Last fall I had a feeling that the number of U.S. expatriations would be increasing, due to recent tax law changes. I began tracking the number of expatriations, which appeared to be on the rise.
Today the Treasury Department published the names of individuals who renounced their United States citizenship (“expatriated”) during the quarter ending December 31, 2009. A total of 502 individuals expatriated. This is the highest quarterly number of individuals expatriating for many years. In fact, during that one quarter, there were more expatriations than in the combined previous seven quarters. The following graph shows the number of expatriates for the past 4 years.
The increase in expatriations likely results from 2008 changes to the expatriation rules under the Heroes Earnings Assistance and Relief Tax Act of 2008. Prior to these changes, for the 10 year period after expatriation individuals could not be present in the U.S. for more than 30 days in a calendar year without being taxed on their worldwide income. Further, under the prior rules expatriates had to make certain U.S. tax filings for a period of 10 years.
Under current law, moderately wealthy individuals can expatriate without any U.S. taxation. Further, the 10 year tax filings are no longer necessary, making the expatriation a clean break from the U.S. The new rules also allow expatriates to return to the U.S. for up to 120 days each year without being subject to any U.S. income taxes. With such generous rules as these, it is not surprising that expatriations are dramatically increasing.