Episode 71
The Exclusive Citizenship Act of 2025: Inaction Could Mean Losing Your US Citizenship
Proposed policy changes in the US could result in increased taxation for American dual citizens, green card holders, and Americans living abroad. From forced loss of US citizenship by inaction, to deemed expatriations, exit taxes on worldwide assets and foreign pensions, and potential impacts on Social Security and even US military pensions, the ripple effects of the proposed Exclusive Citizenship Act of 2025 are far-reaching and, in many cases, devastating.
Richard Taylor – dual UK/US citizen and Chartered Financial Planner – is joined by Virginia La Torre Jeker – US international tax attorney – to unpack what the Exclusive Citizenship Act of 2025 could mean, even if it never passes through Congress. They explore how the proposal could transform the expat experience for Americans and other immigrants in the US, compare it to existing immigration and tax rules, and examine how exit taxes may apply to anyone who loses or renounces US citizenship or green card status.
In this episode of Expat Wealth, Richard and Virginia discuss:
How the Exclusive Citizenship Act of 2025 would require dual citizens in the US to renounce all non-US citizenship within 12 months or be deemed to have voluntarily lost US citizenship.
How Supreme Court precedent bars Congress from stripping citizenship without voluntary intent, and how this bill attempts to bypass that protection.
What forced expatriation could mean for dual citizens, Americans abroad, and green card holders, including exit taxes on worldwide assets, punitive treatment of foreign pensions, and potential loss of Social Security or military pensions.
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Expat Wealth is supported by Plan First Wealth. Plan First Wealth is a Registered Investment Advisor serving fellow expatriates and immigrants living across the US on matters such as retirement planning, investment management, tax planning and non-US asset management.
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Expat Wealth is affiliated with Plan First Wealth LLC, an SEC registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.
ABOUT RICHARD:
Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.
As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).
Connect with Richard on LinkedIn
Richard Taylor, Founder of Plan First Wealth:
[00:00:00 – 00:00:10]
You know, if you give up your citizenship or you give up a green card after a certain, under certain conditions, it’s unlike anywhere else in the world. And it can come with serious and lifelong financial consequences.
Virginia La Torre Jeker:
[00:00:10 – 00:00:22]
The US has always had some kind of expatriation tax regime in place for many, many years. I remember the first expatriation I handled was in 1993. Were you even born then, Richard?
Richard Taylor, Founder of Plan First Wealth:
[00:00:24 – 00:01:12]
Yeah, I was. I was. I was nearly. Yes, for a while. I’m gonna take that as a compliment, but yes. I open up the newspaper before I go to sleep, and it’s. Trump is giving a speech in which he has threatened to reverse naturalize citizens who are later convicted of fraud against US Citizens. As I understand that he can’t do that. But this points to this snowballing. I think, I think, I think it’s. I think it’s legitimate to now call it a snowballing mood against immigrants, dual citizens, which in a country founded on immigrants, is nuts by a president whose mum was literally Scottish and I think grandfather was German. They keep ratcheting up the rhetoric and the pressure and, and that’s a big.
Virginia La Torre Jeker:
[00:01:12 – 00:01:19]
Reason I think Bernie Moreno put this proposal out there. It’s like, wow, doesn’t it fit right in with our agenda?
Richard Taylor, Founder of Plan First Wealth:
[00:01:19 – 00:02:10]
So let’s talk about that. Welcome to Expat Wealth, a Plan first wealth podcast dedicated to helping ambitious expatriates in America and Americans overseas thrive. I’m your host, Richard Taylor, and Plan first wealth is the business I founded and run today, and we work with successful expatriates, immigrants, and internationally minded Americans to make the most of opportunity and avoid the expat landmines. First, a quick disclaimer. While Plan First Wealth LLC is an SEC Registered investment Advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views and positions of Plan First Wealth. Information presented is for educational purposes only. Now, if you aren’t already receiving our emails, please go to our website, planfirstwealth.com and sign up there.
Virginia La Torre Jeker:
[00:02:10 – 00:02:10]
If you.
Richard Taylor, Founder of Plan First Wealth:
[00:02:10 – 00:02:59]
It’s free and you’ll be notified every time we drop a new episode and so much more. Okay, let’s get back to this week’s show. My guest today is friend of the pod, which is something I’ve always wanted to say. Virginia Latorre Jaeger. Virginia is a US International Tax Attorney, a member of the New York Bar since 1984, and she’s admitted to practice before the US Tax Court, and this is Virginia’s fourth appearance on this podcast and as we get comfortable as we transition from the Brits in America to Expat Wealth, I knew that we needed to get her on as soon as possible. For those of you who are interested, you can go Back to episodes 37, 45 and 55, where we cover a range of topics ranging from IRS penalty abatement, the exit tax, which is something we’re going to talk about today, and also the statute limitations. So welcome, Virginia. Welcome back to Expat Wealth.
Virginia La Torre Jeker:
[00:03:00 – 00:03:07]
Thank you, Richard. It’s really exciting to be back and to be on your new expanded pod. I’m happy about that.
Richard Taylor, Founder of Plan First Wealth:
[00:03:12 – 00:05:03]
So if anyone is listening and anyone is tuning in for the first time, previously we were with a Brits in America where we had quite a narrow focus on Brits in America. And now we are Expat wealth and we’ve expanded to include all topics related to us connected expats. So that’s, that’s other nationals, foreign nationals living in America, and of course, Americans overseas, which, which I’m particularly interested in because I’m an American and, and who knows, one day I could be overseas. So right on the docket today, I wanted to get Virginia in because some of you may be aware that in this new world we’re living in, the, the, I don’t know, what can we call the regime? The attitude towards foreign nationals seems to be, seems to be hardening. And you may have seen that before Christmas. Ohio Republican Senator Bernie Moreno introduced the Exclusive Citizenship act of 2025 that would require dual citizens in America, of which I am one, to renounce all foreign citizenships within 12 months or automatically lose their US status. And similarly, any Americans who are living outside America, or any Americans anywhere, I guess, who acquire a new citizenship would automatically lose their U.S. citizenship. So I wanted to get Virginia on to talk about this, this particular bill, this particular potential act and the ramifications, some of which we talked about before in episode 45 where we talked about the exit tax and, but also I wanted to just chat with Virginia, who herself is an American overseas. Myself, I’m a foreign national living in America and just talk about the, the, you know, the wider context, like the wider attitude towards foreigners, I guess, in America right now. So without further ado, let’s, let’s, let’s hit this, Virginia.
