[upnorthkyosa]

http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html

Amended IRC 877 eliminates the tax avoidance criteria for imposition of the expatriation tax on certain types of income for 10 years following expatriation, and creates objective criteria to impose the tax on individuals with an average income tax liability of $127,000 for tax year 2005 (or higher amount for later years) for the 5 prior years or a net worth of $2,000,000 on the date of expatriation.

Here is another article written by a lawyer on the same subject...

http://www.hayduklaw.com/weekly.htm

I've never came across this before when I was researching taxes for US/NZ. So, here's what I'm trying to figure out, how can the US enforce this? Why would another country let an affluent member of their populace be taxed twice when that income could be put into their economy?

[phatsharpie]

Considering the US taxes its citizens for their entire lives, this provision is not surprising. But it looks like it only affects a small subset of the population.

So, here's what I'm trying to figure out, how can the US enforce this?

Information sharing is a provision in the US-NZ tax treaty. I don't know what and how information are shared (the treaty is available here http://wellington.usembassy.gov/us_treaties.html), but I'd assume that the US can discover you financial situation in NZ if it wants to. I don't know if the US would extradite an individual for tax evasion (wouldn't want to find out), but it's certainly possible. In any case, the evader would never be able to set foot on US soil again.

Why would another country let an affluent member of their populace be taxed twice when that income could be put into their economy?

I guess it depends on what you mean by putting the income into the economy. It looks like the threshold for this tax rule is very high. So unless you mean that the individual plan to spend all that money - putting it into the economy - I don't see how this affects the host country. Besides, NZ is taxing the individual on that money, so they do get their share of the tax receipt.

Brian

[toesonthenose]

The US has to spend Billions to impose its views and attack countries across the globe, this isn't cheap! I guess they tax who they can to pay for these adventures.

[Super_BQ]

You will find the article focuses on individual that specifically leave the US for no other reason than to eliminate paying taxes. The typical case would be US citizens that reside in tax free countries like the Cayman Island (which is not far from US).

If you're a resident in another country that does pay income tax, you're unlikely to pay any tax to the US as most developed nations have higher income tax rates than the US. If you've filed an annual tax return every year to the IRS, then the issue of 'expatriation tax' is not a concern. They're specifically dealing with those that renounced their US citizenship for the simple reason of getting away with paying US taxes.

Canada has similar laws. By definition in the ITA (income tax act), every person that has lived in Canada must reside somewhere. Furthermore, regardless of where they reside, they must also demonstrate that they pay some form of income tax. (which entails that if you live in a tax free haven country for no other reason than to avoid paying any income tax worldwide, then this is good enough basis for the CRA to tax you regardless).

Double taxing is generally not the issue - especially if both countries have tax treaties.

[barryp]

If this provision affects you - that $127k PA is the *tax liability*, not gross income - then you are sufficiently wealthy to hire accounting and legal professionals to shelter your income in a wide variety of acceptable ways.

And it only applies if you renounce US Citizenship to reduce your tax bill. I don't anticipate a flood of such activity. Anyone moving from the USA to NZ simply to reduce taxes probably needs the services of a qualified therapist more than accounting services....

[jess]

Since I'm still a US citizen, and I'm not worth 2 million and my annual tax owed isn't over $127,000 (I should have such problems :p) that's not ever going to be an issue for me. I filed under the Foreign Earned Income Exclusion (see IRS Publication 54 - Tax Guide for US Citizens and Residents Abroad (http://www.irs.gov/pub/irs-pdf/p54.pdf)) and only owed tax to NZ. No double taxes, though I do still have to file every year.

Pub 54 (http://www.irs.gov/pub/irs-pdf/p54.pdf) has everything most people will need.

[jess]

Anyone moving from the USA to NZ simply to reduce taxes probably needs the services of a qualified therapist more than accounting services.... :laugh:laugh:laugh

[phatsharpie]

Anyone moving from the USA to NZ simply to reduce taxes probably needs the services of a qualified therapist more than accounting services....

Best quote ever!!! :laugh

Brian