Mattos once had a client who decided to give up his U.S. citizenship to move to Bermuda. The man, an investment manager, believed that his business would do better in Bermuda and that it wouldn't be so difficult to see his wife and kids, who would remain in the U.S. This client left the U.S. before the terrorist attacks on 9/11. When he wanted to come back and regain his citizenship after that, the rules had changed. Mattos is not certain whether he was able to return.
Another client left the U.S. with his wife more than 20 years ago when the government did not have the tracing technology it does today. This man and his wife keep their U.S. passports, but Mattos suspects they simply fell off the tax rolls. (That would not happen to someone today because the IRS keeps clean records of everyone who pays taxes one year so it would notice if that taxpayer didn't show up the next year.) So this man is lucky. Or is he? "He has a passport," Mattos says. "But every time he comes into the country he wonders if he will be caught." Another client, who is a foreign national, has a green card and is willing to pay U.S. tax to keep it because it's so valuable to him.
Although the IRS can be tough, the number one goal of the agency is to bring people into compliance, Mattos says. "It's easiest on the taxpayer if they have a good reason." he says. For example, one client from a British company set up a company in the U.S. and lost money on the venture. Because he lost money, he didn't file a tax return and it didn't occur to him that it was necessary. "That's a relatively easy fix," Mattos says. With proper counsel and assistance, this British citizen should be able to approach the government to reach a reasonable solution. As for the man and his wife who have U.S. passports but have not paid taxes for 20 years, this is a bigger problem. Sure, the IRS wants to solve it. But it will cost.
Mary Rowland can be reached at [email protected]. She has been a business and personal finance journalist for 30 years and has written two books for financial advisors: Best Practices and In Search of the Perfect Model.