Virginia La Torre Jeker:
[00:05:03 – 00:09:21]
Yes, exciting times we have here. I was very surprised to see this act be put forth by Senator Moreno, but when I reflected a bit further, I shouldn’t have been very surprised because I think, as you have pointed out, the attitude toward Foreigners is hardened, hardening, and now it is, with this potential act coming into play, hardening even more. So let’s just look at it a little bit. Under this act, anyone with dual or triple or any other citizenship other than American citizenship will have a one year time frame to basically get rid of those other citizenships. And if they don’t act within that timeframe and get rid of those other citizenships, the foreign ones, then they will be deemed under the law under this proposal to have voluntarily given up their US Citizenship under the Citizenship and Nationality Act. So this is the critical part that I think some people are missing. You may remember in our talks about expatriation, when someone is giving up their U.S. citizenship, that can be by taking the oath of renunciation at a consulate or an embassy. It can also be by performing something called a potentially expatriating act, for example, serving in a foreign army or serving with a foreign government, provided when you acted, taking that act, that you had the intent to give up your U.S. citizenship. And the burden of proof is on the government, the US Government, to prove you had that intent to relinquish your U.S. citizenship when you performed this potentially expatriating act. So the law we have is very clear. You have to have this intent and you have to voluntarily want to give up your US Citizenship in order for the the law to recognize that you have given up your US Citizenship. Senator Moreno’s proposal does away with all of that and says if you don’t act and get rid of your foreign nationality by a certain timeframe, then this proposal will deem that you have given up voluntarily your U.S. citizenship and you will no longer be a U.S. citizen. So think about that. You’re not taking any action. You’re not giving an oath of renunciation at a consulate or an embassy to give up your U.S. citizenship. You’re not performing some act, for example, serving in a foreign government or taking an oath of allegiance to a foreign nation and so forth. You are just simply not doing something. So inaction will result in your loss of US Citizenship and it will be deemed to be a voluntary loss. And that’s pretty serious. So it has a lot of repercussions, as you may remember from our earlier talks. But whether or not this would be constitutionally valid, I can’t see it because we have Supreme Court precedent which says that the Congress cannot take away someone’s citizenship in that manner. They have to voluntarily give it up. They have to have the intent to give up their US Citizenship. So given the Supreme Court precedent we have with cases such as Ephraim versus Rusk or Taraza’s case, these precedents clearly set out the constitutional guidelines and they are not being met with this proposal. So I had to wonder, did anyone research these cases before they drafted this proposal? That was my initial question. Then of course, as I got into it, I had many, many other questions. But that’s the basic sum and substance of Senator Moreno’s proposal.
Richard Taylor, Founder of Plan First Wealth:
[00:09:22 – 00:09:44]
I have a question about the legality in a second, but just if I can ask you, because I imagine this is big in your professional circles, there’s a lot of speculation about this. But why, why, why do you think he has introduced this and also why this guy? Do you have any, any inkling there, any insight, speculative or otherwise?
Virginia La Torre Jeker:
[00:09:45 – 00:11:09]
I can give you my input and a little bit of what I’ve heard from others. My input is he was a Colombian citizen. He naturalized as a US citizen when he was 18 and at he gave up his Colombian citizenship. He I think believes that everyone should have his viewpoint that no other nation deserves to share citizenship with the United States individual. And he views it as a form of loyalty to America that you would only have one citizenship. So I think his viewpoint is a little bit shaped because of his background. Okay, but why he’s proposed this? First of all, as I mentioned, I don’t think it was clearly thought through at all. And we’ll get into that in a little bit more detail later. But I think he’s a brand new senator. He wants to make his mark. He wants to be noticed, and he wants to be noticed in a big way. And what bigger way than proposing something like this, especially in today’s climate? Right.
Richard Taylor, Founder of Plan First Wealth:
[00:11:09 – 00:11:12]
I wondered that if it’s just signaling it to get attention from the boss.
Virginia La Torre Jeker:
[00:11:13 – 00:11:17]
I mean, my article on forbes has over 250,000 views.
Richard Taylor, Founder of Plan First Wealth:
[00:11:18 – 00:11:21]
Wow. Okay. So people are paying attention.
Virginia La Torre Jeker:
[00:11:21 – 00:11:24]
People are paying attention. It’s got his name out there.
Richard Taylor, Founder of Plan First Wealth:
[00:11:24 – 00:11:34]
There’s 22 odd million naturalized citizens in America and there’s, I don’t know, seven or eight million Americans overseas. There’s a lot of people affected by that. Potentially affected by this.
Virginia La Torre Jeker:
[00:11:35 – 00:11:40]
Absolutely. And we didn’t even get into the ripple effects of what it’s going to mean for them.
Richard Taylor, Founder of Plan First Wealth:
[00:11:42 – 00:12:32]
Well, we definitely, I definitely do. But just before we get there, can I just ask you a question about the legal process? So you mentioned these previous cases, some of which I have actually looked into, and you mentioned that they affirm constitutional principles. So let’s just say this bill was able to pass into law. Let’s Just say it was able to get passed. Yeah, the, the Congress government, president signed it. I hope it doesn’t, and I hope you’ll tell me that’s not going to happen, but let’s just say it did. I, I thought the Congress could write laws. So let’s say, let’s say they wrote this law. But, but what you’re saying is the Supreme Court has already ruled on the. Has pointed back to the Constitution. So the Congress can like, can write laws, but they can’t write laws that overwrite the Constitution without getting a constitutional amendment? Do I have that kind of right?
