The government spends billions of dollars each year on goods and services, and by tapping into this vast marketplace, small businesses can secure lucrative deals, gain steady income and heightened visibility. In this episode of The Agent of Wealth Podcast, host Marc Bautis and guest Richard C. Howard dive deep into the world of government contracts.
As a career military acquisitions officer, Howard oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. He’s the CEO of DoD Contract – which guides, trains, and mentors small business owners and sales executives through the government sales process – and the host of DoD Contract Academy Podcast.
In this episode, you will learn:
- The benefits of selling to the US government as a small business.
- How small businesses can find opportunities to sell their products or services to the government.
- How small businesses can stand out in the government procurement process.
- How small businesses and startups can utilize the Small Business Innovation Research Program.
- And more!
Resources:
www.dodcontract.com | DoD Contract Academy (Podcast) | Usaspending.gov | Sam.gov | Small Business Innovative Research Program | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call

Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth. This is your host, Marc Bautis. I’m joined by a guest for today’s episode, Richard C. Howard. Richard is a leading authority on US federal government contracts. As a career military acquisitions officer, he oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. Richard is the CEO of DoD Contract, which guides, trains, and mentors small business owners and sales executives through the government sales process.
Richard is the host of the DoD Contract Academy Podcast, and speaks extensively on the nuance of federal contracting strategy. Richard, welcome to the show.
Thanks for having me on, Marc.
I don’t think people even realize that government contracts are out there. Can you start off by explaining this market size, and some of the benefits of selling to the government as a small business?
The Benefits of Selling to The US Government as a Small Business
The US government is the single biggest purchaser of goods and services in the world. When people think about government spending, most immediately think of big defense contractors. But in reality, the government buys just about anything you could think of – from defense and weapon-related spending, to tai chi instruction, to commodities, to food. Think about it like this: Every military base is basically a small town, or city in some cases. All of the infrastructure that goes into that town or city is paid for by the government. And they have a mandate to buy from small businesses.
So whether you’re in – cybersecurity, accounting, legal, you’re selling food, you have a franchise, you have a training business – the government is most likely buying in your area. It is very rare that I find an area where the government isn’t spending money, so the spending is vast.
The government has to buy from small businesses, yet less than half of 1% of US small businesses are actually participating in the government contracting process, despite the high spending levels.
Alright, so there’s a lot of opportunity here. How does a small business find the contracts?
How Small Businesses Can Find Opportunities to Sell to The Government
Because we’re talking about the government, there is a lot of regulation that exists to ensure there’s fairness and that the public can see what the government’s doing. So everything the government spends money on – with the exception of a couple classified contracting avenues – is public knowledge.
So, as a small business owner, you should ask, “Does the government buy what I sell?” To find your answer, go to a website like usaspending.gov and begin searching public records to find out what the government spends on.
Whatever you sell, it probably falls under something called a North American Industry Classification Code, or NAICS code. When you go into usaspending.gov, type in what you sell under NAICS – for example, accounting. The website will suggest different codes that you would fall under. You can click on that, and sort it by small business spending.
You can quickly see how much the government spends on small business contracts in your industry and area of focus.
Are these contracts location specific? Does it help if a business is located near a military base, for example, or does it not matter?
It depends on what you’re selling. By the way, government contracts certainly extend past the Department of Defense and military bases. There’s lots of different federal agencies that spend money.
Okay so once a business owner discovers how much the government is spending in their niche, what’s the next step?
Once you know that the government buys what you sell – if it’s local, they buy it in your state, or if not, you can work anywhere – the next step is to register your company. You can do that at sam.gov. That’s where all registering and most of the solicitations take place.
So when you go to sam.gov, you’ll find instructions on the screen for registering. Of course, you need to have a legal business in the United States, and come ready to register with your EIN number.
All in all, the process takes a couple weeks sometimes, but at the end of it you’ll get what they call a CAGE code and UEI number – these are federal identification numbers for your business. Once you have those, you can start bidding on contracts.
By bidding, do you mean writing proposals?
Yes.
How Small Businesses Can Stand Out in the Government Procurement Process
What can a small business do to separate themselves from the others trying to do the same thing?
Good question. This is really where most companies fail in selling to the government…
Once your business is registered through sam.gov, you will begin to see what’s called a request for proposal, or RFP. At that point, a business can begin writing a proposal. But, the government is very regulated in how they buy products and services.
For instance, if I saw an RFP come out that the government is looking to buy a $3 million landscaping contract for base X, I can’t just pick up the phone and talk to someone to get my questions about the contract answered. Now, if it’s a big contract, the government will answer most questions publicly through sam.gov. In those cases, you might get some answers that can inform your proposal.
