U.S. to Become Tax Debtors' Prison

If you’re planning to leave the U.S. for any reason, you may soon need to make sure your taxes are all paid up.

The U.S. government is looking to plug up leaks on its tax slave ship. From CBS…

LOS ANGELES (CBS) — A bill authored by a Southland lawmaker that could potentially allow the federal government to prevent any Americans who owe back taxes from traveling outside the U.S. is one step closer to becoming law.

Senate Bill 1813 was introduced back in November by Senator Barbara Boxer (D-Los Angeles) to “reauthorize Federal-aid highway and highway safety construction programs, and for other purposes”.

After clearing the Senate on a 74 – 22 vote on March 14, SB 1813 is now headed for a vote in the House of Representatives, where it’s expected to encounter stiffer opposition among the GOP majority.

In addition to authorizing appropriations for federal transportation and infrastructure programs, the “Moving Ahead for Progress in the 21st Century Act” or “MAP-21″ includes a provision that would allow for the “revocation or denial” of a passport for anyone with “certain unpaid taxes” or “tax delinquencies”.

Section 40304 of the legislation states that any individual who owes more than $50,000 to the Internal Revenue Service may be subject to “action with respect to denial, revocation, or limitation of a passport”.

The bill does allow for exceptions in the event of emergency or humanitarian situations or limited return travel to the U.S., or in cases when any tax debt is currently being repaid in a “timely manner” or when collection efforts have been suspended.

However, there does not appear to be any specific language requiring a taxpayer to be charged with tax evasion or any other crime in order to have their passport revoked or limited — only that a notice of lien or levy has been filed by the IRS.


We love the name! Before we delve into how insidious this measure is, we have to congratulate lawmakers on the moniker:

“Moving Ahead for Progress…in the 21st century!” It sounds like a cross between an empty corporate memo header, cheesy political campaign pablum and a Saturday morning science fiction cartoon. Well done, Congress!

Of course the tax net isn’t the entire point of the bill. From the Official Blog of the American Society of Civil Engineers:

The reforms included in MAP-21 allow for the nation’s surface transportation program to move forward. Consolidating the 90 programs into 30, creating a National Freight Network Program, expediting project delivery, creating reasonable performance measures, and enhancing the TIFIA program are all steps that will allow for a stronger, more results-oriented transportation program.

The legislation also reduces the core highway programs from seven to five, which include three new core programs and two existing programs. The new programs include a National Highway Performance Program, a Transportation Mobility Program, and a National Freight Network Program; while the remaining programs are the Congestion Mitigation and Air Quality Improvement Program and the Highway Safety Improvement Program. Other positive reforms include a new title, called “America Fast Forward”, which strengthens the TIFIA program by increasing funding to $1 billion per year; while Title 1 takes steps to improve the existing highway bridge inspection program and authorizes a national tunnel inspection program. The bill also establishes an outcome-driven approach that tracks performance and will hold states and metropolitan planning organizations accountable for improving the conditions and performance of their transportation needs, which ASCE has supported in the past.


Hmmm…D.C. needs money to fix America’s failing infrastructure. And so lawmakers are turning the screws on its delinquent tax cows.

It is just us…or isn’t this a lot like debtors’ prison?

It’s as if all the country is one big jail. Those who owe the taxman won’t be allowed to leave. Right now, the coming legislation — and we see no reason this one won’t become law — only targets those who owe fairly large amounts. Over $50,000.

So to start, they’re restricting travel on the easy targets, the people that most honest and dutiful citizens can agree are not doing their “fair share.”

Before you know it, however, those travel restrictions will start to expand. It’s almost written in the stars. This is the sort of behavior a declining, bankrupt empire has to engage in as it fights the dying of its light.

This current legislation would also reduce the risk of tax dodgers dodging their burden forever by skipping town. And country. But don’t be too surprised if new reasons for being trapped in the U.S. start to become law.

Expect currency controls to ramp up, too. It won’t just be tax delinquents who won’t be allowed to leave U.S. borders. Funds may find themselves as forbidden to see other lands as tax debtors. Any money you haven’t already squirrelled away in a foreign account may also find itself tied inescapably to the Homeland.

Best find an escape route while you still have the chance. One of our favorite routes is spelled out in a report we send every new subscriber to Apogee Advisory. It’s called “How to Move Your Money Safely out of Harm’s Way”. This report describes “offshore gold storage programs” that are completely legal. And they’re truly accessible. No matter how much or how little wealth you have to stash away, this is definitely something you want to explore.

When we read the news about restrictions on tax debtors our own palms began to sweat.

We’d just done our taxes and found that we will owe our stern Uncle more than we can pay on the date due. Our own fault for spending the money we’d earned as an independent contractor as if it were our own. We will behave better next time.

Uncle Sam and his leg-breaking IRS men know we’re good for it and will surely give us some time to pay. We had no worry about that.

But when we saw the headline about travel restrictions for those with tax debt, we blanched. Then we read further and realized it was only for those who owed over $50,000. Then we remembered…we don’t even have a U.S. passport!

We’ve been in the U.S. almost as long as we’ve drawn breath. But we weren’t born here. So our citizenship and our passport are both from our tiny country of origin.

Often we’ve been questioned about our lack of U.S. citizenship after spending over 95% of our life within U.S. borders. And just as often we’re urged to rectify the situation.