Virginia La Torre Jeker:
[00:12:33 – 00:14:00]
I’m not a constitutional law expert, but we’ve had laws be passed that are later challenged as unconstitutional. Okay, so my guess is this would, let’s assume your hypothetical comes true, it’s passed into law, then all these horrible things that we’ll talk about later are going to happen to people like deemed expatriations and exit taxes and so forth. Now what’s going to happen is someone will challenge the constitutionality of the law and say, no, this law is unconstitutional. It’s got to be struck down and it’ll go to court and they’ll say whatever they say. And who knows, maybe it ends up going to the Supreme Court eventually. Okay? And then if it’s decided, yes, it is unconstitutional, it flies in the face of these cases of Freudian versus Rusk and so forth, then it will be as if the law never existed. So these people will then be US citizens again. And now what? They never lost their US citizenship. Meanwhile, it took 10 years to get through the court system. They’ve lost maybe Social Security, they’ve had the exit tax. All of these things have happened. What’s going to happen is the IRS going to give them back the exit tax that they had to pay because really they didn’t give up their citizenship.
Richard Taylor, Founder of Plan First Wealth:
[00:14:00 – 00:14:22]
I mean, I mean, it’s like this, tariffs. You know, the Supreme Court right now is debate is considering whether the tariffs are constitutional or not. And if, and if they deem they’re not, what happens to all the tariff taxes paid in the last nine months? I mean, it’s like a, it’s like that writ large, that would be an absolute shambles. But Virginia, please tell me this isn’t going to happen. Right? This isn’t going to come to pass. This is not going to get through.
Virginia La Torre Jeker:
[00:14:23 – 00:14:56]
Listen, stranger things have happened, but I don’t think this is gonna go terribly far. Okay? His home state of Ohio demonstrated significant backlash when this bill came out. That my guess is his staffers have had to have noticed something. And before they go further with these proposals, should be addressing the various issues that, for example, I have raised. Let’s, let’s hope.
Richard Taylor, Founder of Plan First Wealth:
[00:14:56 – 00:14:57]
Good.
Virginia La Torre Jeker:
[00:14:57 – 00:15:01]
Yeah. You know, because I don’t think it was thought through at all.
Richard Taylor, Founder of Plan First Wealth:
[00:15:02 – 00:16:05]
Yeah, hopefully it is just a naked attention grab signaling to the bosses on his side. But, you know, you know, I was thinking back to last time we spoke. Last time we spoke, I think it was about statute limitations, I think, and they just announced, the government had just announced that they were going to be targeting naturalized citizens. And then last night on the eve we’re speaking again, I open up my, Open up the newspaper before I go to sleep and it’s. Trump is giving a speech in which he has threatened to reverse naturalize citizens who are later convicted of fraud against US Citizens. So there is now either side that he can’t do that. But this points to this snowballing. I think, I think, I think it’s, I think it’s legitimate to now call it a snowballing mood against immigrants, dual citizens, which in a country founded on immigrants is nuts by a president whose mum was literally Scottish and I think grandfather was German.
Virginia La Torre Jeker:
[00:16:05 – 00:16:51]
I mean, it’s, I think what they’re, what they’re trying to bootstrap is to say, look, if you have committed any kind of fraud on your naturalization papers, then you can be, that can be grounds. And it can be grounds to, of course, yeah, yeah, strip you of your citizenship. But I think the atmosphere is such that, you know, what, what kind of mistakes did you make? For example, this is the scary part. Did you forget that you had, you know, a Facebook account and you were asked to list all your social media account? I, I don’t know.
Richard Taylor, Founder of Plan First Wealth:
[00:16:51 – 00:16:53]
Well, did you see that? Did you, did you see.
Virginia La Torre Jeker:
[00:16:53 – 00:16:54]
No, I haven’t. I’m just saying.
Richard Taylor, Founder of Plan First Wealth:
[00:16:55 – 00:17:01]
No, no, sorry. What I mean is, did you see that? They, they also, since we last spoke, they proposed adding this when people want an Esther.
Virginia La Torre Jeker:
[00:17:01 – 00:17:02]
Yes.
Richard Taylor, Founder of Plan First Wealth:
[00:17:03 – 00:17:45]
I think it was like, what emails have you used in the last 10 years? 5 years worth of social. I mean, how do you even provide five years worth of social media activity? I don’t even know how you collate that, things like that. But, but, but Virginia. So, so last night he, he went, he took the whole. Stripping you of your naturalization a step further and, and, and said he wanted to strip naturalized citizens who, who committed fraud against other U. S. Citizens. So forget, forget what they did on their naturalization. That, that’s old news. He’s Taking it up another notch. I don’t, I don’t see how that’s can be done. But it’s just, they keep ratcheting up the rhetoric and the pressure, and, and.
Virginia La Torre Jeker:
[00:17:45 – 00:17:53]
That’S a big reason, I think Bernie Moreno put this proposal out there. It’s like, wow, doesn’t it fit right in with our agenda?
Richard Taylor, Founder of Plan First Wealth:
[00:17:55 – 00:18:24]
Where does this, I, I, this is an impossible question to answer because we’re, we’re in, we’re in the early stages of year two right now. It’s hard to believe we’re only 14 days into January, the way this year has started. But, yeah, you know, there’s a long, We’ve got a long road ahead of us yet before. Although I suppose this year we’ve got the midterms. Maybe that will act as a check. Who knows? Fingers crossed. Interesting. Yeah. Wow. But I think the, the, the point is undeniable. Like the, the. It’s a pressure cooker.
Virginia La Torre Jeker:
[00:18:25 – 00:20:43]
It’s a definite pressure cooker. I was shocked after I published the first Forbes article on the Moreno proposal. I received an email from a Native American, and he was, he or she was very concerned saying, you know, what, what’s going to happen to us? What about us? What does this mean for us? And initially I thought, what does he mean? What does that mean? Why are they worried? And so, of course, I started to research and learned about the Indian Citizenship act of 1924 and the Discrimination that has gone on against Native Americans with voting rights. And then I was really getting the big picture and saying, of course they’re concerned. And I did a second article addressing that Native American concern and giving my views there, which I don’t think this tribal sovereignty is the kind of foreign nationality that is intended by the bill. But who knows, right? Who knows? If you wanted to cause trouble for Native Americans, maybe this would be a way to do it with this proposal. So a lot of concern was from the Native American community. And then I had emails from certain people that were stripped of foreign citizenship during the Nazi regime. For example, Austrian citizens who were Jewish were stripped of their Austrian citizenship. And then later in life it was restored to them after the war. And these generations are so proud to have that citizenship, and they don’t want to be forced to give that up. And you can understand, right? So I was receiving information from them. And then I started to look further, and I realized, of course, about the possibility if you’re stripped of your citizenship or, you know, you’re deemed to have voluntarily given it up because you didn’t Take action within that one year time frame. What’s gonna happen from a tax perspective? You may be hit with the exit tax, you may be hit under that entire expatriation regime because of this bill.
