An "Exit Tax" is Coming!

Congress is on the verge of passing an outrageous law that would impose the first-ever "exit tax" on expatriates; former U.S. citizens or long-term residents (persons who have resided in the United States for eight years or more of the previous 15 years).

Buried in the "Small Business and Work Opportunity Act" is an arguably unconstitutional provision that will require persons who give up U.S. citizenship or long-term residence, to pay a tax on all unrealized gains of their worldwide estate. The gains will be assessed based on the fair market value of the assets and the tax due within 90 days of expatriation.

The proposal is now in a conference committee to resolve differences between the Senate and House versions of the law. Since the Act includes an increase in the minimum wage along with tax breaks for small businesses, once it emerges from the conference committee, and both houses of Congress approve the bill, it would be political hari-kari for President Bush not to sign it.

Presumably, the phantom gain would be taxed as ordinary income (at rates as high as 35%) or capital gains (at either a 15% or 25% rate), as provided under current law. When the assets are actually sold, no further U.S. tax will be due (although the gain might be taxed again by the country in which the expatriate resides, leading to double taxation on the same income).

I'll be providing more details of this deplorable proposal, designed to plug what some in Congress call the "billionaire's loophole," in a column later this week in The Sovereign Society's Offshore A-Letter (click on http://www.sovereignsociety.com/offshore1841.html for a free subscription).

I've also prepared a special report on the "billionaire's loophole" and the implications closing it will have on wealthy Americans considering expatriation. To learn more about this report, click on http://www.nestmann.com/catalog/product_info.php?cPath=21&products_id=43.