But otherwise, you won’t be able to set up a meeting with a government worker. You won’t be able to develop a relationship…
So, before the RFP comes out, there’s something called the market research phase. Let’s say you’re a software developer, and the government is putting a command and control platform together, and you have a great user interface for that. Well, it’s during the market research phase that you can engage with the government if you really want to have a shot at landing the contract later on. Meaning, before the RFP comes out, we want to know who is doing the purchase, and we want to know the details of the opportunity ahead of time.
If you want to differentiate yourself from the rest of the herd, you want to look for things like a request for information or sources sought. When those come out, they’re squarely in the market research phase. At that point, you can set up a meeting with the government.
I recommend small businesses to respond to requests for information. They’ll answer questions like:
- How long have you been in business?
- Do you have past performance?
- What do you think of the approach the government wants to take?
And, you’ll be able to suggest things. For instance, when you register your business, there are different certifications. Examples include:
- Small business certification
- Woman-owned small business certification
- Disabled Veteran-owned small business certification
If you happen to have one of those certifications, you do have a leg up, because the government needs to set aside a specific percentage of contracts to those certified businesses.
But, back to the market research phase, you can actually recommend that the government lists the contract for a specific certified group. So, you’re helping the government write the solicitation, and you can give yourself a leg-up if you suggest a certification you have.
Okay, so you’re trying to influence the decision a little bit. Have you ever seen a case where a small business had a product or service that the government isn’t spending on, but they propose it to them?
Yeah, there are a couple of ways to do that. I would say if you take away one tip on selling to the government, it’s to get meetings and build relationships with the people that actually buy what you sell. There’s a lot of ways to do that, but mainly through research.
If your business sells a product or service that the government is not actively looking for, but you want to sell to the government, the government needs two things: A requirement, and funding.
The Small Business Innovation Research Program
If it’s an innovative solution of some kind, for example a patent, you can go after something called the Small Business Innovative Research Program, or SBIR. Any government agency that spends a certain amount of money in research and development has got to contribute to this program. So, the SBIR program spends about $4 billion a year on innovative research and development contracts with small businesses.
This is a way to basically propose your product or service to the government, because they have funding in the SBIR program. If the review panel thinks that what you have is innovative, and that it would achieve a government need, you can win one of those contracts.
Phase one of SBIR is kind of low dollar. Let’s say, for example, you’re creating a VR training system. In that case, phase one might just be a feasibility study. You might propose that the government uses a VR or augmented reality training system to help maintain or fix aircrafts, for instance. Well, that might resonate with the board. That first phase one event is probably going to be somewhere around $100,000-$150,000, which is small for government contracts.
But, what you’re really doing is:
- You’re establishing past performance with the government, because now you have a contract.
- They’re now going to help you find people in the government that would potentially sponsor you.
Now you can’t totally rely on the government SBIR office, you also need to put yourself out there to find a sponsor. If you find somebody willing to sponsor, but they don’t necessarily have to have money, they just sign a memorandum of understanding for you to go to phase two.
Phase two is to develop a prototype, or set up a demonstration. There could be a lot of different things that you’re recommending, but that’s the phase two piece.
The Small Business Innovative Research Program is really great for getting your feet wet. Even if you have a developed product but you’re modifying it for government use, that would also qualify for the program.
Going back to finding these opportunities, my father actually had a government contract through a larger corporation. He created a pellet that went into 50 caliber ammunition. He wouldn’t get the government contract himself, but General Dynamics or Olin would go through him to create this component of their contracts with the government. Are there opportunities like that out there?
Yes. That’s a really good point. There is a variety of ways the government can buy things from a small or large business owner. For example:
- Contracts.
- Subcontracting.
- Sole source contracts.
As a business owner, you need to understand how the government is buying what you’re selling. That’s something that you can do pretty easily with the research tools the government offers.
Let’s say you own a company that is licensed to do HVAC. Over time, you’ve built a relationship with the government office that purchases contracts in construction. From that relationship, you learn that next year, Hanscom Air Force Base is going to be building an office building, and you have interest in installing the HVAC system. But, you aren’t able to take the full construction contract.
What I recommend you do is look through a website like usaspending.gov to see which construction companies have done that type of work with the government – illustrating past performance – and reach out to them about this upcoming opportunity. The fact that you’re bringing them this opportunity sweetened the pot for them to work with you, involving you in the project.
If you reach out to three companies like that, you’ll get at least one or two bites to form an agreement and go after a large contract together. That’s very helpful for a small business, because the big company can handle the proposal writing, and so on.
Artificial intelligence is all the rage right now. Do you see AI being used to uncover some of these opportunities, or to help small businesses in this process?
It’s interesting that you bring that up. Two of my recent episodes on the DoD Contract Academy Podcast were about AI in the government space.
