Why They’re Getting Out

Earlier this month, the Federal Register published its quarterly list of former US citizens and permanent residents who have “expatriated,” i.e., given up their US citizenship or permanent residence. The published data comes from the IRS, which has tracked expatriation trends since 1998.

The number of people bidding adieu to the red, white, and blue for the fourth quarter of 2015 came to 1,058. For all of 2015, the total came to 4,279. This was an all-time record, beating the former record set in 2014 (3,415 expatriates) by 25%.

Here’s a chart of expatriation trends since 1998, after a law took effect in 1996 requiring the IRS to publish this data quarterly in the Federal Register.

What could lead someone to take the admittedly radical step of severing official ties to Uncle Sam? The mainstream media report the culprit is tax. Tax is a factor, but hardly the only one. But it’s certainly a place to start.

To recap, last week’s Notes described a strategy to store certain gold coins in your IRA in your own home. Based on my review of the Tax Code, along with the analysis of a tax attorney, I believed this strategy would result in a “prohibited transaction” in an IRA. To put it bluntly, that would be a catastrophe for an IRA.

The reality is more nuanced, it turns out. Not long after the issue went out, I heard from a pensions attorney who informed me that while the IRS despises this strategy, it isn’t necessarily a prohibited transaction. That means if you’re careful about it, you can likely store certain gold coins in your IRA at home or in a safe deposit box – in effect, acting as your own custodian. And if the IRS challenges this arrangement – and it could – you might prevail. But I still consider it a high-risk strategy and don’t recommend it.

I’m writing this because I think it’s important to own up to one’s mistakes. I made one by pressing the send button too fast last week, and extend my apologies to you, my valued readers.

Reprinted with permission from Nestmann.com.

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