Richard Taylor, Founder of Plan First Wealth:
[00:20:44 – 00:21:10]
Well, let’s go there. So listeners, we’ve covered this already, episode 45, but let’s go back there now and, and explain that to people like that. You don’t just, you know, if you give up your citizenship or, or you give up a green card after a certain, under certain conditions, it’s unlike anywhere else in the world and it can come with serious and lifelong financial consequences. So let’s talk about that.
Virginia La Torre Jeker:
[00:21:11 – 00:21:25]
Sure. So the US has always had some kind of expatriation tax regime in place for many, many years. I remember the first expatriation I handled was in 1993. Were you even born then, Richard?
Richard Taylor, Founder of Plan First Wealth:
[00:21:26 – 00:21:34]
Yeah, such some point. I was nearly. Yes, for a while. I’ll take that as a compliment, but yes.
Virginia La Torre Jeker:
[00:21:35 – 00:24:06]
Okay, so I handled my first expatriation in 1993. I was a very young lawyer working and living in Hong Kong at the time. And the expatriation rules were very different then and they’ve developed over time. So where are we now with the expatriation regime? Okay, so where we are now is basic nutshell. If you give up your US Citizenship in any way, for example, you renounce at the consulate, or you’re stripped of your U.S. citizenship, or you take on some potentially expatriating act, you commit that act with the intent to give up your US Citizenship. So any of the above, you will be giving up your citizenship. And the expatriation tax regime can potentially apply to you. If you meet any one of three tests, you will be hit with this expatriation regime. The first one is if you have a $2 million net worth, global assets, global assets, complete worldwide net worth. So that’s assets, worldwide assets minus worldwide liabilities. Or you have a certain tax liability threshold for the past five years of taxes. So what they’re looking at there is not your wealth, not your income. They’re looking at the income tax you have paid over the past five years. And you take the average and if it comes out to, I think it’s now US$206,000, if you meet that threshold, then you will automatically be treated as this thing called a covered expatriate. So the 2 million net worth, the income tax liability test, or you don’t certify under penalties of perjury that you’ve been fully tax compliant. For the past five year period prior to giving up the citizenship. So those are the three tests, the ones we see as most troublesome. It’s not that difficult nowadays to have a $2 million net worth. That number is not indexed for inflation. The income tax liability threshold average is indexed for inflation. But the 2 million net worth has been. That number has been in place since at least 2008 when the law came into effect. So that’s a long time ago. Right?
Richard Taylor, Founder of Plan First Wealth:
[00:24:07 – 00:24:19]
That’s the one that we see just for everyone listening, we’re talking about giving up citizenship here. But this also applies for long term homeland residents, I. E. Green card holders. And it’s always the 2 million threshold.
Virginia La Torre Jeker:
[00:24:19 – 00:25:50]
That we see catching people. So just to give clarity on that point, if an individual has held the green card for eight tax years out of the past 15, then he will be treated the same as that US citizen who’s giving up citizenship and has to go through the three tests. Do I meet any of them? I’ll be a covered expatriate. And when we say tax years, people often believe it’s calendar year. So for example, if they got their green card in 2008, in December of 2008, they think that doesn’t count because they only held it for five days in December of 2008. That’s a full tax year. And the year you give up is considered a full tax year. So you’ve got the two beginning and ending and then you just need six in between. And you can potentially be one of these covered expatriates. So you’re a long term resident when you’ve got the eight tax years of holding that green card. And we see so many times, Richard, I’m sure you’ve seen it as well, people don’t really need the green card. They keep it and they say, oh, it’s a great travel document. And you know, I go in and out the way I want and I don’t have to worry about getting visas. Big mistake. Because if you’re holding it on for that reason, you will be very sad when you eventually want to give it up and think why did I now put myself into this mess of being a long term resident and potential covered expat?
Richard Taylor, Founder of Plan First Wealth:
[00:25:53 – 00:26:26]
I’m excited to announce that Expat wealth has its first sponsor, the Global Financial Planning Institute. The GFPI exists to provide education, community tools, resources and ongoing research for financial planners and other advanced financial professionals working with international and cross border clients in the US And Americans abroad. I’m a GFP Institute fellow And I’ve put all our employees through their GFPI programs when they join us. I’ve met some great people. I’ve learned a ton. It’s a genuine community of internationally minded folk.
Virginia La Torre Jeker:
[00:26:26 – 00:26:26]
Great.
Richard Taylor, Founder of Plan First Wealth:
[00:26:26 – 00:27:47]
Doing their best to serve their clients properly and critically sharing what they know in the oftentimes challenging and ambiguous US cross border environment. And as anyone in this sector will tell you, you’re always learning. So if you work with international clients and or Americans abroad or if this is an area you’re looking to get into, check out the gfpi@www.gfp.in stute you will be glad you did. I hope to see you there soon, Virginia. We had, we know someone who went back to the UK with a green card and we, we warned and warned and warned them repeatedly like be careful with this, take some action. And essentially just ignored us. And they got lucky because they came back to the US just, just travel, just on our vacation just to see someone. And they got stopped at the border and they got told, I’m gonna let you through this time, but next time you’ll be detained. And you probably asked to relinquish your green card there and then, which we’ve talked about before is a big no, no. But that was, that was they, that they thought that was gonna happen to them at the border and they got lucky. But this really happens, folks, and don’t treat this very seriously.
Virginia La Torre Jeker:
[00:27:48 – 00:28:45]
Yes. And the scary thing about being stopped at the border, people panic, you know, and if the border control pushes you enough and says look, we can make this really simple, you just sign this i407 and we’ll let you through as, I don’t know, some other visitor or whatever they say and they sign the i407 giving up the green card. They are not realizing they may have already the eight tax years they may be covered expatriates, they haven’t done any tax planning. They are clueless. And once it’s done, it’s done. So yeah, people have to be very, very careful, become educated and then get the right tax advice before you give up that card. So we have this whole expatriation regime that can come into play because of Senator Moreno’s proposal. A little bit about.
