US Taxation on Expatriation: Could Meghan Markle and Archie Harrison Be Barred from the USA?

US tax policy is unique and often misunderstood, particularly as it pertains to former US citizens and their eligibility to visit the country. Unlike most other nations, which tax their residents on their worldwide income or on income earned within their borders, the United States taxes its citizens and residents on their worldwide income, regardless of where they reside. This has led to a unique situation where former US citizens can be barred from re-entering the country as visitors if it is determined that they renounced their citizenship primarily to avoid US taxes.

Risk Analysis and Renunciation of US Citizenship

The potential risks and rewards of renouncing US citizenship are significant. Former US citizens, known as covered expatriates, face a 100% risk based on their wealth and their 5-year prior US tax liability. The second risk is the possibility of being barred from entering the United States in the future. It is often mistakenly believed that there is a US law preventing their future visits, but in reality, this is not the case. Expatriates are moving from a legal position of the right to enter the United States as citizens to seeking the indulgence of border officials and possibly visa officers to exercise discretion in granting them visitor status or a visa.

Visa Requirements and Expatiation Process

The distinction between needing a visa and not needing one is based on the passport they are seeking to enter the US with, not whether they have expatriated. Personal experiences can provide valuable insights. Even having lived less than 10 miles from a US border crossing for most of one's life, the author has never faced serious questioning for entering the country as a visitor. Over the past 25 years, the author has assisted nearly 200 Americans in expatriation and has never had a client refused a visitor visa or status. The case of Roger BitCoin Jesus Ver. serves as a notable exception, where a high-profile refusal of a US visa was investigated and found to be filled with holes, indicating that such refusals are not as common as one might think.

Risks and Rewards of Expatriation

The risks associated with renouncing US citizenship include the possibility of triggering a deemed disposition, which brings forward an event that would have occurred due to the sale or death of assets. Moving from a right to enter the United States as a citizen to seeking permission to enter the country as a visitor is another significant risk. Despite these risks, the rewards are substantial, including the severance of all future US income, capital gains, gift, and estate taxes, and the avoidance of the costs and complications of US tax compliance in one's personal business and financial life.

Historical Example: Eduardo Saverin

A well-known example is Eduardo Saverin, who triggered an early capital gains event by expatriating and avoiding 41 years of US tax liability, assuming he lived to the average age of a US male. This historical example underscores the significant financial benefits of expatriation for individuals who are facing substantial tax obligations in the US.

Additional Resources and Insights

For those seeking more detailed information, here are a few more answers to common questions regarding US tax law and expatriation:

David S. Lesperance's answer to Will Meghan Markle renounce her US citizenship? David S. Lesperance's answer to If the Duchess of Sussex Meghan Markle receives income in the UK, how much might she have to pay in taxes to the American IRS?

Understanding the risks and rewards of expatriation is crucial for both citizens and residents. As Meghan Markle and Archie Harrison move forward, it is important to consider the potential implications of their decisions on their future tax obligations and travel plans.