Secret bitcoin billionaires will renounce their U.S. citizenship before cashing in?

Bitcoin is volatile, but traveling back in time to 2010 to buy Bitcoin instead of going to medical school is still a great career plan (helpful calculator).

The question for today is whether we can expect our least deserving rich folks to depart the U.S.

The typical rich bastard with unrealized capital gains can’t renounce U.S. citizenship, move to a tax-free jurisdiction, and then cash in, tax-free. The U.S. charges an “exit tax” for anyone trying to flee. Also the U.S. can disregard the renunciation and continue to try to collect taxes if it deems the citizenship renunciation to be insincere.

Consider the bitcoin billionaire (or at least $100 millionaire). His or her wealth is on a Post-It and nobody else knows about it. So the person who was clever enough to buy bitcoin in 2010 renounces in 2018, becomes a citizen of a country without income tax or one that doesn’t tax foreign holdings, and then starts cashing in without the U.S. government ever becoming aware.

Readers: What do you think? Will an American with secret-from-everyone Bitcoin gains stay and pay the tax? Or develop a sudden fondness for life abroad?

47 Comments

  1. toucan sam

    February 3, 2018 @ 2:14 pm

    1

    I think in the long run they are better off in medical school! Bitcoin will not last in my opinion and governments around the world will go to long lengths to collect taxes. What non shit hole/house countries would let them in?

  2. Pavel

    February 3, 2018 @ 2:33 pm

    2

    This is assuming they can find an exchange and more lemmings to buy their bitcoin. Governments world wide are moving against bitcoin exchanges, it is only a matter of time before there will be no way to cash out of bitcoin.

    The Bitcoin bastards (BBs) will have to become citizens of North Korea or possibly Russia to cash out of Bitcoin.

  3. Bitcoiner Bob

    February 3, 2018 @ 2:35 pm

    3

    This is kind of old news. Bitcoin celebrity and owner of bitcoin.com Roger Ver did this back in 2014 when bitcoin prices crossed $1k (Roger self reported owning over 300k BTC back in 2011).

    It was an open secret that doing so let him avoid US gains taxes, so open that he actually setup a site to sell people the service of helping them buy a passport elsewhere for exactly that purpose (https://web.archive.org/web/20140425234744/http://passportsforbitcoin.com:80/passportsforbitcoin.com it got taken down after he had trouble reentering the US).

    It seemed to work out really well for him so you can expect that many have followed in his footsteps.

  4. Cryptobrotherz

    February 3, 2018 @ 3:02 pm

    4

    Some people might leave, most will not. To the people saying Bitcoin will end soon…not very likely. There is $250 BILLION dollars invested in Bitcoin alone. Cryptocurrencies as a whole are nearing the 1 TRILLION dollar mark.

  5. George

    February 3, 2018 @ 4:21 pm

    5

    The feds are increasingly cracking down on money laundering, and financial gimmicks for tax evasion. The crypto-anarchists believe that they have the magic bullet to cripple government monetary power. I am betting the feds will win.

  6. ICEC

    February 3, 2018 @ 4:22 pm

    6

    @Pacel :it is only a matter of time before there will be no way to cash out of bitcoin

    Your missing something , When its time , you wont have to cash out of bitcoin

    At some point, when everybody accepts bitcoin, and you can buy just about anything with it. Why would you need to cash out exactly ?

  7. Remy

    February 3, 2018 @ 4:59 pm

    7

    This article has displayed a very juvenile understanding of cryptocurrency and what makes it so desired. Poorly written and misleading. The comments below also I dictate ignorance and frustration of having missed the boat. To those frustrated people it is not too late and will never be.

  8. Bill Blake

    February 3, 2018 @ 6:08 pm

    8

    I am sure most bitcoin holders will voluntarily pay their taxes because it’s the price we pay to live in a civilized society. The OP says there are other countries that don’t have taxes which can’t possibly be true because what about the roads?

  9. Scott

    February 3, 2018 @ 6:31 pm

    9

    What I don’t understand is the whole “bitcoin is only used for laundering/illegal activity”… It is a LOT easier to hide cash than it is to hide crypto… Thats the whole point of a ledger… Blockchain technology is going to be heavily utilized in order to figure out who ISN’T paying their taxes….

