ISSN: 0015-6914 LANGUAGE: English RECORD TYPE: Fulltext; Abstract
WORD COUNT: 880 LINE COUNT: 00070
ABSTRACT: Taxpatriates, those US citizens who give up their US citizenship in order to escape US taxes face two new obstacles. Congress passed a law in 1995 which makes expatriates liable for ten years of income tax following their departure. They must also apply for visas to re-enter the US.
TEXT: AFTER DECADES of being a successful American industrialist, former Wheel-abrator-Frye Chairman Michael Dingman became a taxpatriate a few years ago. Like a growing number of wealthy people, Dingman renounced his U.S. citizenship. He became a citizen of the Bahamas and began spending most of his time on his yacht and in his new waterfront palace in Lyford Cay, Bahamas.
As a non-U.S. citizen, Dingman couldn't vote in U.S. elections or carry a licensed weapon. But he was able to escape the U.S.' increasingly punishing taxes on income and capital gains. And he had a legal right to visit his old country for up to 120 days every year, without facing tax penalties. Other wealthy taxpatriates include Ted Arison, the Carnival Cruise founder, and John T. Dorrance III, a Campbell Soup heir.
When FORBES showed that the trickle of taxpatriates threatened to become a small flood (Nov. 21, 1994), an outcry erupted in Washington. But rather than address the root of the problem-high taxation-the pols tried to impose special taxes on future taxpatriates' wealth.
In February 1995 the Democrats proposed creating an exit tax of 28% of appreciated gains on all assets as the price of leaving-in essence making the taxpatriate pay a capital gains tax on his holdings as if he had liquidated them on the way out of the country. But lobbyists for would-be tax refugees were able to block that proposed legislation by arguing that it violated their international human rights.
Next step: In August 1996 the Republicans pasted some anti-taxpatriate language into the Health Insurance Portability & Accountability Act. This law now subjects expatriates with a net worth of over $500,000 to taxation on their income earned in the U.S. for ten years from the time they renounce their citizenship, no matter where they live or whose flag they salute. But this is a law without teeth. Any clever entrepreneur can live by borrowing against assets rather than paying himself an income. Any good international tax lawyer can move ownership of U.S. assets into a foreign corporation or trust, thus making most taxpatriates' U.S.-sourced income vanish.
The latest effort to keep intrepid taxpatriates on the reservation was passed with no fanfare in early October. A little-noticed provision of the Illegal Immigration Reform & Immigrant Responsibility Act of 1996 says, in essence, that Americans can still renounce their citizenship and flee to tax havens like the Bahamas, Ireland and Switzerland. But if they do, they can't necessarily come back to the U.S., not even to visit the grandkids or attend their college reunions.
Under the new law, the taxpatriate-any expatriate for that matter-must apply for a visa for every visit. The law states that the U.S. Attorney General may prohibit the issuance of a visa to a former U.S. citizen if there are solid grounds to believe that citizenship was renounced in order to avoid taxes.
In short, taxpatriates will now be treated as exiles without any visiting rights, just like the illegal immigrants the U.S. wants to cut off.
Michael Dingman and other taxpatriates who renounced their U.S. citizenship before February 1995 won't be affected by either of the two new anti-taxpatriate laws. They have been grandfathered. But several would-be taxpatriates have been caught between the dock and the departing ship. Joseph Bogdanovich, 84, is the chairman of Star-Kist Foods and is vice chairman of H.J. Heinz Co. Bogdanovich became a citizen of another country-Heinz won't say which-in December 1994. But he did not receive his certificate of loss of U.S. nationality until Feb. 14 of 1995. That was eight days after the deadline mandated by the Clinton Administration's proposed 28% exit tax, meaning Bogdanovich would have been subject to the exit tax had it gone through.
Bogdanovich hired lobbyists who helped defeat the exit-tax proposal, but he is still subject to August's law subjecting taxpatriates to U.S. taxes on U.S.-sourced income. It is not clear whether Bogdanovich was able to spirit his assets out of the country, but his 3.8 million shares of H.J.Heinz, worth $137 million, are now held in trust. Heinz will say only that Bogdanovich works out of Heinz's U.K. headquarters in London, acquiring fish supplies for Star-Kist.
As to Bogdanovich's status under last month's Illegal Immigration Reform & Immigrant Responsibility Act: He was grandfathered.
The matter isn't settled. Daniel Patrick Moynihan (D-N.Y.), the Senate Finance Committee's ranking Democrat, thinks that treating taxpatriates like illegal immigrants is a bad idea.
"You have to be careful to protect the rights of people you despise," says Moynihan. "Our legislation which called for a capital gains tax on appreciated assets as the price of expatriation was a fairer way to deal with the problem. What passed was a bad bill."
In short, if the Democrats ever regain control of the tax-writing committees, there will probably be another effort to discourage taxpatriation-not by lowering existing taxes, but by imposing new taxes.
COPYRIGHT 1996 Forbes Inc.
SPECIAL FEATURES: illustration; photograph
DESCRIPTORS: Taxation--Laws, regulations, etc.; Expatriation--Laws, regulations, etc.; Visas--Laws, regulations, etc.
PRODUCT/INDUSTRY NAMES: 9101100 (Tax Law)
FILE SEGMENT: MI File 47