One of them is called Govly, which uses artificial intelligence and machine learning to enable government contractors, OEMs, and distributors to accurately plan for government purchases years in advance
The other is called Rogue, which is an AI tool specifically designed to help businesses write proposals for government contracts. It kind of works like ChatGPT.
Business Financing and Government Contracts
What happens if a business needs financing to fulfill an order from the government?
First, it depends on the contract. If it’s a SBIR contract, where the business is developing something for the first time, then you can win the contract before you have to start development. But those are research and development contracts.
So let’s say you win a small services contract that involves employing 20 people. The small business will have to pay those individual employees before the government pays the small business. That’s because there’s about a 90 day turnaround time on invoicing to the government.
Now, there are certain financing houses set up specifically for government contractors. One thing to know is once you win that government contract, it’s one of the most secure contracts you’re going to have. So a lot of banks know they can count on the government paying the business.
That’s also one of the reasons companies go after government contracts – because it increases the value of your company.
Are Government Contracts Recession-Proof?
In addition to AI, the other thing that we’re constantly hearing about is this looming recession. At a high level, how is government spending compared to other industries?
Government spending is more stable. I always recommend that business owners – small or large – have one stream of income from commercial sales and another stream of income from government sector sales. The government is spending year over year, whether there’s a recession or not.
But I would say that the government experiences difficulties in different ways, and typically at different times.
Usually, if you have a three-year government contract, for example, you’ll receive that funding month over month. Now, there are times when the government shuts down, or when there is sequestration. The government can terminate a contract for convenience. But if they do, there are regulations to protect the companies that held the government contract.
That’s good. Well, we’re just about out of time. Richard, thank you for joining me today. You did a great job explaining how businesses can leverage government contracts as well as how to navigate the government procurement process. What’s the best way for our listeners to contact you or learn more about your advisory coaching services?
Your listeners can go to dodcontract.com to schedule a consultation. On the website, we also have courses available. And of course your listeners can check out my podcast, DoD Contract Academy, on whatever platform they like to listen on.
Great, we’ll link to those resources in the show notes. Thanks again, Richard. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.
Imagine the allure of blue coastlines, vibrant cultures, and the freedom of living life on your own terms – the thrill of a fresh start in a new country! But amid the excitement, it’s crucial to untangle the complex web of tax laws that accompany such a life change. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by David Lesperance and Melvin Warshaw. David is Managing Partner of Lesperance & Associates, one of the world’s leading international tax and immigration advisors. Melvin is a highly regarded, longtime US cross-border tax and private client attorney now in sole practice in the US. Together, David and Melvin have successfully advised scores of U.S. and non-U.S. individuals and families on a wide range of personal and business tax matters, especially in connection with cross-border income and estate tax planning and compliance in the U.S.
In this episode, you will learn:
- What’s driving Americans to leave the country to get a second citizenship, or give up US citizenship.
- What citizen options are available across the globe.
- How to properly plan for expatriating from the U.S.
- The tax pitfalls Americans moving abroad should try to avoid, and how.
- How to decide when to renounce your citizenship.
- And more!
Resources:
Melvinawarshaw.com | Contact Melvin: [email protected] | lesperanceassociates.com | Contact David: [email protected] | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call

Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth. This is your host, Marc Bautis. On today’s show, we’re going to talk to David Lesperance and Melvin Warshaw.
David Lesperance is the Managing Partner of Lesperance & Associates, one of the world’s leading international tax and immigration advisors.
Melvin Warshaw is a highly regarded, longtime US cross-border tax and private client attorney now in sole practice in the US.
They have 75+ years of combined experience, making them an unparalleled resource for anyone dealing with the complex legal issues surrounding expatriation and U.S. tax.
Together, David and Melvin have successfully advised scores of U.S. and non-U.S. high and ultra-high-net-worth individuals and their families on a wide range of personal and business tax matters, especially in connection with cross-border income and estate tax planning and compliance in the U.S.
They also have co-authored many articles on their field that have been published by leading media outlets.
David and Melvin, welcome to the show.
I’m looking forward to today’s topic, because the complexity in normal tax matters is multiplied when you go cross-border. How did you both get started in dealing with international tax?
Melvin:
I began my career working for the Internal Revenue Service. About 25 years into my practice, I began focusing on wealthy clients in the estate planning area. I was fortunate to be a partner at McDermott Will & Emery, which is an international law firm based in the United States. After I left there, I worked for JP Morgan Private Bank, also handling cross-border situations, to some extent. I decided to focus almost exclusively in this area because of my technical background – I also have a Master’s Degree in tax from Georgetown University Law Center. I decided that there were very few topnotch practitioners in this area and it was a great niche for me.