  10. Dorian Phallic

    February 3, 2018 @ 6:45 pm

    10

    Meh. They’re moving to Puerto Rico now.

  11. philg

    February 3, 2018 @ 7:54 pm

    11

    Bill: The original posting is about countries that have no INCOME tax or none on income earned outside of their territory. Note that the United Kingdom essentially qualifies under this definition (see https://www.gov.uk/tax-foreign-income/non-domiciled-residents ) if you live in London but are a citizen of some other country. A more comprehensive list is at https://flagtheory.com/tax-free-countries/

    How can a country have toll-free roads without an INCOME tax? CONSUMPTION taxes are common (we have them here too, of course, including sales tax, various fees and excise taxes, and property tax could be considered a tax on consuming space).

  12. Pavel

    February 3, 2018 @ 9:42 pm

    12

    ICEC: There was a time in history when somebody said “When its time , you wont have to cash out of tulips”

    Bitcoin is worse than storing cash under the mattress. In addition there are lots of other crypto currencies, what makes them better or worse than bitcoin? Cryto currencies have nothing of value and are not backed by governments, so they depend only on hysteria for value. Once the hysteria dies down, cryto currencies will go to zero value.

    If some country like China creates a government backed crypto currency this could be different, but in this case the government would control and keep track of the ledgers and keep speculation in the currency under control.

    https://www.statista.com/chart/12352/price-developments-during-the-tulip-mania-and-the-bitcoin-bonanza/

  13. philg

    February 3, 2018 @ 10:36 pm

    13

    Pavel: I am still long tulips!

  14. Granny North

    February 3, 2018 @ 11:43 pm

    14

    FATCA now requires disclosure to Treasury of assets like these. Penalty is half the value or $100,000, whichever is larger, plus criminal options. Treasury can levy even from most international bank accounts if they participate in the international wire system.

    This kind of fraud is not worth the trouble. These laws and the associated IRS filings have made being even an honest expat a nightmare. That’s why you’re seeing so many citizenship renunciations. Americans abroad are starting to think like immigrants to the US: if you live permanently in a place, you probably should just naturalize, get rid of the crazy IRS requirements, and get the local vote.

  15. Saroshi

    February 4, 2018 @ 12:43 am

    15

    Look at John McAfee, who moved to Belize.
    Soon enough he extorted by corrupt officials and had to flee.

    Bitcoinaires will have to choose between:

    Paying 15-20% capital gains to Uncle Sam

    Moving to a country that may or may not be worse

    Being their own bank and trying to live off Bitcoin (can be done, but inconvenient)

    Most will probably choose the first option… wanting to stay close to family/friends.

  16. Daniel Kuettel

    February 4, 2018 @ 2:54 am

    16

    If this is what people learn at Harvard these days, then community colleges provide a better education for much less money.

    Not everyone who departs the U.S. is a least deserving rich folk. Some are neither rich, nor least deserving and certainly not a bastard.

    Even if one wishes to depart the “greatest nation on Earth”, then it shouldn’t matter for U.S. residents if they are rich or not. They are then no longer in the U.S. jurisdiction and should thus no longer an U.S. issue, but rather an issue for their new jurisdiction with its own set of tax laws. They gave up their residence in the “greatest nation on Earth”, right? Taxation is an issue where one resides, not where one does not reside.

    The article argues that the US government should hunt for and persecute ethnic Americans no matter where they reside in the world, denying them constitutional protections by threatening them with excessive punishments and unreasonable searches and seizures, as FATCA does today. Yet, the article is silent about wealthy non-US citizens who move to the USA tax haven to pay less in taxes.

    Instead of persecuting ethnic Americans around the world with human rights violations for assuming that they are rich, wouldn’t it make more sense to take action to prevent rich people from fleeing to America to avoid taxation? Why be silent on that?

  17. Rick Adams

    February 4, 2018 @ 7:18 am

    17

    The underlying sentiment of this blog is that life is better elsewhere, compared to living in the U.S. I can verify that this is certainly the case on many levels, and I don’t own a single bitcoin.