Richard Taylor, Founder of Plan First Wealth:
[00:28:45 – 00:29:02]
Yeah, well, so do you know, you mentioned three, three parts. I think it’s worth touching on the last one. So you mentioned the 2 million, 2 million net worth. That which we think catches everyone out the, the, the income tax burden. And the third one, which I, I think is, is a, is the real.
Virginia La Torre Jeker:
[00:29:02 – 00:29:04]
Kind of catches people.
Richard Taylor, Founder of Plan First Wealth:
[00:29:05 – 00:29:13]
Yeah is ahead of the time. I have to certify the penalty of perjury that you have been fully tax compliance in the last five years.
Virginia La Torre Jeker:
[00:29:13 – 00:31:26]
Right now you know, that can go from A to Z. So some people for example maybe haven’t been filing or you know, gee, they know I didn’t file this form 5471 and I had a corporation, a foreign corporation and I should have filed that information return. So some people may realize some big omissions and hopefully they get them fixed up before they do give up the citizenship or the green card. But a lot of times when they get proper complete tax advice, it’s so often you will find something has been missing that they simply weren’t aware of. So for example, they may have gotten a gift or an inheritance from a non US person and that needs to be reported on a special form. They would have no clue that that needs to be reported because gee, it’s not even taxable getting a gift or bequest. So. So why do I have to report anything? Well, you do. So when they talk about full tax compliance, they’re not just talking about income tax, they’re talking about gift tax, they’re talking about self employment tax if it applied. They’re talking about trust fund taxes. I mean everything excise taxes. If someone had a foreign life insurance policy and we’re not paying the 1% excise tax on the premiums paid to the foreign insurance company, they’re not being fully tax compliant. So there’s so many bizarre little things that can catch you up. And it’s best for people to get those tax returns reviewed by an independent professional, not the same person that’s been preparing the returns. And to see as that independent person asking me the right questions, are they asking me have you made gifts to anybody over these five years? Oh, you did? Okay, well what, how much did you give them? Oh, you gave them $23,000. Guess what you needed to file a gift tax return. So there’s a lot of things that can catch them up in that tax compliance part that unfortunately many people are not aware of.
Richard Taylor, Founder of Plan First Wealth:
[00:31:26 – 00:32:07]
I don’t want to hear talking about citizenship. I also think this is one that catches green card holders because they so many of them come here unaware of all the the additional requirements. It’s almost impossible to be able to. Honestly, the more I learn about the U.S. tax Code, the more I think it’s impossible to be fully, to be fully compliant. But they’ve all got holes in their affairs and then they think oh, you know, I don’t want to be. So I, I’ll give up my green card. I’m not over the. Oh, I can, I can make it so I’m not over the 2 million. But yeah, you’re not in compliance for the last four or five years. So you’re going to fail on that, that you’re going to fail on there. So it’s a tricky game to, it’s a tricky tightrope to walk for. Sure.
Virginia La Torre Jeker:
[00:32:07 – 00:32:29]
Yes. And can you imagine we are talking about situations where people have the opportunity to plan under Moreno’s bill. I mean, unless you are, you know, a nerd and scouting around and reading about all of this stuff, you, you might not even know that you were deemed to have given up your citizenship.
Richard Taylor, Founder of Plan First Wealth:
[00:32:30 – 00:32:32]
Imagine this as well. So you’re on a green card.
Virginia La Torre Jeker:
[00:32:32 – 00:32:34]
You go to renew your passport and guess what?
Richard Taylor, Founder of Plan First Wealth:
[00:32:34 – 00:33:19]
Yeah, you’re a green card holder in America. You’ve been here 10 years, so you’re well over the eight year mark. This bill becomes law and you’re now faced with. Right, So I want a green card. I either have to take US Citizenship and give up my other original citizenship, which is a big ask, or I have to give up my green card and there’s, I’m basically almost certainly gonna be subject to the exit tax regime, which, which we’ll talk about in a second, which can be pretty punitive. And then also I guess you’ll be a covered expat. So you’ve got lifelong consequences if you have US citizen children and stuff. Or so that, so that puts someone who’s already, already over the eight years in a real bind. A real bind.
Virginia La Torre Jeker:
[00:33:20 – 00:33:23]
And maybe they just continue to hold the green card forever.
Richard Taylor, Founder of Plan First Wealth:
[00:33:23 – 00:33:37]
But you always, but that’s always a risk, isn’t it? You know, that you, then you know, you’re a dui. You’re, you’re a minor offense away from having it revoked and you know, and then going into a whole world of pain.
Virginia La Torre Jeker:
[00:33:37 – 00:33:37]
Yes.
Richard Taylor, Founder of Plan First Wealth:
[00:33:37 – 00:34:04]
You’re living in permanent. Yeah, you’re living in permanent fear that permanent but slight mild anxiety. Or you’re in a green card holder and you’re at the five, six year mark. This comes into, this comes to pass. There’d be a, there’d be an exodus of people on a green card who are not yet at the eight year mark. Right. There’d be a, there’d just be a huge, I imagine there’d be so many people thinking, no thank you and getting out of here, getting out of docs.
Virginia La Torre Jeker:
[00:34:04 – 00:34:08]
Yes. If they’re aware of what’s going on?
Richard Taylor, Founder of Plan First Wealth:
[00:34:09 – 00:34:09]
Yes.
Virginia La Torre Jeker:
[00:34:09 – 00:34:34]
I mean, listen, people in my circle, people I speak to, people who follow my blog, people who read Forbes, they are definitely aware. I think the more savvy members are aware. But there’s so many people that are innocent and they’re not like business people or financial people. And why would they be aware of this?
Richard Taylor, Founder of Plan First Wealth:
[00:34:35 – 00:34:36]
No, totally.
Virginia La Torre Jeker:
[00:34:36 – 00:34:40]
It’s going to be a lot of innocent people that have problems.
Richard Taylor, Founder of Plan First Wealth:
[00:34:40 – 00:34:42]
Well, hopefully it doesn’t come to pass.
Virginia La Torre Jeker:
[00:34:42 – 00:34:45]
But hopefully it doesn’t. But it does show you the attitude.
