Law Times

Law Times • OcTOber 19, 2015 Page 5 www.lawtimesnews.com New rules have lawyers advising on how to renounce U.S. citizenship BY JULIUS MELNITZER For Law Times anadian residents seeking to renounce their U.S. citizen- ship as a result of the Foreign Account Tax Compliance Act issue should keep Bitcoin Jesus in mind. Bitcoin Jesus, the nickname for Rog- er Ver, made a fortune funding startup businesses with the virtual currency. An avowed libertarian and anarchist, Ver be- come a citizen of St. Kitts and Nevis and renounced his American citizenship. Just a few weeks previously, he paid an out- standing U.S. tax bill of $325,000. Subsequently, he tried to visit the United States to attend a bitcoin confer- ence and applied for a visa. On three oc- casions, the American embassy in Barba- dos gladly accepted his $160 application fee and then promptly turned him down. The official reason for the denial was that he hadn't established non-immi- grant status as required by U.S. legisla- tion. Realistically, that was suspect as Ver's primary residence had been in Tokyo for nine years and his ties to the United States, by what one commentator called "every other measurement of resi- dency" apart from the fact that his family resided there, were minimal. What the refusal amounted to, in fact, was the assertion that Ver would remain in the United States and become an illegal immigrant in the country in which he was born. Incidentally, Ver also spent $350,000 having lawyers check his status who as- sured him the United States wouldn't bar him from entering the country. And with recent changes, it's a situation that could happen to U.S. citizens living in Canada. In September, Canadian financial in- stitutions started transferring account information to the Canada Revenue Agency, which then passes it on to U.S. authorities under the Foreign Account Tax Compliance Act. Attempts to enjoin the transfers by court action in Canada and the United States had failed earlier that month. Currently, an estimated one million U.S. citizens live in Canada. A recent sur- vey showed that 27 per cent of them were seriously considering renouncing their citizenship. "The obvious reason for this is to un- necessarily avoid paying potentially thou- sands or millions of tax to the U.S. even in cases where U.S. citizenship occurred be- cause of an accident of birth or other un- controllable circumstances," says Calgary- based Roy Berg, director for U.S. tax law at Moodys Gartner Tax Law LLP, a firm that has, according to Internal Revenue Service statistics, represented more than eight per cent of citizens renouncing worldwide in the past two years. One thing should be clear at the outset: The issue isn't about tax evasion or avoid- ance. It's in many ways a case of people who are technically U.S. citizens trying to deal with U.S. tax laws despite the fact they may have lacked any meaningful connection to the United States for years or perhaps ever. But if people don't renounce their citi- zenship with care, trouble looms. "If consular officials determine that the purpose of renouncing is tax avoid- ance, they will bar the individual from returning to the U.S.," says Berg. "Other potentially devastating consequences are becoming liable to the U.S. exit tax and to gift or inheritance tax on death." Doing it right starts with meeting cur- rent obligations by ensuring that U.S. tax returns for the past five years are up to date. "Filing these returns are no big deal," says Jack Bernstein of Aird & Berlis LLP in Toronto. "The issues really aren't about income tax because, on the whole, Ca- nadian income taxes for individuals are higher than those in the U.S." Even so, individuals paying more than an average of $154,000 in U.S. tax or hav- ing a net worth in excess of $2 million at the time of renunciation will be liable to exit and inheritance tax unless they were dual citizens of the United States and Canada at birth and have lived south of the border for less than 15 years. Other- wise, individuals not meeting the tax- paid and net-worth thresholds will be ex- empt from the tax liability consequences. But individuals above the threshold who seek to renounce their citizenship without the tax consequences do have options. "For example, U.S. law allows gifts of up to $5.4 million to family members without incurring gift tax," says Berg. "So the idea is to make the gift before re- nouncing citizenship." The key is to ensure that professionals have closely reviewed the financial affairs and dealings of individuals seeking re- nunciation. "You have to know what the clients have done financially in order to advise them of the proper course of action," says Bernstein. To renounce U.S. citizenship, individu- als must endure an exit interview with a consular official. "The official is looking to determine whether individuals are renouncing for avoidance purposes, are acting volun- tarily, and have a real intention to actu- ally renounce," says Berg. "Things tend to go smoothly for our clients because we let them know what to expect." The key to the interview is establish- ing the individual's lack of connection to the United States. "The less you have in terms of meaning- ful connections with anybody or anything down south, the better off you are," says Bernstein. "Having said that, many people still want to travel to the U.S. and may even have second homes there." LT NEWS law.utoronto.ca/ExecutiveLLM GPLLM Global Professional Master of Laws [Get a Master of Laws] Because business issues are legal issues. So if you want to get ahead in business, get the degree that gets you there faster. ONE YEAR – PART - TIME – NO THESIS – FOR L AWYERS AND NON - LAWYERS Untitled-8 1 2015-03-02 11:15 AM C 'The less you have in terms of meaningful connections with anybody or anything down south, the better off you are,' says Jack Bernstein.

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