  18. Ben

    February 4, 2018 @ 7:36 am

    18

    >The question for today is whether we can expect our least deserving rich folks to depart the U.S.

    The true mark of a nocoiner loser. Sad you missed the boat? It sounds more like you are the least deserving ‘computer scientist PhD recipient’

    If you really think bitcoin is a scam/ponzi scheme/useless tech and that the people whom have been in the space for years are just lucky idiots why don’t you stop thinking and writing about bitcoin. Your jealously and animosity towards something you clearly don’t understand (which is embarrassing in an of itself considering your title) is a clear and transparent reaction to the fact that your were to stupid to see the value of crypto, wrote it off, and now are crying to yourself for being a foolish failure.

    Stay poor ;-P

  19. Etaoin Shrdlu

    February 4, 2018 @ 7:41 am

    19

    “least deserving”, eh? Thanks, Phil, you always were a petty, jealous turd.

  20. Someone from europe

    February 4, 2018 @ 8:02 am

    20

    You dont need goverment and taxes with bitcoin.
    There is only so much you can buy. A car for 1m. A house by the beach for 5m or maybe 15m. Rent a yacht a month each year for 100k.
    Governments would be smart to make bitcoin to USD transfers cheap and easy because then a lot of crypto money goes back into the real economy.
    Some percentage might try to trick the system as your blog post described. But you have a certain percentage of such people everywhere. In crypto it would be way more popular to keep trusting crypto over USD and so never cashing out. But rather go in other, new crypto projects.

  21. Michael OKane

    February 4, 2018 @ 8:09 am

    21

    Renouncing U.S. citizenship–or U.S. permanent residency, by the way–isn’t the right way to avoid the potential tax liability. The smart move is to accept employment by a foreign nation. Doing so immediately denationalizes you. No renunciation and no exit-tax required. A smart European nation, or Singapore could put all billionaires on its payroll in exchange for an agreement to “invest” in the country. The problem is if you want to return to the U.S. You need to get a passport from a country with the visa waiver program. The problem with second passports for sale is that the countries that offer them are not visa waiver countries and their passports are not so useful. So is the UK and Switzerland.There’s a web site that compares the value of different passports–Canada is high on the list. Some passports are easy to get–West African nations and Israel come to mind–but their utility is marginal. For travel to everywhere except the United States, a Mexican passport is surprisingly good, and there’s a visa waiver to Canada. This year the U.S. will start canceling passports of people with over $50,000 in tax debt. That sounds like a lot, but if your original debt is half that, you can find yourself at the threshhold after the application of interest and penalties. It will be interesting to see how many U.S. passport holders head for the exits.

  22. nordsieck

    February 4, 2018 @ 9:13 am

    22

    @Bill Blake

    > The OP says there are other countries that don’t have taxes which can’t possibly be true because what about the roads?

    Singapore has no Capital Gains tax. There may be other countries worth emigrating to with a similar tax structure.

  23. Robert Johnson

    February 4, 2018 @ 9:23 am

    23

    Michael, I am a UK citizen by birth, became American and now living overseas for the last five years.

    Can you please explain what you mean by “The smart move is to accept employment by a foreign nation. Doing so immediately denationalizes you. No renunciation and no exit-tax required.”. I have never heard of this before.

  24. Michael OKane

    February 4, 2018 @ 10:00 am

    24

    It’s in Title 8; one of the denationalizing conditions. The others are a bit more dramatic such as serving in a belligerent foreign army. Google Scholar is your friend.

    Kind of regret becoming an American now with that atrocious citizenship-based foreign taxation? Don’t worry, the U.S. is in good company. Here is a list of the countries that tax their citizens foreign earnings:

    The United States of America
    The Union of Myanmar
    Eritrea.

  25. Michael OKane

    February 4, 2018 @ 10:01 am

    25

    The following are indication of voluntary relinquishment if made with the intention of relinquishing citizenship: (1) obtaining naturalization in or taking an oath of allegiance to a foreign state after age 18; (2) entering or serving in the armed forces of a foreign state engaged in hostilities against the U.S.; (3) accepting, serving in or performing duties of any office, post or employment of a foreign government; (4) making a formal renunciation of U.S. citizenship before a diplomatic or consular officer on a Department of State form; (5) making a formal written renunciation in the United States but only when the U.S is in a state of war.

