The Internal Revenue Service recently decided to be clever. Their theory was to check an expatriates’ tax status when the expat went into a U.S. embassy to renew his or her U.S. passport. However, unbeknownst to the IRS, the expats are no longer renewing their U.S. passports. What the expatriates are now doing is getting second passports from another nation before their U.S. passport expires.
Thus far the IRS has decided to target expatriates in the UK, Canada, Mexico, Germany, Italy, Hong Kong, Australia, Israel and Switzerland. According to census data and estimates of unfiled tax returns and unpaid tax, more tax is being avoided by Americans living in those countries than elsewhere.
US citizens have to provide their social security number when renewing their passports, making cross-checks with tax returns relatively easy. With a second passport from a tax haven country, renewal of the U.S. passport becomes unnecessary. There is no record of Americans abroad because there is no way to track them unless they apply for a passport renewal. There is no law against having dual citizenship and there is no law against traveling on another passport. One can remain living as an expatriate in most countries indefinitely by using their second passport as their travel document.
One expatriate we talked to is living in the Dominican Republic and running a cigar company along with a tobacco plantation.
[Originally published in 2009]
This strategy gets over the potentially huge expense of canceling US citizenship.