Asset Protection BLOG - Mark Nestmann

Dominica Airport Certified for Night Landings

By P. T. Freeman

The Commonwealth of Dominica isn't easy to reach from most parts of North America.  Unless you book a red-eye flight into the Caribbean, or live near the east coast, you must overnight in Barbados, Antigua, St. Maarten or San Juan.  Melville Hall, the main airport, and also tiny Canefield airport, close at evening civil twilight.

That's about to change, thanks to a recently completed upgrade to Melville Hall. Renovations included lengthening the runway, and installing landing lights, an instrument approach, along with other navigational facilities.  The immigration/customs hall and departure lounge were also refurbished.  

International air regulatory agencies have certified the renovations, and the carrier responsible for most flights into Melville Hill, LIAT, recently completed a successful landing at night.  LIAT and other Caribbean carriers can now offer arrivals and departures to and from Dominica after nightfall.  This ends the need for an overnight stay to reach Dominica from many parts of North America.  

It's hard to overstate the importance of this development to the development of Dominica's eco-tourism industry, a major source of foreign exchange. Keep an eye on the coming few months for the schedule changes on LIAT: http://www.liatairline.com/.

U.S. and Canadian visitors to Dominica enter visa free on their respective passports.  Visitors with Dominica passports—such as those who have acquired "economic citizenship" there—should present their Dominican passports upon entry.  

(The Commonwealth of Dominica is one of a handful of countries that offer citizenship and passport in exchange for an economic contribution.  It has the most affordable program, with total costs for a single applicant around US$100,000.  The government of Dominica lists The Nestmann Group, Ltd. as an officially recognized consultant for economic citizenship in Dominica.  For more information on how you can obtain economic citizenship in Dominica, contact info@nestmann.com.)

Traveling to Myanmar on a Dominican Passport

By P. T. Freeman

I'm in Yangon, Myanmar after a long airplane ride across the Pacific from Canada and an overnight layover in Thailand. 

Entering Myanmar on my Commonwealth of Dominica passport was uneventful, as it has been for most other countries I have entered using it.  Since Dominica is a small, peaceful country, it doesn't draw undue attention—or hostility—as the U.S. passport I once carried does.  I find I'm much more free and inconspicuous while traveling on a Dominica passport. 

I landed at the Yangon airport, went down the escalator at the new terminal and went to the desk marked "Visa on Arrival".  The uniformed officer behind the desk gave me a one-page application to complete.  I also needed to provide a passport-size photograph.  I've learned to carry several of these with me when I travel internationally.

A few minutes after I submitted the form with my passport and photo, the officer instructed me to pay $30.  When I did so, he returned the passport to me with a Myanmar visa stamp.  Once I gave him my Disembarkation Card, I was admitted to Myanmar.  Next, I went to Passport Control where my particulars were entered into a computer and another photo taken.  Finally, I reclaimed my luggage at Baggage Claim, cleared Customs, and finally exited the terminal.

Many countries have a visa on arrival system.  While you will have a short wait at the visa desk, the system is convenient and relatively hassle-free.  Since border authorities now have the ability to check computer databases within seconds, look for this system to expand. 

Since I obtained citizenship-for-life in Dominica 11 years ago, I have traveled around the world on my Dominican passport.  I've only been questioned about it once, at London's Gatwick Airport, where the immigration officer asked if I still carried my U.S. passport.  After telling him "no," I was admitted into the UK without further delay. Also, on a trip to Switzerland, when I arrived in Geneva, the immigration officer had never heard of Dominica before!  He consulted a manual, verified that Dominica is a sovereign nation, and admitted me immediately.

And Myanmar?  While Thailand calls itself the "Land of Smiles," I find it applies more in Myanmar than in Thailand.  Most people are poor and obedient, but that doesn't take from the friendliness that I encountered.  Very few tourists visit Myanmar, so the people are very solicitous to those who come.  

Until my next post, I wish you pleasant journeys on your Dominican passport!