    Read more: http://usa.inquirer.net/2146/renouncing-us-citizenship-101#ixzz569TrEAAp
    Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook

  26. Michael OKane

    February 4, 2018 @ 10:02 am

    26

    If you renewed your British passport after age 18 you have taken the oath of allegiance to Her Majesty.

  27. JC

    February 4, 2018 @ 10:39 am

    27

    Come to Puerto Rico.

    Puerto Rico offers an unparalleled tax incentive: no federal personal income taxes, no capital gains tax and favorable business taxes — all without having to renounce your American citizenship.

    https://www.nytimes.com/2018/02/02/technology/cryptocurrency-puerto-rico.html

  28. Michael OKane

    February 4, 2018 @ 11:00 am

    28

    Unfortunately, Puerto Rico replaces the federal income tax with a Commonwealth (Estado Libre Asociado) tax on income–that just happens to be at the same rates as the federal income tax. And if you establish Puerto Rican residency and then move to, I dunno, Iran–you’re back to paying U.S. tax on your foreign income.

    If spending thirty days in Puerto Rico would eliminate having to pay U.S. (or Estado Libre Asociado) taxes on income from third countries, every single expat would do it.

  29. Coffee Long

    February 4, 2018 @ 11:08 am

    29

    You’re approaching this like a child. How do you think companies like GE pay zero tax? Because every cent is bounced through loopholes around the globe.
    And tell me, if I invest in crypto, assume all the risk, and make a few dollars, why should I voluntarily cough up a tribute to the IRS? If I invest and lose big, will the IRS be there to say hey, we’re in this together lemme help you….hell no.
    If someone has money and resources to escape the American banking monster, I wish them well.

  30. Robert Johnson

    February 4, 2018 @ 11:13 am

    30

    Thanks Michael, I saw your link but it is not clear to me how a person who takes “accepting, serving in or performing duties of any office, post or employment of a foreign government; ” can escape the exit tax. In my case I was born in the UK but would not like to relinquish the American citizenship however I have considerable capital gains which would mean a very large exit tax.

  31. Robert Johnson

    February 4, 2018 @ 11:14 am

    31

    Thanks Michael, I cannot see any mention of how this would enable me to escape the exit tax. Can you provide some more advice regarding that tax?

  32. Jack

    February 4, 2018 @ 11:56 am

    32

    Michael does not know what he is talking about, Robert. So long as you are a US citizen you are taxed on world wide income. That’s all there is to it. It is also the fairest tax system regardless of whether Eritrea or whatever is the only other country to follow it. But that is a topic for another day.

  33. philg

    February 4, 2018 @ 12:00 pm

    33

    Michael: Folks who have always lived in Puerto Rico face a high total tax rate, as you’ve noted, due to the high “state” tax (so if Puerto Rico became an actual state and the state/local government continued to tax and spend as is does currently, it would become perhaps the highest tax rate jurisdiction in the world (around 70 percent)).

    But there are different rules for Americans who move to Puerto Rico. Look at Act 20 and Act 22. See https://www.forbes.com/sites/janetnovack/2015/01/27/puerto-rico-expands-tax-haven-deal-for-americans-to-its-own-emigrants/#664aa4ad2735 for an introduction.

    [Separately, I think it is funny that people accuse me of jealousy and ignorance in the original posting! How could an intelligent person NOT be at least a little jealous of folks who were smart enough to use idle PC cycles back in 2009 to mine what is today billions of dollars? The phrase “least deserving rich folks” was more about how bitcoin entrepreneurs are likely to be perceived by the average American citizen. I’m not the Boss of Everyone so it is not my job to rank rich folks in terms of merit! The U.S. provides a lot of pathways to success, including starting a business, investing in a volatile asset, having sex with a rich person and harvesting child support, breaking one’s marriage vows and harvesting alimony, having sex with a manager to get a promotion or a movie role, etc. I don’t think it is possible to compare merit across these different paths.

