Second, this may be an example of a trend where recent immigrants to the U.S. are not really interested in staying in the country long-term. A more common example is students at universities returning to Asia, or even “maternity tourism” where mothers from foreign countries “drop” their baby(s) on U.S. soil to give the child U.S. citizenship for some future “insurance policy” or “legacy”. Fundamentally, Americans have to ask themselves if they really want to share U.S. citizenship with people that don't seem to have a strong commitment to being here or who will become "traitors". The legal definition of a U.S. citizen must change for immigration, cultural and other valid reasons.
- To expatriate legally, a U.S. citizen must file Internal Revenue Service (IRS) Form 8854 Initial and Annual Expatriate Statement in which they certify that they are in compliance with U.S. Federal tax laws. It also requires notice to the Department of State and to the Department of Homeland Security as to the expatriate’s long term residency, or dual residency, in another country. It also requires the expatriate to make a declaration as to which country’s tax treaty or foreign tax credits they are invoking or claiming. A disclosure must also be made with regard to foreign assets and foreign income reporting.
- The soon to be expatriate must also pay an exit tax of 15% of the appreciated value of all their property subject to a statutory exclusion of $600,000 adjusted for inflation.
- A taxpayer must obtain or already have a second citizenship before surrendering their U.S. Passport at a U.S. Embassy and filing IRS Form 8854, otherwise the expatriate will be a “stateless” person.
- For additional information please see: IRS Notice 2009-85 – Guidelines for Expatriates Under Section 877a.
If you have a U.S. Passport and are a U.S. Citizen living abroad as an expatriate YOU ARE NOT EXEMPT from the requirement to file a return with the IRS. I have spoken to several American citizens living in the Jakarta Metro area for many years as an expat who live here with an Indonesian spouse under either a Temporary Social Visit Visa ("KITAS") or a Permanent Resident ("KITAP") and who work and have income in Indonesia from employment or a business enterprise and they [erroneously] believe that their foreign income is exempt from U.S. IRS income tax reporting.
Don't be surprised if one day when you return to the U.S. a sharp and astute U.S. Customs & Border Protection (CBP) agent questions you about how long you have lived outside of the U.S. and asks you some income related questions. They do, after all, have access to the "all seeing eye" computer database repository IBIS and TECS which links in with the IRS and other law enforcement agencies.
To be exempt you would have to denounce your U.S. citizenship and give up your U.S. Passport and be an Indonesian citizen or national. You cannot have "dual citizenship" by keeping your U.S. Passport and maintaining U.S. citizenship, then claiming to be "Indonesian". If you are an adult you do not have "dual citizenship".
- Publication 54 - Tax Guide for U.S. Citizens and Resident Aliens Abroad
- Publication 514 - Foreign Tax Credit for Individuals,
- Publication 901 - U.S. Tax Treaties (discuss in detail the treatment of your foreign income, the foreign tax credit, and the general tax treaty benefits available to you.)