(P.T. Freeman is a pseudonym for a friend and business associate.  A former U.S. citizen, P.T. now travels on a Dominican passport.  To learn how you can obtain a Dominican passport, contact info@nestmann.com.)

Six Top Expatriation Myths

If you're a U.S. citizen or permanent resident, the U.S. government has assigned itself the right to tax your income, no matter where you live.  I sometimes tell U.S. clients that even if they jumped in the Starship Enterprise and traveled to the Delta Quadrant (30,000 light years away from earth at its closest point), they would still be subject to U.S. tax!

In response to the ridiculous—but unfortunately very real—presumption that U.S. citizens must pay income tax wherever they live, an increasing number of U.S. citizens are giving up their U.S. nationality.  Yes, it's a big step, and it means you no longer have the legal rights and privileges of a U.S. citizen.  You can't vote, for instance, and you no longer have the automatic right to live in the United States.  But this process of expatriation is the only way U.S. citizens can permanently sever the obligation to pay tax on non-U.S. income.

However, there are also a number of myths—many of them propagated over the Internet—about expatriation.  I'll be discussing these myths—and debunking them—in one of my presentations at The Sovereign Society's upcoming Offshore Advantage Academy event in Cabo San Lucas, Nov. 3-6, 2010. 

Here's a preview:

Myth #1: "Only a tiny number of people expatriate each year." 

It's true: the "official" number of people who take this admittedly radical step is tiny—only a few hundred annually.  The Treasury Department is supposed to publish their names in the Federal Register each quarter.  But the real numbers are much higher. 

One especially busy U.S. consulate in Switzerland expatriates three people daily with appointments booked a year in advance.  That comes to close to 1,000 expatriations annually—just from a single consulate. 

Another reason the official numbers are so low may be that the law mandating Federal Register reporting by the Treasury Department applies only to "covered expatriates."  These are individuals who have a net worth over $2 million, or who meet other criteria making them potentially subject to an exit tax.  However, none of the covered expatriates my firm has helped expatriate has had their name published in the Federal Register. 

I think the government doesn't want you to know that the number of people expatriating is exploding.  And it's willing to "cook the books" to make sure the information doesn't get out.

Myth #2: "You have to pay an exit tax on your net worth when you expatriate"

I was at a dinner meeting a few months ago where I was introduced to an elderly gentleman who insisted that anyone who expatriated would automatically forfeit 15% of his or her net worth.

When I asked him for a legal citation to this "fact," he simply repeated his assertion.  He also mentioned that he was a major contributor to the organization sponsoring the event we were attending.  That no doubt earned him some brownie points at this organization, but it doesn't make his assertion correct.

The fact is that the exit tax now imposed on U.S. expatriates only applies if you're a covered expatriate.  And even if you are, the exit tax only applies to unrealized gains that exceed $627,000. 

There's no exit tax on your net worth simply because you've expatriated.  Of course, that may change in the years ahead if Congress decides to put the screws to expatriates in some future law.

Myth #3: "You can only spend 30 days/year in the USA."
 
Another misconception is that if you expatriate you can only spend 30 days each year in the United States without becoming subject to U.S. tax on your worldwide income. 

This myth actually has some basis in fact, because it was true under an old law that was abolished in 2008.  And it still applies if you expatriated between 2004 and 2008.  But no longer.  Now expatriates are treated the same as any other non-resident alien (NRA).  In general, a non-resident alien can spend an average of 120 days/year in the USA without becoming subject to tax on his or her worldwide income.  This period can be extended in some circumstances.

Myth #4: "If you expatriate you can't come back."

There's another rumor that once you expatriate you can never return to the United States.  That's hogwash, although again there's a small basis in fact to the rumor. 

In 1996, Congress enacted the so-called Reed amendment to the Immigration and Nationality Act.  The amendment gives the Attorney General the discretion to deny entry into the United States to a former U.S. citizen who renounced U.S. citizenship in order to avoid U.S. taxation.  