    Can’t I get at least some credit for admitting my stupidity (for not mining/buying Bitcoin in 2009/2010) and jealousy?]

  34. TomV

    February 4, 2018 @ 12:03 pm

    34

    FWIW: Belgium doesn’t tax capital gains.

    Income taxes are high, but it’s paradise for the non-working rich (if they can live with the weather.)

  35. Michael OKane

    February 4, 2018 @ 1:38 pm

    35

    @Robert Johnson: If you want to keep your American nationality, there is no point in tryng to denaturalize. There is a distinction between voluntarily relinquishing your citizenship and losing your citizenship by operation of law. On the other hand, there is *Afroyim v. Rusk,* which arguably creates two classes of American citizens: one, constitutional citizens, that is, those whose citizenship was acquired by virtue of birth in the United States, and statutory citizens, that is, those who acquired citizenship by virtue of a federal statute. Afroyim, a constitutional citizen, was held not to lose his citizenship even though he admittedly committed a denaturalizing act. You, on the other hand, are a statutory citizen, so presumably you could lose your citizenship by committing a denaturalizing act, even if you had not intent to denaturalize. But since you want to keep your American citizenship, why are you even concerned with avoiding tax liability by denaturalization? You can’t lose your citizenship while retaining your citizenship. The interesting question is whether a person who involuntarily loses his citizenship may additionally be charged an “exit tax.” Logically, the answer is no, but tax is not necessarily logical. If you have so much money that you’re contemplating moving to Puerto Rico to obtain a theoretical tax break, perhaps you should part with some of your cash and consult a tax lawyer. No need to consult an immigration lawyer, because you want to retain your citizenship. Not everyone does.

  36. Michael OKane

    February 4, 2018 @ 1:45 pm

    36

    @philg: Take a Puerto Rican laborer living in Ponce. He’s never paid federal income tax. He moves to the Dominican Republic. If PR taxed him, as a PR citizen, at say, 5% on his foreign income and applied this same treatment to all those who became Puerto Rican citizens (whether it’s 30 days or 183 days) then you would have a very attractive expat tax haven. But my understanding is that the Puerto Rican laborer working in the Dominican Republic must pay US, not Puerto Rican taxes, on his income gained while working in the Dominican Republic, even though that laborer had never paid federal taxes before.

  37. philg

    February 4, 2018 @ 2:33 pm

  38. Michael OKane

    February 4, 2018 @ 2:47 pm

    38

    Philg: Will Puerto Rican rates will apply in third countries to U.S. citizens who become Puerto Rican citizens? The answer seems to be no. I would find it hard to believe that passive U.S. income is exempted from US tax by virtue of Puerto Rican residence. If that were so, then incorporating a business in Puerto Rico (for non-U.S. citizens) would be a way around the 30% withholding tax. If you are a U.S. citizen working in a foreign country, Puerto Rican citizenship affords no benefits.

  39. philg

    February 4, 2018 @ 3:37 pm

    39

    Michael: “Will Puerto Rican rates will apply in third countries to U.S. citizens who become Puerto Rican citizens?”

    I didn’t mean to imply that. The Puerto Rico rates are for Americans who move to Puerto Rico and spend at least 183 days per year there. The Bloomberg article says “Moving to the island won’t kill all taxes: U.S. citizens still have to pay federal taxes on dividend or interest income from stateside companies. ” The big differences seem to be on capital gains and on money earned via a consulting-style business back in the mainland U.S. The end result is not actually all that different than some European jurisdictions. Tax consumption and distributed profits, but not capital gains or corporate income. The big difference is that a U.S. citizen can live under these rules without renouncing his or her citizenship.

  40. Daniel Kuettel

    February 4, 2018 @ 7:18 pm

    40

    Jack, USA has the most unfair tax system. It’s the most hypocritical and bias nation which double-taxes unrepresented colonists abroad, in violation of the interests of the Founding Fathers. Every other nation in the world abandoned that faulty practice because it does more harm than good.