Richard Taylor, Founder of Plan First Wealth:
[00:34:46 – 00:34:53]
Yeah. Oh, the attitude is irrefutable. The movement is growing for sure.
Virginia La Torre Jeker:
[00:34:53 – 00:36:32]
And let me just say, Richard, many years ago the exit tax that we have today was proposed, I think it was in 1995, was during the Clinton administration as I remember. And it was ignored like it didn’t come to pass. And then suddenly, bang, we saw it come in 2008 and begin acted into law. So these things have a way of resurrecting themselves. You’ve heard about the revenge tax against the countries that are deemed to discriminate unfairly against American interests. That was proposed and then it didn’t become law because G7 agreed to a deal and to exempt US multinationals from various digital service taxes and other so called punitive type taxes that they viewed as discriminatory. So when that wasn’t happening fast enough, there was talk about resurrecting this tax again, this revenge tax. But now it looks like, oh no, people have agreed. And so, you know, we see looks like they’ve come to an agreement, but it’s always sitting there in the background. Right. And it can be taken out during the poker game and be the winning hand. So once you see something like this as a potential on the books, you’ve got to remember it may come back. It may come back.
Richard Taylor, Founder of Plan First Wealth:
[00:36:32 – 00:36:41]
Well, that’s horrifying. They think the exit tax was proposed in 95 and 13 years later it became reality. And all right, well I think it.
Virginia La Torre Jeker:
[00:36:41 – 00:36:49]
Was 95, but I know for sure it was proposed and it wasn’t enacted. And then it came in.
Richard Taylor, Founder of Plan First Wealth:
[00:36:50 – 00:36:55]
So let’s talk about that then. So someone’s a covered expat. What happens?
Virginia La Torre Jeker:
[00:36:56 – 00:39:26]
Okay, so covered expats get hit with first of all this exit tax, which is they’re treated as if they have sold all of their worldwide global assets on the expatriation date and they are then taxed on the pretend gain from that deemed sale. Meanwhile, they didn’t sell anything. They may not have cash to pay the tax and that’s too bad. They still have to prepare their tax return as if these assets were sold and pay tax. Usually it’s at a capital gains rate, but you know, that’s pretty steep. You’ve got at least 15 to 20% capital gains rate. Then you’ve got the 3.8% net investment income tax, which will be on top of that in most cases because people will be at that threshold where they need to pay that. So you’re looking at almost a 24% tax rate right there on pretend gain. And then we have certain assets that are really treated punitively that are not marked to market the way the global assets that are treated as sold are. So, for example, if you have foreign pensions, those are treated in a very harsh way. If you have a foreign pension, it’s treated as if you got the full amount of the pension paid out to you on the day before you’ve expatriated. And then you have to include that full amount on your tax return and pay tax as if you got that distribution. Now, can you imagine, and I don’t know what happens in the case, for example, where, you know, you take that amount into your income, you pay tax on it, but then later, what happens if you don’t get, you don’t get paid the foreign pension, maybe, you know, the company goes bankrupt. I don’t know what happens. But you don’t actually get the money, Then what happens? You’ve already paid the tax. You might just be in a position of never getting the Money, you know, 10 years later when you’re at retirement age, for example. So this is a very scary kind of thing. If you can avoid being a covered expatriate, please, you can, you must do all in your power to avoid it. And there are, of course, techniques that can help people to avoid that status.
Richard Taylor, Founder of Plan First Wealth:
[00:39:27 – 00:40:41]
It’s absolutely terrifying. And I. And I think it’s even worse because I’m going to suggest an additional scenario and you can correct me if you think I’m wrong here, but so you have this deemed disposition or deemed distribution. So your assets are deemed to be sold the day of your expatriation, and then your pensions are deemed to be distributed the day before. None of that actually happens. It’s just all a paper exercise. And you’re hit with this massive tax bill, 24% odd on your capital gains, and let’s just call it 40% on your pension distributions. Bear in mind, you haven’t actually liquidated any of these assets. So you just have this whopping great Big tax bill that. I don’t know how you cover it. Then let’s say you’ve moved to the uk. That’s where most of our clients are from. That’s where I’m from. That’s where presumably most of them would end up. Back. They’ve moved back to the uk. They’re a UK resident. Well, eventually you’re going to sell these assets, actually sell them, and you’re going to, you’re going to distribute from these pensions, as in actually distribute from them. Well, the UK at that point is going to tax you. They’re not. And, and as I understand it, because this, I don’t think this exit tax is covered anywhere in the treaty, is it?
Virginia La Torre Jeker:
[00:40:41 – 00:40:43]
No, I don’t think so.
Richard Taylor, Founder of Plan First Wealth:
[00:40:43 – 00:41:27]
So, so the UK is going to want, want capital gains on any, on any actual realized gains and any, and any income tax on any actual actually distributed pension distributions. So you’re going to get taxed full whack. Again. That is devastating. That will wreck everyone’s financial plan. I don’t, I, maybe you have to move to Dubai or something. But that, that would be horrendous. And to your point, as awful as that is, if you’re proactive about this, you can plan and, and, and maybe move to Dubai. Maybe that is the answer or somewhere similar. But if you, if you don’t plan and this is, this is taken from you, you might lose. This might happen. Worst case scenario.
Virginia La Torre Jeker:
[00:41:28 – 00:44:29]
Absolutely, absolutely. I mean, there’s certain things people should be looking at. And unfortunately, I don’t see a lot of tax professionals being 100% aware of possible ways to get around this whole thing. So, for example, if you look at your client’s history and say, have you guys ever lived in a community property jurisdiction, for example, Spain, or, you know, some other community property jurisdiction where even though this was in your name, it’s deemed owned half by your spouse. So maybe, you know, maybe the guy might not have a $2 million net worth. Maybe that pension isn’t fully his. Maybe half of it’s treated as owned by his spouse under community rules. Yeah, so you’ve gotta be, if you’re a tax professional, you’ve really gotta be 100% up to speed and figure out the best case scenario for your client and understand what you can do to possibly help them. Gifting is a big thing, right? So people make gifts to get their net worth below the $2 million threshold. But with gifting, you have to be very careful because if you are a US citizen or a US domiciliary in the case of, like, the green card holder who’s got the eight tax years, and you want to make gifts, you want to be able to use your lifetime exemption amount, which is now, I think it’s like US$16 million. Under the new rules, it’s a very high amount. Okay? So even if you have to make gifts and have a gift tax liability, you can offset your liability against this gigantic lifetime credit that you’ve got and not end up having to pay the IRS a penny of gift tax. So it’s just a paper exercise to say, look, I’ve used X amount of my credit amount, and I don’t have to pay you any gift tax. So people often make gifts, and I’ve seen this happen, and it makes me shudder. They’re told, well, make the gift and then you can expatriate. So they’re making the gift in the same calendar year as the expatriation. It doesn’t work, guys. And, you know, I discovered this many, many years ago and was telling people, no, you’ve got to make the gift the year before you expatriate. And people would argue with me, and then, you know, I’d show them the code, the language in the Internal Revenue Code saying, basically, look, you look at the end of the calendar year, how much credit is left to that God, and use that amount. Well, if you are expatriated and you are no longer a US Person, your credit amount is zero for gift tax. So.