Other categories of "excluded persons" are those with communicable diseases or other health conditions; those convicted of crimes involving moral turpitude or illegal drugs or with multiple criminal convictions; prostitutes; spies; terrorists; and draft evaders.

After Congress enacted the Reed Amendment, commentators criticized it for violating US treaties and possibly the US Constitution as well.   And nearly 15 years after its original enactment, regulations under this provision have not been issued, and its power has never officially been invoked. 

"Tax motivation" is no longer a factor in determining the status of a covered expatriate.  For this reason, the Reed Amendment may no longer be relevant, particularly since it has been so long since its enactment, with no regulations in place to enforce it. 

Given this history, it may be safe to assume that one can safely give up U.S. citizenship with no fear of future exclusion, particularly if you choose an expatriation option other than formal renunciation. 

Myth #5: "Expatriates lose Social Security benefits"

Again…not true!  No restrictions exist on Social Security payments sent to non-citizens in most cases.  The only significant restrictions are if you live in a country upon which the U.S. government has imposed trade or financial restrictions; e.g., Cuba, North Korea, or Iran. 

However, if you're not a U.S. citizen, depending on where you live, there may be a withholding tax of as much as 30% on the first 85% of your monthly payment.  This percentage may be reduced or eliminated if there's a tax treaty between the United States and your residence country. 

Myth #6: "Expatriates are automatically targeted for reprisals by the IRS"

Thank goodness this myth is false.  There is no IRS vendetta against expatriates.  Quite the opposite!  The IRS has much easier pickings going after people still living in the United States, with substantial U.S. assets.  It can use its resources more efficiently than to harass former U.S. citizens not living in the United States and with minimal or no U.S. assets or activities. 

Indeed the act of expatriation stops the clock on all future IRS obligations.  You still have obligations to pay past taxes, but the statute of limitations for collections eventually runs out assuming you've filed all relevant returns for tax years prior to expatriation.

Is Expatriation for You?

Exploding expatriation myths is just one part of the presentation I'll be making on this topic in Cabo San Lucas.I'll also be discussing:

• The best options for second citizenship and passport for prospective expatriates
• How to size up an offshore jurisdiction as a prospective low-tax residential haven.
• Tax planning for prospective expatriates with family members remaining in the United States…

…And much more. 

You won't want to miss it.  For more information on this event, click here:

See you in Cabo!

Copyright © 2010 by Mark Nestmann

P.S. To learn more about expatriation, check out my BILLIONAIRE'S LOOPHOLE report in the bookstore on my Web site, http://www.nestmann.com.

Could Your Offshore Jurisdiction Go Bankrupt? [Part II]

In Part 1 of this column, I described some of the financial challenges affecting numerous offshore jurisdictions, particularly current or former colonies of the United Kingdom.

But it’s not only English-speaking offshore jurisdictions that face serious financial challenges.  And in many cases, these jurisdictions are considering—and implementing—new laws and regulations that adversely impact non-resident investors.  Here’s a rundown of what to expect in the months ahead:

Non-English Speaking Jurisdictions Face Problems, Too

It's not only U.K. territories that face significant revenue shortfalls.

Uruguay is a great example.  If you’re legally resident in Uruguay, you pay tax only on your Uruguay-source income.  This policy has made Uruguay a popular destination for well-heeled expats.

However, last May, the government introduced legislation that would tax residents of Uruguay on their worldwide income.  The law would also impose a wealth tax on all offshore assets.  Needless to say, taking up residence in Uruguay looks less attractive than it once did, although the government now says foreigners who come to retire in Uruguay won't be affected.

Other popular low-tax jurisdictions facing significant revenue shortfalls include the Cook Islands and Dubai.

Cuba—the Sleeping Caribbean Giant

In the midst of this economic uncertainty, don't forget about the largest island in the Caribbean—Cuba.

Right now, with their offshore sectors in tatters, tourism is the major revenue stream for Caribbean offshore centers.  And in this economic crisis, tourism has fallen sharply.  Those tourists that still show up don't spend as much.  

