More U.S. Citizens Jumping Ship to Avoid Taxes

David McKeegan, president of Greenback Expat Tax Services, agreed, saying in a statement, “Anecdotally, it would appear that the rate of people renouncing U.S. citizenship is tied to increased government efforts to enforce U.S. tax regulations on U.S. citizens living abroad. That is to say, increased awareness of the need to file U.S. taxes and Foreign Bank Account Reports seems to have an impact on people’s decision to renounce citizenship, as the major increases have come after the 2009 voluntary disclosure program.” Duggan said that the prospect of tax increases—expiration of existing exemptions and temporarily low rates that are set to expire at the end of the year—are likely to cause that percentage increase to accelerate even further, and ticked off the reasons.

“Despite a gift-tax exemption of $5 million and a lowered 35% tax rate, citizens are still opting to cut their losses and pay the current exit tax,” he said. “Unless Congress intervenes and extends these exemptions, the $5 million gift will drop to $1 million and the tax rate will climb to 55%. This, in addition to an increasing capital gains rate, is likely to give wealthy American citizens even more incentive to renounce their citizenship.”

But the door swings both ways. As some Americans leave in search of lower taxes or greener pastures—or both—foreign nationals with money to invest are taking advantage of the aforementioned “investor visas” under the EB-5 Immigrant Investor program. CNN reported that the State Department expects to issue more than 6,000 such visas in fiscal 2012, which would be an all-time record.

To qualify, individuals must invest at least $1 million in a new or recently created business, or $500,000 for businesses in rural or high-unemployment areas. And that’s not all; the investment must have created or preserved at least 10 full-time jobs for U.S. workers within two years. Should the lucky foreign investor meet these conditions, he and his family can achieve permanent residency, and three years after that can apply to become full citizens.

Business in investor visas is booming; last year 3,500 were issued, and the surge this year, as last, is coming mostly from China—whose residents gobbled up 70% of those granted last year. In fact, prospects are for the quota of 10,000 visas a year to meet its ceiling for the first time in the next year or two, thanks in part to family members accompanying investors.