing, from our experience, is that the current pandemic has allowed individuals the time to review their ties to the US and decide that the current political climate and annual US tax reporting is just too much to bear.”
The report would have us believe that the reality of there past six months, and the Government’s reponse to the crisis is directly responsible for the increase.
This – quite frankly – is nonsense! The press, along with this self anointed ‘expert’ frequently sensationalise the figures on the list. They make them appear dynamic and directly responsive to the immediate past. In reality it takes up to 18 months from the date of renunciation until it appears on The List. A grand total of up to six interim reports can be published in this time. Therefore our ‘barometer’ is starting to look a little out of date – a fact that journalists choose to ignore the deliver the headlines!
Why does it take so long for a name to be published on the Expatriation List?
There are a number of steps than need to happen between renunciation and the public announcement.
- Firstly the information is sent to the Stare Department. Here it is confirmed that the renunciation was properly carried out by the issuance of a Certificate of Loss of Nationality;
- Secondly an IRS 8854 must be filed with the IRS;
- The State Department and the IRS then forward the information they have to the The Office of the Federal Register;
- finally the OFR cross-references the information. Only then will they publish the information on the most recent edition of The List.
Unless there were some deeply prophetic people signing their name on the dotted line in 2018/19 the August 6, 2020 List has nothing to do with Covid-19.
But are people renouncing their citizenship because of the Pandemic?
The irony is – they may find it increasingly hard to! As a direct result of Covid 19 close to all American Citizen Services were closed for months at the height of the pandemic. According to law renunciations can only take place in ACS offices. You also need a pre booked appointment at one of these offices to handle your renunciation interview. There is now a severe backlog for some appointments at many of the ACS offices. Indeed, you may have to wait well over a year for your renunciation interview.
Therefore Covid 19 has actually meant a drop in the rate of renunciation – admittedly not for lack of applicants – but because the practical process has been hugely disrupted. This will be reflected in coming Expatriation Lists (from mid to late 2021) – though I’m sure the press will, again inaccurately, align it to the outcome of this year’s election.
Read more about the truth of who occupies the expatriation list in this blogpost.
But will expatriations increase?
Notwithstanding the blip coming in the next year or so due to the operational difficulties caused by Covid 19, expatriations will carry on accelerating. The upcoming election will have a direct correlation on by how much.
The pandemic has demanded huge additional US government expenditure. This will inevitably necessitate additional tax revenues in the near future. Wealthy Americans realise this. They will also recognise that, in the wake of an almost unavoidable global recession most of the US population will not have any surplus income. This will result in the additional tax burden falling on them. They should fully accept this future tax liability as a reality.
However, they don’t appreciate the increasingly popular negative rhetoric that increased taxing of the wealthy is in some way “taking money from bad people”. You just need to look at the campaigns of Bernie Sanders and Anand Giridhradas to see how evident this type of commentary is.
So how should the wealthy vote in November. The rock and a hard place idiom seems apt. They can either:
- vote Trump back in for another volatile, disruptive, chaotic four years,
- or vote for Biden and tax policies that will see their capital gains double.
Or they could leave…
Many families are choosing to engage ‘fire prevention techniques’ to protect their family and wealth. This includes:
- tax harvesting,
- estate freezing,
- seeking alternative citizenship and residences
- and working out how to extract themselves from the US tax system.
Read more here.
Many Americans are preparing now, even if not immediately pressing go on the exit plan. This means preparing a future proof back up plan.