But what happens to the Caribbean tourism industry when the U.S. Congress ends longstanding economic sanctions against Cuba?  There's broad support for this measure among U.S. farm and business groups.  It's going to happen, perhaps very soon. And when it does, U.S. tourists will find a new and exotic vacation haven beckoning them only ninety miles from Key West.

The Caribbean Tourism Association predicts that if the U.S. government drops all travel restrictions against Cuba, more than one million U.S. tourists would visit the island annually.  That's one million tourists who may not have the time, energy, or money to visit more remote Caribbean jurisdictions.  The impact on these islands' economies will be severe.

How Will Offshore Jurisdictions React?

The most politically expedient stance for cash-strapped offshore jurisdictions is to loot the assets of foreign investors who don't vote.  In order of increasing severity, such measures could include:

• Imposing personal and corporate tax on worldwide income.
• Confiscation of local assets in companies and trusts deemed "dormant." Last week, the Cayman Islands enacted legislation mandating this outcome.
• Restrictions or taxes on outgoing funds transfers.
• Forced dilution of shareholder equity in local companies.

What can you do to protect your investments against the increasing likelihood of less favorable tax, regulatory, and asset protection provisions in financially challenged offshore jurisdictions? In the August issue of The Sovereign Individual I’ll outline six strategies to protect yourself from these outcomes.  Just click here to begin your risk-free membership.

The unprecedented challenges now facing the offshore world aren't going away.  Make sure you're prepared for the unexpected!

Copyright © 2010 by Mark Nestmann

Could Your Offshore Jurisdiction Go Bankrupt? [Part I]

Offshore centers now face a perfect financial storm.  In more prosperous times, revenues from the offshore sector, along with tourism, helped fuel these countries' economies.  Their governments emulated more developed nations by borrowing heavily to build up their infrastructure.  They also bought votes with social programs and bloated government payrolls. 

When the global economy tanked, tourist revenues fell, along with revenues from their offshore sectors.  But the social programs and bloated payrolls remained.

Blame Offshore Tax Havens! (Again)

The economic crisis also led to worldwide drop in tax revenues, with the biggest losers big industrialized countries like the United States.  Politicians in these countries found a convenient scapegoat to blame for falling tax revenues: dozens of mostly tiny offshore centers. 

Using the economic crisis, the world’s richest and most powerful governments had the perfect opportunity to achieve a long-term goal: forcing offshore jurisdictions to enforce their tax laws.  They acted through non-governmental organizations they control, such as the Organization for Economic Cooperation and Development (OECD).  The OECD has the authority to issue supposedly non-binding "best practices" guidelines.  And, the OECD now decrees that “best practices” meant becoming tax collectors on behalf of these rich and powerful governments. 

The one-two punch of the global financial crisis and the OECD vendetta has led to unprecedented economic challenges for offshore centers.  Some—Gibraltar, Hong Kong and Singapore, for instance—remain in relatively good shape financially.  Others, particularly in the Caribbean, are having a hard time paying their bills.  The British press, for instance, refers to the Cayman Islands as "bankrupt." 

Could offshore jurisdictions facing the worst challenges actually declare bankruptcy?  Not if they can reduce spending, or qualify for additional loans.  A condition of additional lending, however, may be to impose direct taxes, such as personal and corporate income taxes.

Here's a rundown of where the offshore financial crisis now stands.

U.K. Government Declares War on English-Speaking Offshore Centers

It was once official U.K. policy to encourage responsible growth in the offshore sectors of its current and former colonies.  But, starting in the late 1990s, the U.K. government began to dismantle the offshore sectors of its former empire. 

It was easiest in U.K. overseas territories, where the U.K. Parliament has the authority to enact binding legislation.  In those territories, the British Foreign Office simply threatened legislation that would force those governments to enforce foreign tax laws.  To avoid that politically unpopular outcome, the overseas territories enacted the demanded laws on their own.

The most recent crackdown began in 2008, when the U.K. government commissioned an independent review, led by former Treasury official Michael Foot of its overseas territories and "Crown dependencies" with offshore sectors. 