But we can’t help but feel that we’ve been right about putting off attainment of our U.S. citizenship. We always figured that when the time came, the U.S. would just revoke the U.S. citizenship of anyone it didn’t like. Just when we thought we’d be waiting forever, along came Charles Dent (R-PA) and Joe “Where’s My New Death Star?” Lieberman (I-CT)…

…and their Enemy Expatriation Act. We stopped looking quite so paranoid.

Mind you, this bill isn’t anywhere near being a law yet. And it only targets those who take up arms against U.S. citizens in the service of other armies…but like all government actions, this act is the proverbial camel nose under the tent. It’s the seemingly necessary but restricted draconian measure that will be expanded and wielded in creative ways down the road.

Better, we always thought, to hold onto some other citizenship and some other passport. We suspected it would become all the rage among the smart money one day.

And so it has! From the New York Times Economix blog:

The number of (wealthier) Americans who are renouncing their citizenship has been climbing in recent quarters.

Take a look at the chart below, courtesy of Andrew Mitchel, an international tax attorney who has been manually tallying the lists of expatriates (defined for this purpose as people renouncing their American citizenship or terminating their long-term United States residency) published in the Federal Register. The chart is taken from his blog:

The figures appear to refer primarily to those Americans wealthy enough to warrant notifying the Internal Revenue Service of their change of status, rather than all expatriates. A total of 499 Americans fell into this expatriate category during the first quarter of this year. The number during the first quarter in each of the previous seven years averaged 115.

Now I’m sure a few readers are going to blame “ObamaCare” for this burst of expatriation. Mr. Mitchel, however, suggests that two technical tax-related changes inspired more people to give up their citizenship.

He writes in an e-mail:

First, in 2008 the expatriation rules were changed. There is no longer the 10 year U.S. tax return filing requirement. Although there is now a mark-to-market regime triggering gains upon expatriation, up to $636,000 of gain can generally be excluded for individuals expatriating in 2011 (the amount is annually adjusted for inflation). Further, non-U.S. citizen, nonresidents can now annually visit the U.S. for 120 or more days without becoming taxed as U.S. residents (under the pre-2008 rules, visits to the U.S. for more than 30 days during any of the 10 years following expatriation caused the individual to be treated as a U.S. resident for that year).

With the $636,000 exclusion from the mark-to-market gain, many individuals can expatriate without paying any U.S. tax. It is important to note, however, that some individuals, especially those with assets in foreign pension plans, may unexpectedly pay more tax than they realize. The circumstances of each individual considering expatriation must be closely analyzed to determine the amount of U.S. tax that will be due upon expatriation.

The second reason for the increase in expatriations, I believe, is the recent publicity regarding the penalties and voluntary disclosures for failing to report offshore bank and other financial accounts. The U.S. tax rules for U.S. citizens living overseas can be quite complex. The increase in awareness of the penalties has caused many individuals with dual citizenship to conclude that their U.S. citizenship is not worth the stress and hassle of the U.S. tax filing rules. The U.S. is almost the only country in the world that requires its citizens that live permanently in another country to continue to file tax returns in the country of citizenship. Combine the U.S. tax return filing complexities with the potentially bankrupting penalties for failing to report certain items, and many individuals conclude that their lives would improve by shedding their U.S. citizenship.


According to Mr. Mitchel, a lot of folks are effectively throwing their hands up in the air because of the complexity — and “potentially bankrupting penalties” — of U.S. tax law and saying “Screw it…I’m outta here!”

Expatriation and renunciation of citizenship are both sorely tempting, good patron. What liberty-loving person wouldn’t want to toss their slave papers at their federal masters and tell them to go pound sand…And to keep their grubby claws off their money?

But it is not for everyone. Notice that your non-U.S. citizen editor hasn’t permanently cut ties with the U.S. so he can continue to live here indefinitely.

This is despite the fact that he already has citizenship elsewhere. And a career (of sorts) that can generate income anywhere on the globe that there is a reliable Internet connection.

Even if you are like us and want to stay in your U.S. home as long as it’s not suicidal, you should have some insurance…and maybe even a “bug out” plan or two…

We’ve got foreign citizenship and a non-U.S. passport. We’ve also got a couple safehouses in the Caribbean and Latin America where we hope to be able to hide from drone attacks.

Getting a second passport would not be a bad idea for you at all. And we know it’s a stretch — and a bit of a hassle — but you may want to start looking into other possible citizenships. We here the Bahamas and the Dominican Republic are good places to look. Or maybe you could claim a place like Ireland based on your recent Irish citizen forebears.

Consider these things what they really are. Not extreme or paranoid actions. But smart, forward-looking geopolitical insurance during volatile times. It’s like stashing a parachute in your carry-on luggage if you know the plane you’ll be flying hasn’t been serviced in a decade or two.

An equally smart but far easier step is getting your money safely out of harm’s way. Both you and your money will likely be facing increasing restrictions on your movement. Best to get things moving right now.

You don’t have to up and leave the country quite yet (Though who could blame you for wanting to?). You don’t even have to get a second passport yet. But learning more about getting your money out of harm’s way is something you could do right now. Before you even get up from your computer screen. Just click here now to get started.


Gary Gibson

The Daily Reckoning