Richard Taylor, Founder of Plan First Wealth:
[00:44:30 – 00:44:31]
So you’ve seen this?
Virginia La Torre Jeker:
[00:44:32 – 00:44:43]
Of course I’ve seen it a lot. I’ve seen it a lot. And it’s scary that, you know, people are getting this advice and it’s not correct, but what can I say?
Richard Taylor, Founder of Plan First Wealth:
[00:44:44 – 00:44:58]
So, Virginia, what are we urging people to do with this information? I think right now it’s just no action to be taken. I think it’s just about awareness. Right. It’s just folks have this on your radar.
Virginia La Torre Jeker:
[00:44:58 – 00:45:37]
Absolutely. It’s awareness. But it’s also, think this through. If you are not. If you’re a green card holder and you’re not at the 8 tax years, and let’s say you’re at 6, you don’t have much time left. Decide what you’re going to do. Decide. Is it really worthwhile for me to continue? Do I want to stay? Because if I want to get out, I have to get out now. Maybe I should start to look for a job back in the UK or wherever people need to sit and seriously consider the repercussions of whatever action or inaction they are. They are taking.
Richard Taylor, Founder of Plan First Wealth:
[00:45:38 – 00:46:21]
Yeah. I mean, absolutely, if that’s in your position, and if you are, count yourself lucky, you still have some good options for the rest of us. Those that you view that are over the eight years, those of you that are already US Citizens. US Citizens, I think just start thinking about this. So if the worst comes to pass now or in the future, to your point, you know, it doesn’t, it doesn’t completely blindside you. You know, you’re. You’re aware of the issues, you’re aware of the possibility, and it’s like having a grab bag. Right? Yeah. Yeah. You’re. You’re ready to go. I don’t mean literally ready to leave, but you’re ready to, like, okay, this has happened. I. I was. I knew this, this could happen. These are my options. This is what I’m going to do. It’s a lot to get your head around.
Virginia La Torre Jeker:
[00:46:21 – 00:47:02]
It is. And I think, in a sense, Senator Moreno’s proposal might force people to think, because people I know with dual nationality, there’s no way they want to give up their other citizenship. They are really like, whoa, no, this means so much to me. I would never give it up. You know what? I’ll give up my us. So these people need to be really thinking, okay, if that’s going to happen, what am I going to do? Can I be planning now? Should I be making gifts? I’m already close to 2 million. Should I be. What should I do? What action can I take?
Richard Taylor, Founder of Plan First Wealth:
[00:47:02 – 00:47:10]
So, Virginia, what about Social Security? What happens to that if you expatriate, right?
Virginia La Torre Jeker:
[00:47:10 – 00:48:37]
That’s a very good question, Richard. Most people think that once they’ve had enough credits in the Social Security system, that their benefits under the Social Security rules will remain intact no matter where they live. That’s not true. So when someone is no longer a US Citizen, and this applies not to just people who expatriate, but, for example, that green card holder who now is no longer. He’s retired and he’s moved back to his home country, for example, what happens to all of these foreign people? Unfortunately, it’s not so simple. Even if you’ve earned your full 40 credits and are entitled to Social Security, you must be a citizen of a country that is on what’s called the Social Security Administration country list. They have three lists, and it’s not the same country list. One is the basic countries you and I would be thinking about, where we say, oh, gee, you know, we had someone from the UK we had someone from Germany, we had someone from Switzerland, they’re citizens of these countries. That’s great. Those people are in good stead. But there’s, for example, Australia is not on the country 1.
Richard Taylor, Founder of Plan First Wealth:
[00:48:37 – 00:48:39]
Wait, Australia’s not on that?
Virginia La Torre Jeker:
[00:48:39 – 00:49:53]
It’s not, it’s not. But people will say to me, oh, but there’s a totalization agreement with Australia and America. That’s not the test. Okay. Totalization agreements are completely different from these country lists. So I think people need to be aware that if they are not a citizen of a country on one of the lists, then they may suffer with their Social Security. They won’t necessarily lose it. But after a six month period residing abroad, the Social Security Administration will stop the benefits if they’re not on that list and they must return to America and live there, reside there for one month legally, and then the benefits will resume when they go back to the other country. So it’s not an issue of where you live. You can live in a country that’s on the Social Security Administration list, but if you’re not a citizen of a country that’s on the list, it doesn’t help you that you reside. Okay, yeah. So I think we need to eventually do another pod on the repercussions of Social Security when someone gives up their US Status.
Richard Taylor, Founder of Plan First Wealth:
[00:49:54 – 00:50:25]
I mean, I, I usually. Sorry, you’ve got the gears turning in my head here. Just think about that, like go six months on one month in the US that might be doable for a while. That’s not, that’s not feasible indefinitely, especially as you age. Then let’s say, okay, let’s say you do that. That. What are the logistics? Can you imagine? I, I’m completely shooting from the hip. I have no idea what it involves. But how are the, how are the Social Security Administration going to know? You’re going to have to inform them. So can you imagine having to like continually.
Virginia La Torre Jeker:
[00:50:26 – 00:50:39]
They send you a questionnaire every one or two years asking this question, have you changed your citizenship or what has changed? I mean, wow. Yeah, wow.
