To Leave is to Die a Little. From the U.S., It’s Expensive.

About two years ago I quoted the French poet Edouard Haraucourt and his line “Partir, c´est mourir un peu” (to leave is to die a little) relative to the Episcopal (or any) church.

That quote is what struck me in Charles Rubin’s summary of the IRS’ rules on Americans who become expatriates:

  • The Code requires expatriates to recognize gain or loss as if they sold all their assets for fair market value on the day before expatriation. A $600,000 exemption against gain is provided (adjusted for inflation). The guidance confirms that the expatriate gets a full adjustment in basis for the gain or loss to be used in regard to future gain or loss computations for those owned assets, even for assets whose gain is reduced under the exemption. Losses will reduce basis (apparently even if losses are not deductible under the Code).
  • The guidance confirms that assets owned under the grantor trust rules will be subject to the deemed sale rules.
  • The $600,000 exclusion is allocated among all gain assets pro-rata to the built-in gain of such assets.
  • Only one lifetime $600,000 exclusion will apply (that is, if an expatriate becomes a U.S. taxpayer in the future and then a covered expatriate again).

And, I would think, this would apply to people who emigrate, too.

It’s dangerous to attempt to read logic into IRS regulations (although some people make a nice career out of it.) But what strikes me about this is that the IRS (acting under the direction, more or less, of Congress) seems to be equating leaving the U.S. with dying.  The exclusions and what not are the same kind of thing one runs into in estate planning (although the ride between now and 1 January 2011 is going to be a wild one in that regard.)

This state of affairs, IMHO, is a result of a perfect storm that hits Capitol Hill every now and then: a situation where the left and right agree on something, albeit for different reasons.

Conservatives, in principle at least, think that leaving the U.S. is unpatriotic and thus morally reprehensible.  I find this odd: people who put on their bumper stickers “Love It or Leave It” need to make it easy for the latter to take place so the rest of us can move forward patriotically.

Liberals fear capital flight.  Like their Latin American counterparts, they instinctively sense that their regulatory and fiscal maze will inspire people to take the money and run, and they can’t finance a welfare state if those with wealth do so.  So they make leaving difficult.  People equate such “banana republic” logic to Barack Obama’s administration, but you don’t make a banana republic in a day.  This has been building for a long time.

Back in the late 1980’s, my church helped to resettle a number of Ukrainian Pentecostal refugees.  As they left the old Soviet Union, the authorities would ransack their 40 kg of belongings (that was the limit) for gold, jewellery, and the like.  The Soviets too worried about capital flight.  The Pentecostals are a hard working and enterprising bunch, though, and as a group have done well on these shores.

I get the feeling that our government’s trend is turning this place into a prison.  Restricting exit is a large part of making that a reality.

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