The Foot Report observed that the global financial crisis had led to significant financial hardships:

The impact has been pronounced in Anguilla, the Cayman Islands and the Turks and Caicos Islands resulting in depleted public sector cash reserves. Bermuda and the British Virgin Islands have also experienced a decline in government income, but the impact has been less severe. Revenues have held up better in the crown dependencies [Jersey, Guernsey, and the Isle of Man] and Gibraltar.

The report recommended that those jurisdictions facing depleted treasuries should consider spending cuts and imposing direct taxes.  Foot suggested that any bailout by the U.K. government be contingent on a viable recovery plan, which presumably could include direct taxes.

Nowhere did the report state the most obvious possible recommendation: that the OECD back off and let these islands play by the same set of rules the OECD gives its own members.

Indeed, many OECD jurisdictions are themselves offshore centers: notably, Luxembourg, Switzerland, the United Kingdom, and the United States (the world's largest tax haven for non-U.S. resident investors).

The reality is that London is using the global financial crisis to undermine the low-tax regimes in place by arguing that the territories need to "broaden their tax base."

Hardball Politics

Just to make sure the remnants of its colonial empire got the message, the U.K. government has imposed much tougher standards for loans and loan guarantees. 

In 2009, the Cayman government, facing an $82 million budget deficit, appealed to its colonial masters in London for permission to borrow $310 million from banks.  Despite the fact that commercial banks had already approved the loans, the British Foreign Office said "no."  

The Cayman government then commissioned a team to conduct an independent review of the islands' fiscal challenges.  The review’s key recommendations were to cut government spending and to privatize most government-run enterprises. 

Reaction was swift and furious against the plan.  The Cayman government refuses to make significant spending cuts.  This makes an eventually bailout likely, with unfavorable terms in respect to direct taxes.  The government has also recently enacted legislation that authorizes confiscation of local assets in “dormant” companies and trusts.

What other offshore jurisdictions face problems?  And how are offshore jurisdictions reacting to the perfect financial storm they now face?  Stay tuned for Part II in my next blog entry.

Copyright © 2010 by Mark Nestmann

The Tax Hazards of a U.S. Passport

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen.)

Recently, I was having a conversation with a friend of mine who is a journalist here in the Caribbean.  While she grew up in the islands, she was born in Florida. During my friend’s early childhood, her mother divorced and relocated to the Caribbean.  Subsequently, her mother remarried and the husband formally adopted my friend as his legal daughter.

In the course of our conversation, my friend mentioned that she had just re-discovered her long-lost U.S. passport in a drawer at her mother's home.  It had expired a few years ago.  In the intervening years, she had visited the United States several times, but using another passport.  This is a serious violation of U.S. law, because U.S. citizens must always use their U.S. passport to cross U.S. borders.  However, because her stepfather’s last name appears on my friend’s Caribbean passport, no "alarm bells" were ever triggered when she crossed a U.S. border.

But, this was just the beginning of my friend’s problems. I asked her is she was still filing U.S. tax returns.  “No,” she replied. “I left the United States when I was a child.  Why would I have to file tax returns there when I’ve never worked there or even lived there since childhood?”

I patiently explained that the United States requires its citizens to pay tax on their worldwide income, no matter where they live.  I also told her that she possibly faced a long prison sentence for not disclosing each year the existence of all bank accounts she held outside the United States with an aggregate value exceeding $10,000. And I mentioned that while she could make an appointment to give up her U.S. passport at a local U.S. consulate, she would continue to be subject to these taxes and criminal sanctions for all past years.  She could be arrested and taken into custody anytime she visits the United States!

Her response was a mixture of horror and disbelief.  After a few minutes, she replied "well, screw 'em!  They can keep their damn passport." 

I doubt that the Department of State will collect any passport renewal fees from this young lady!  But even if she formally gives up U.S. citizenship and “expatriates,” that still won’t eliminate her past tax or reporting obligations.  She needs legal representation in the United States to deal with these obligations, and it won’t come cheaply.

