The ten year rule is no more

I recently got a message from a Facebook friend Mike Lapke in respect of the way the US taxes Golden Geese. This is what he said. “One other thing to consider is that the IRS (tax collectors in the US) still require expatriates to pay income tax for 10 years after they leave the country. Technically you could just not pay but you better never ever come back!”

I was sure this was incorrect, but to double check I spoke with my co-author David Lesperance, who is a tax lawyer who has been dealing with US expatriation for over 2 decades. He had the following observations:

The “10 year rule” has been gone since June 2008. It was replaced by a “mark to market” capital gains “deemed disposition” for those Golden Geese who exceed a certain average US income tax paid benchmark OR net worth. The test are contained in IRS form 88854, and those Golden Geese who trigger the test are called “Covered Expatriates”. This deemed disposition just brings forward an existing tax liability that was going to be paid when the asset was sold or when the person died. Often mistakenly called an “Exit Tax”, it is not a new tax, just the triggering of an existing tax (with normal capital gains exemptions and deductions). The 10 year rule applied to certain expatriates prior to June 2008 and even then only applied to the expatriates ongoing US source income and US situs property (which one obviously minimized or eliminated). In short, it had little to no impact on the expatriate when it was in existence. The rules are here (;

With regards to the dismissal of other jurisdictions, Mike makes a common but fundamental mistake of focusing on “tax rates”. Most people do not know the “ Personal Tax Equation” that determines exactly the size of check that a person writes to the US Treasury . Specifically “Taxable Income/Capital gains” times “Applicable Tax Rates” equals “Taxes Owed”. The countries listed all allow a new tax resident to greatly reduce or eliminate their taxable income. The result is that even if they have a higher rate than the US, the amount of tax actually paid is tiny.

This misunderstanding about tax rates is also used by US politicians and others to promote Tax the Rich policies. In August 2011, Warren Buffet pressed a hot button in the American electorate by writing a New York Times op ed ( where he made the statement that he pays a lower RATE of tax than everyone in his office. This little factoid soon quickly got repeated as “Warren Buffett pays less tax than his secretary”. Even President Obama in his 2012 State of the Union Address, said “but asking a billionaire to pay at least as much as his secretary in taxes … most Americans would call that common sense” (see from 1:16 in this video to draw support for his “Buffett Rule” tax hike proposal (

President Obama and other proponents of “Tax the Rich” policies who make similar statements seem to be trying to pull a fast one to stoke public outrage. In the real world, Warren Buffet probably makes most of his money in a year by selling shares which have grown in value or receiving dividends. He draws relatively little in the way of salary. Therefore he would mostly be paying at a lower capital gains rate. In contrast, his secretary, Debbie Bosanek draws most if not all of her annual compensation in source deducted salary. She would be paying income tax rates on this salary, along with payroll and medicare tax. Although there is a great deal of controversy about the accuracy of the numbers that Warren Buffett later threw around in interviews (, let’s take his numbers at face value and find out what happens when you plug them into the tax equation. Now ask yourself “If you are the US government, would you rather receive Warren Buffet’s check for $6,923,494 ( or Ms. Bosanek’s check for $21,480?

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