Richard Taylor, Founder of Plan First Wealth:
[00:50:39 – 00:50:43]
Okay, Australia’s on there. There are plenty of Americans in Australia.
Virginia La Torre Jeker:
[00:50:43 – 00:50:58]
Australia’s on another list. So I don’t want people to panic. But the lists aren’t really as generous. So, for example, country list 2 means you’re collecting on your own work history. So like survivor’s benefits or disability, those guys are going to have different rules.
Richard Taylor, Founder of Plan First Wealth:
[00:50:59 – 00:51:21]
So, yeah, okay, we need to do this because Social Security is oftentimes a substantial part of someone’s retirement plan. Social Security payments are significant, certainly compared to the British basic state pension. So let’s let’s, let’s park that and let’s come back and do this. But people, it’s just another thing to.
Virginia La Torre Jeker:
[00:51:21 – 00:51:37]
Be aware, another thing to be aware of and to start investigating. And to be honest with you, I have never. Again, I’ve never seen tax professionals addressing this. Have you?
Richard Taylor, Founder of Plan First Wealth:
[00:51:38 – 00:51:40]
No, no. This is the first time I’ve heard of it.
Virginia La Torre Jeker:
[00:51:40 – 00:52:03]
Seeking. So there you go. You’ve really got to get an advisor who is so well informed. And you know, Social Security is not like, it’s not income tax, it’s not gift or estate tax. So I get it why it’s not on the radar. But as you say correctly, so it’s such an important part of someone’s financial life when they’ve retired.
Richard Taylor, Founder of Plan First Wealth:
[00:52:03 – 00:52:17]
I mean, husband and wife together. And let’s just say a husband’s record, wife gets 50%, you’re talking 60 grand plus, like inflation, lean government backed. That’s a substantial chunk of someone’s kind of base income in retirement.
Virginia La Torre Jeker:
[00:52:17 – 00:52:18]
Yes.
Richard Taylor, Founder of Plan First Wealth:
[00:52:18 – 00:52:21]
Losing that is very, very problematic.
Virginia La Torre Jeker:
[00:52:22 – 00:52:26]
Correct. I mean, or trying to maintain it. Right. Every six months, having to go back.
Richard Taylor, Founder of Plan First Wealth:
[00:52:26 – 00:52:30]
Yes. Right. Anything else, Virginia, before we wrap up?
Virginia La Torre Jeker:
[00:52:30 – 00:53:18]
Oh, I’ll just say I had another email from someone who said, you know, I served in the military, the US Military, and you know, they’re giving me their list of wars and commendations and medals and so forth, and they are now retired and collecting military pay. And these people often have, let’s say, another citizenship. And that has never been a problem in the military, interestingly, never been an issue of loyalty. And if Moreno’s bill comes to fruition and these people are deemed to have given up their US Citizenship, that’s incompatible with getting that military retirement pay. They will lose it.
Richard Taylor, Founder of Plan First Wealth:
[00:53:18 – 00:53:18]
Really?
Virginia La Torre Jeker:
[00:53:19 – 00:54:20]
Yes. I did an article on that because I was, when I got the email, I said, oh my goodness, let me look into this. Because this is another unintended consequence, I would imagine, of Moreno’s proposal. And the thing that bothers me, Richard, you know, you’ve known me a while, you’ve read my blog for many years now. I do the research, I do the work, and you know, my blog is free. No one’s paying me to write that blog. And I make sure whatever goes out with my name on it is well researched and, you know, I would hope well written. And I’m thinking here is someone putting out a possible law. Have they thought of these things? I don’t think so. And that to me is, you know, unless I’m missing the boat. And they did think about these things, but never mention them. That to me is pretty shameful.
Richard Taylor, Founder of Plan First Wealth:
[00:54:21 – 00:54:34]
I love that this has irked you, but don’t we, don’t we live in this time of. We live in this attention economy. You know, detail the game now is not accuracy, fairness.
Virginia La Torre Jeker:
[00:54:34 – 00:54:36]
I know integrity.
Richard Taylor, Founder of Plan First Wealth:
[00:54:36 – 00:54:42]
It’s attention. It’s attention, attention, attention. Let’s tell people, because I normally lead with this, but let’s tell people where they can find that blog.
Virginia La Torre Jeker:
[00:54:43 – 00:55:22]
Okay, so the US Tax blog is readily available. It’s got a lot of different categories. One of them is expatriation. You’ll want to be reading that if you want to learn about Social Security issues that, for example, will be impacted. We have a whole thing on Social Security, a whole category. So you can find the blog@www.ustax.org. so a hyphen is just a little dash. It’s not an underscore. It’s not a slash. It’s just a little dash. So us tax.org or you can google my name. You’ll certainly run into it.
Richard Taylor, Founder of Plan First Wealth:
[00:55:23 – 00:55:32]
Yeah, there’s not many. There’s not many. Although now you can preface it with friend of the pod. So on that note, Friend of the Pod, Friend of the Pod.
Virginia La Torre Jeker:
[00:55:32 – 00:55:41]
Virginia, congratulations to you on this expansion. I think it’s wonderful and I look forward to participating in others.
Richard Taylor, Founder of Plan First Wealth:
[00:55:42 – 00:55:47]
Oh, absolutely. You know, you have an open invite, the og so thank you very much again.
Virginia La Torre Jeker:
[00:55:48 – 00:55:49]
All right, have a great day.
Richard Taylor, Founder of Plan First Wealth:
[00:55:55 – 00:56:52]
All right, folks, that’s another episode of Expat wealth under Our Belts. Thank you for listening. I appreciate it and I appreciate you. If you’re enjoying the show and would like to support the mission, which is to help ambitious expats thrive in America and ask you to subscribe to the POD wherever you listen and also consider leaving a rating and review. This stuff really does matter. Please help us get this information to the people who need it, that is to your fellow expats. Just a quick reminder that this show is brought to you by Plan First Wealth. We are a US Based financial planner and wealth manager and we help successful American and international families living across the US to make the most of their opportunity and ultimately to retire happier. If you’d like to know more about how we might be able to help you, you can find us on our website, planfirstwealth.com or you can look me up on LinkedIn. Do get in touch. We’d love to hear from you. As always, thank you to the podcast guys for their help producing this episode and the entire show. See you next.
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