The moral of this story is that if you are a U.S. citizen, no matter where you live, you must file a U.S. tax return each year. You must also disclose details of every “bank, securities or ‘other’ financial account” to the U.S. Treasury each year, if their aggregate value exceeds $10,000 on Form TD F 90-22.1.  Incidentally, the information on the TD F form may be shared with virtually any government or police agency anywhere in the world!

Being a former U.S. citizen, I am no longer subject to these unreasonable and frankly dictatorial requirements.  Nor am I subject to U.S. jurisdiction, except to the extent of my U.S. investments, or when I visit the United States. 

That’s true freedom, and the essence of being a “sovereign individual.”

Why I Gave Up My U.S. Citizenship [Part III]

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen. This is his story of how he reached the breaking point of giving up U.S. citizenship.  In Parts I and II, P.T. described the events that led him to consider giving up U.S. citizenship and the mechanics of doing so.  Here, in this concluding segment, he discusses his experiences during and after expatriation.) 

As I entered the U.S. consulate to give up my U.S. citizenship, my mind was whirling.  Was I doing the right thing?  Would the momentous step of expatriating come back to haunt me in some way later in my life?  Despite these misgivings, I was determined to see this process through to the end.

However, I was surprised how smoothly the process went.  The U.S. consular officer I met with was completely non-judgmental.  He gave me some official government forms to complete and asked me if I understood the consequences of giving up U.S. citizenship.  The forms required me to state that I wasn't expatriating under compulsion, that I was of sound mind, and that that expatriation was, in fact, irrevocable. 

After I completed the forms, the official took my U.S. passport, as well as the forms. He also made a copy my new passport to demonstrate to the State Department that I would not be a "stateless person" upon giving up U.S. citizenship. While the United States (unlike most nations) doesn't prohibit its citizens from becoming "stateless," State Department policy is to discourage them from doing so. He also informed me that in a few weeks, I would receive an official document called a "Certificate of Loss of Nationality" or CLN.  The entire process took less than 30 minutes, most of which were waiting for copies to be made and other administrative processes.

About two months later, I received my CLN.  This was my official notification that I was no longer a U.S. citizen.  Attached was a letter explaining that I could appeal my loss of nationality, if I chose to do so, directly to the Attorney General. Occasionally, I'm asked to show a copy of the CLN to prove my ex-citizen status when doing business or banking internationally.  This is due to the many restrictions offshore institutions place on doing business with U.S. citizens.

Since I still have family and business interests in the United States, my next step was to take my Dominica passport and CLN back to the U.S. consulate and apply for a multiple-entry visa to visit the United States.  In a short meeting with a consular officer, I was asked whether I intended to permanently settle in the United States.  Of course, I had no intention of once again becoming subject to the jurisdiction of OFAC and the IRS!  Once I assured the officer I had no such intention, the visa was issued within a few hours.  This visa gives me the right to visit the United States for up to 90 days at a time, although not to reside there. 

While I completed these steps only a few years ago, I have already experienced enormous benefits both personally and in business. I can travel anywhere in the world with my new passport. And I now have extensive business interests in Cuba and other countries subject to U.S. sanctions.

I started this series of articles at the marker in Key West, looking over the Straits of Florida.  I will end there as well.  In a recent visit to Key West, I turned around and saw a group of tourists who had disembarked from a trolley tour and were snapping pictures of the marker. None of those tourists who are U.S. citizens or residents can visit Cuba. I can. Those who are U.S. citizens or residents also have to file an annual tax return with the IRS. I don't.

That's what you call true liberation—or if you prefer, being a "sovereign individual."

(Editor's Note: For more information on expatriation, please see my report THE BILLIONAIRE'S LOOPHOLE in the bookstore at http://www.nestmann.com.  And, stay tuned for future contributions from P.T. Freeman.)

Why I Gave Up My U.S. Citizenship [Part II]

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen. This is his story of how he reached the breaking point of giving up U.S. citizenship.  In Part I, P.T. described the events that led him to consider giving up U.S. citizenship.  In this segment, he describes the mechanics of doing so.) 

