You Can Check Out, But You Can Never Leave (For Free).
The "Dubai Dream" is trending. Zero income tax. Zero capital gains. You made $5M on Crypto or AI stocks. You want to cash out tax-free. So you go to the US Embassy and renounce your citizenship.
Surprise. The IRS hands you a bill for $1.1 Million. This is the Expatriation Tax (Section 877A). The US is one of two countries (the other is Eritrea) that taxes based on Citizenship, not residency. If you try to break up with Uncle Sam, he takes one last massive cut.
1. The "Deemed Sale" Rule
How does the tax work? The IRS pretends you sold everything you own the day before you renounced.
- Your Crypto: "Sold."
- Your Startup Equity: "Sold."
- Your House: "Sold."
You didn't actually sell them. You have no cash. But you owe 23.8% Capital Gains tax on the "Paper Profit." The Exclusion: In 2025, the first ~$890,000 of gains is tax-free. Everything above that? Taxed immediately. If you have $5M in gains, you pay tax on $4.1M. That is a $1M cash bill just to leave the country.
2. The "Covered Expatriate" Trap
Who has to pay this? "Covered Expatriates." You are caught if you meet ANY of these 3 tests:
- Net Worth Test: Your global net worth is >$2 Million. (This includes your house, crypto, and 401k).
- Tax Liability Test: You paid >$201,000 (indexed) in average federal tax over the last 5 years.
- Compliance Test: You messed up any tax form in the last 5 years (missed an FBAR?).
If you have $2.1M in assets, you are trapped. The Fix: "Gifting" assets to your spouse or putting them in a specific Trust before you expatriate to drop your net worth below $2M. Once you cross the line, it's too late.
3. The "Forever" Shadow
If you mess this up, you are "Inadmissible" to the US. The "Reed Amendment" says that if you renounced for tax avoidance purposes, you can never enter the US again. Imagine missing your daughter's wedding because you tried to save 20% on your Bitcoin stack. Also, your US heirs (kids) will pay a 40% Inheritance Tax on anything you leave them. The IRS gets the money eventually.
The Real Numbers: Staying vs. Leaving
I calculated the cost for a founder with $10M in unrealized gains.
| Scenario | Tax Bill Today | Future Tax Bill |
|---|---|---|
| Stay in US | $0 (Until you sell) | 23.8% (When you sell) |
| Renounce (Exit Tax) | $2,168,000 (Immediate) | 0% (Dubai) |
| The Cost: | You must liquidate 25% of your portfolio now to pay the Exit Tax. |
The Verdict: Expatriation only makes sense if you plan to make $50M+ in the future. For $5M, the legal fees and Exit Tax aren't worth the hassle. Just move to Puerto Rico (Act 60) instead.
Leon Staffing connects global founders with tax strategists. If you are planning a move, check your "Exit Tax" liability first. Get a calculation here.