  41. Robert Johnson

    February 5, 2018 @ 1:06 am

    41

    Michael OKane – I do not want to keep my American citizenship. Sorry if I maybe confused you with one of my answers. I was born in the UK, live in SE Asia and would like to give up my American Citizenship. However I am concerned about the high exit tax as I have considerable assets. I think you mentioned something about there were ways to avoid being subject to the tax and that’s what I was wanting to find out more about. Thanks in advance for your advice.

  42. Robert Johnson

    February 5, 2018 @ 1:09 am

    42

    Michael – My apologies my comment should read ” In my case I was born in the UK and WOULD LIKE to relinquish the American citizenship” It was late at night and I’ve no idea why I previously wrote that I wanted to keep the US citizenship. Sorry for wasting your time having to answer my incorrectly worded comment of 12 hours ago.

  43. Michael OKane

    February 5, 2018 @ 1:45 am

    43

    Philg: Larry Hillbloom (the “H” of DHL) had a similar play with the Commonwealth of the Northern Mariana Islands. After he died in a mysterious plane crash while island hopping, the U.S. government closed the loophole. The story is recounted in the book, “King Larry.”

  44. Michael OKane

    February 5, 2018 @ 1:56 am

    44

    @RobertJohnson: Let’s say you take an advisory position with the Government of Myanmar (you won’t get such a gov’t position in Thailand or Laos. Vietnam, it’s remotely possible. Singapore? No.) The next day you wake up–OMG, I’ve committed a denaturalizing act. I’m a Union employee, I’ve lost my US citizenship. This is a different scenario from someone who walks into the US Embassy in Naypyidaw and says, “I want to renounce my citizenship.” There are IRS Regs applying to the latter situation; but I do not know if Regs relating to the former have been issued with respect to the exit tax. A completely different issue is obtaining a second passport, but in your case the US passport is the second passport. You could probably file a declaratory action in the Tax Court claiming that you no longer needed to file as you have lost your nationality. In any event you need competent international tax counsel. As you can see from some of the drivel posted in this thread, this is a highly specialized area.

  45. Robert Johnson

    February 5, 2018 @ 3:29 am

    45

    I read that one way to relinguish US nationality is:

    – Apply for and become a national of another country, if you apply after age 18.12

    So if that’s the case then what about Americans who become UK citizens? For the case of Meghan Markle I read that “her family visa will be effective in 2.5-year increments and she won’t be granted permanent residency until she’s lived in the UK for five years. After that, she can finally apply for UK citizenship and potentially become a dual citizen of the US and the UK.”

    Would this not mean her US citizenship is automatically revoked?

  46. Pavel

    February 6, 2018 @ 1:56 pm

    46

    Goodbye bitcoin, thanks for coming out
    https://www.theguardian.com/technology/2018/feb/06/bitcoin-price-crackdown-bis-cryptocurrency

    China bans bitcoin
    http://www.businessinsider.com/china-eliminates-all-cryptocurrency-trading-2018-2

    No need for BBs (or the new rich to rags, RRs) to renounce their US citizenship, problem solved.

  47. Michael OKane

    February 6, 2018 @ 4:26 pm

    47

    @RobertJohnson Additional points: Since the 1967 Supreme Court decision in Afroyim v. Rusk, there is a distinction between constitutional citizenship and statutory citizenship. Before this decision, commission of a denaturalizing act meant an automatic loss of nationality. Afroyim went to Israel and voted in an election. According to the statute, this would have stripped him of his U.S. citizenship. The S.Ct. said no, reasoning that perhaps all Afroyim wanted to do was vote in the Israeli election and not give up his citizenship. Because he earned his citizenship through the Constitution, a mere statute could not take it away. If Ms. Markle renounces her American citizenship then it’s gone…however, I have seen cases where individuals renounced their U.S. citizenship in order to retain professional licenses and once their licenses were safe, reclaim their American nationality. When it comes to UK law I’m operating in the dark. Wallis Simpson retained her American nationality, I think. Couldn’t an Act of Parliament bestow British nationality on Ms. Markle? BTW, British subjects aren’t citizens of the UK, they are nationals of the UK and British subjects. Americans are nationals of the USA and citizens thereof, not subjects.

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