After making the decision to give up my U.S. citizenship, I began looking into ways of obtaining an alternative citizenship and passport. I conducted some research on the Internet, but then, as now, many of the companies offering passports were thinly disguised scams offering unofficial or even stolen documents.

However, there were, at that time, a few Caribbean countries that offered legitimate "economic citizenship" programs. With the aid of an attorney, I began to conduct research into which program would best suit me. I looked at cost, the availability of visa free travel, credibility, and the desirability of that country as a residence.

After considerable research, I chose the Commonwealth of Dominica and visited it. While Dominica lacks some of the amenities of the United States, I liked the country and decided to possibly settle there, or at least maintain a residence or business presence. I paid the necessary fees to obtain economic citizenship and met with some government officials. Several weeks later, after an extensive background check, I swore an oath of allegiance to this country, was granted citizenship and subsequently obtained my passport.

A major concern was whether persons who had obtained economic citizenship from this country would be subject to discrimination, either from its residents or at border crossings. I found that there were no real problems in either case. Indeed, my passport was identical to those issued native-born Dominica citizens. While I ultimately made the decision to settle elsewhere, I lived in Dominica for several months and still invest there.

After obtaining this second passport, at the advice of my attorney, I decided to take the biggest step of all: giving up my U.S. citizenship. Walking up to the U.S. embassy, my heart was pounding. I feared that I was going to be called a traitor. I had also been advised that individuals who gave up their U.S. citizenship for tax reasons could be permanently excluded from ever returning to the United States. (Note: This provision is part of the 1996 immigration bill, but has never been enforced due to questions about its constitutionality. See my report THE BILLIONAIRE'S LOOPHOLE for more information.)

(In Part III of this article, P.T. describes his encounter at the U.S. consulate and his experiences as a former U.S. citizen.)

Why I Gave Up My U.S. Citizenship [Part I]

By P. T. Freeman

(P.T. Freeman is a pseudonym for a friend and business associate who is a former U.S. citizen. This is his story of how he reached the breaking point of giving up U.S. citizenship.) 

Have you ever been to Key West, Florida?

A landmark in Key West is a marker at the corner of Whitehead and South Streets that says in big letters: "Southernmost Point Continental United States." Above it reads in smaller letters: "90 miles to Cuba." Visiting this concrete marker recently made me pause and reflect upon a major decision that I made a few years earlier: the choice to give up my U.S. citizenship.

This process started when I found that there were many restrictions on my ability to travel or do business outside the United States because of my U.S. citizenship. For instance, I had long desired to visit the Republic of Cuba, but because of my U.S. citizenship, I could not do so. Canadians, Mexicans, Europeans and every other nationality may travel and do business there, but with limited exceptions, U.S. citizens have not been excluded from Cuba for nearly 50 years.

As I thought about this prohibition and the many others established by statute or executive order, I became outraged. Finally, in 1994, I read a story that galvanized me to take action. The story was about a group called the "Freedom to Travel Campaign" that sought to end these travel restrictions.  This group had challenged Treasury Department regulations prohibiting such travel.  However, the Clinton Justice Department, perhaps fearing that juries would side with these "tourist lawbreakers," declined to prosecute the cases.

In reaction to the failure of the Justice Department to prosecute these tourists, the Treasury Department amended the regulations to make it possible to fine persons violating travel restrictions administratively, without going to court. The U.S. Treasury Department administers these and other sanctions programs through the Office of Foreign Assets Control—http://www.ustreas.gov/ofac. 

Despite the risks, I decided to secretly visited Cuba.  I flew to Nassau, the Bahamas, and embarked upon the daily direct flight to Havana on Cubana de Aviacion, Cuba's national air carrier. 

While in Cuba, I discovered a wealth of business opportunities. This was the height of the "Special Period in Peace" when, due to the collapse of the Soviet Union and the end of Soviet aid, the Cuban economy was in a tailspin. 

There was a serious need for outside investment on favorable terms. I decided that I wanted to participate in those investments. Returning a few days later to Nassau, I passed through U.S. Customs pre-flight inspection without revealing that I had visited Cuba. (The customs inspector did not ask me if I had done so, and the customs forms in those days did not ask, "countries visited on this trip prior to U.S. arrival," as they do now.)

Upon my return to the United States, I began to read the U.S. Treasury regulations regarding Cuba. I learned that they prohibited virtually all contact with Cuba by any person "subject to U.S. jurisdiction." This included: "all U.S. citizens and permanent residents wherever they are located, all people and organizations physically in the United States or its territories, and all branches and subsidiaries of U.S. organizations throughout the world, corporations, wherever they are located throughout the world."

Criminal penalties for violating the regulations range up to 10 years in prison, $1,000,000 in corporate fines, and $250,000 in individual fines.  Civil penalties up to $65,000 per violation may also be imposed.

The only way to legally travel to or do business with Cuba, or any other sanctioned country, was (and still is) to obtain a license issued by OFAC.  Only journalists and a few other classifications of individuals may obtain a license to travel to sanctioned countries.  For businesses, it is almost impossible to obtain a license.

The only other option was not to be a U.S. citizen. At that moment, I was not prepared to take that step. Instead, I decided to explore the possibility of living outside the United States. However, I quickly discovered that doing so did not exempt me from OFAC regulations. I also learned that there was no escape from the obligation of U.S. citizens to pay tax on their worldwide income, even if they physically resided outside the United States. I began to seriously wonder if my "little blue book" (my U.S. passport) was really worth keeping.

(In Part II of this article, P.T. describes the "nuts and bolts" of expatriation: obtaining a second passport, and the all-important psychological impact of giving up U.S. citizenship)

What's Reportable...and What's Not?

Does the date June 30, 2010 mean anything to you?  If you’re a “U.S. person” with investments, it should.  That’s the deadline for filing a rather obscure form with the U.S. Treasury with the cryptic name "Form TD F 90-22.1" (click here to download the form).

This "foreign bank account reporting" or FBAR form requires you to disclose the details of all "financial accounts" you hold outside the United States, if their aggregate value exceeds US$10,000.  Fail to file it, and you could face a negligence penalty of US$10,000.  If you "willfully" fail to file the FBAR, you face a fine up to US$250,000, imprisonment up to five years, or both. Penalties are doubled if you violate any other U.S. law.

Unfortunately, it's not always easy to figure out whether you need to file the FBAR form or not.  If you have financial interest in, or signature or other authority over foreign bank, securities or “other” financial accounts with an aggregate value exceeding US$10,000, you're supposed to file the form. (See IRS guidance here.)

Therefore, if you have a foreign bank account or securities account, it's clear you must file the form.  But even using the published guidance from the IRS, it's less clear whether you must disclose details of other offshore relationships. 

Obviously, if you can legally and unambiguously avoid reporting your offshore account or accounts, you should protect your financial privacy by not reporting them.  But in recent months, Congress, the Treasury Department and the IRS have moved to expand the definition of what constitutes a “reportable” foreign account.  That makes it more important than ever to have a clear-eyed indication of what’s reportable, and what’s not. 

It’s not easy to find this information. Fortunately, I’ve discovered a truly definitive publication that gives you the answers you need to determine if your offshore investments are reportable.  It’s written by my friend and associate CPA Vernon Jacobs and is entitled Guide to Reporting Foreign Financial Accounts.  Vern just updated the 2009 version of this report with a 30-page supplement detailing the most recent changes to the reporting regime. 

This extensive 180-page book includes the full text of the applicable laws, the FBAR instructions and selected information from over 100 web sites that include information about the reporting requirements.  And he’s selling it for the ridiculously low price of $49 for the e-version; $67 for the printed edition.

For more information, see http://www.offshorepress.com/fbar.htm.  You can order this book through the secure e-store at http://www.offshorepress.us/repoffinac.html.

Copyright © 2010 by Mark Nestmann