David:
I am the child of the auto industry. I was born in Windsor, Ontario. My father would wake up in Canada every day and go work in Detroit. It was quite common back then, so I grew up with this cross-border situation in my own household. I went on to work as both a customs and immigration officer at the Windsor Detroit Tunnel, which is the busiest car entry.
Then, in 1990, I got called to the bar and started focusing on high-net-worth clients, originally coming into Canada. Because this area is constantly changing, I started looking at all the different potential lineage citizenships. My siblings and I happened to marry a lot of Europeans, so again, I had a personal experience… I did my first US Expatriation in 1990 to the United States, and it was a pretty unique citizenship based taxation – the US is the most complicated jurisdiction both in leaving and inbound, in my experience. Now, I look at all the different jurisdictions.
Tax Considerations for Emigration and Expatriation
Marc:
So let’s talk today about leaving the country. This could be temporary, expatriation, or it could be permanent, emigration. Let’s say an individual is temporarily leaving and working in a different country. What do they need to do to maintain their tax compliance while overseas?
Melvin:
Let’s assume that the individual is a US citizen, and they have a green card while they’re working abroad. The first thing that comes into mind as you indicated the person’s working would be that the US permits a foreign earned income exclusion of roughly $120,000. Everything above that is potentially subject to US tax. However, if you live in a country such as in the EU that has its own tax and your services are performed in that European country, then you have to hope that the US tax treaty with that country would prevent double taxation on the amount of earned income above $120,000. There are similar rules in the tax treaties to try to prevent double taxation of passive income from sources outside the US, but it’s not always a perfect match. And there can be mistiming, as we could describe later. It’s complicated.
Marc:
What happens in the event that they move to somewhere in Europe, for example, but all their work is still done in the US?
David:
Well, there’s both an immigration and a tax issue here. Whether they’re a digital nomad, somebody who is returning to the country of their birth, or a citizenship that they acquired through lineage or naturalization… When they go, they have to consider the immigration and tax rules in the place they’re moving to.
- Are they complying with those rules?
- Are they running afoul of those rules?
Obviously, they need to be in compliance.
Because, in this scenario, they’re a US citizen, they will continue to be US persons for tax purposes and have US tax issues to deal with in compliance. But they have to either avoid or be aware of the immigration and tax issues in the jurisdiction that they’re living in.
Marc:
You mentioned something interesting about lineage. Let’s say the person in this scenario has to have tax compliance on the US side, because they are US citizens, but through lineage they are Portuguese, and they decide to buy real estate in Portugal. Are there tax requirements for a property, personal or investment, over there?
Melvin:
Since 2010 with FATCA, the US requires reporting of all foreign financial assets – not real estate, but financial assets.
I have a client, which David is aware of, who lives in Portugal but did not realize that she had to report her Portuguese limited company to the US, because she’s a US citizen. Similarly, if she has both personal and business bank accounts in Portugal, she has an obligation to file FBARs. The filing threshold is very low, at $10,000 of all foreign bank accounts in the year.
We discovered that her accountant had never filed her personal bank accounts on an FBAR. And FBAR violations are pretty serious – there are 50% civil willfulness penalties for not filing an FBAR. And so FBARs and additional foreign financial reporting, as in the case because she controlled a foreign company, she had to report the foreign company to the US Internal Revenue Service even though it never turned to profit.
Marc:
You mentioned FBAR filing. Are there tax implications dependent upon what is filed?
Melvin:
Oh yes. So let’s say that my client in Portugal made a profit. Since 2017, the United States will take the position that a portion of that profit from her active business is reported currently in the US even though she never repatriated the dividends to herself as a US individual. It’s phantom income or guilty tax, which is just another form of anti-deferral tax regimes that the US has put into the tax code.
David:
This is an area that’s so complex that Mel and I wrote a three part article highlighting the issues and offering some strategies. We actually started writing a column called “American Exceptionalism,” because Americans have an exceptionally complicated situation because of citizenship-based taxation and green card taxation liability.
The column we wrote was about this phenomenon of Americans going to Portugal, specifically, but it’s applicable whether they were going to go to Italy, Bali or Cayman… All these issues would still arise for them.
Marc:
So let’s say we have this scenario where the person is in Portugal for example, and let’s say maybe they’re spending more and more time in Portugal and they say, “You know what, I don’t want to deal with this cross barter dealings anymore.” Does it make sense at that point to renounce their US citizenship And if it does, what is involved in doing that?
Renouncing Your US Citizenship: Timing, Tax Implications
Melvin:
So from a US tax point of view, there are two considerations.
The bar for being subject to the US exit tax is very low. One of the thresholds is having a personal net worth of $2 million, which does not adjust for inflation. So, the exit tax has begun to capture the middle class, as well as wealthy people. The question is: What can be done about it?
The exit tax is basically a 23.8% mark to market long-term capital gain tax on your worldwide appreciated assets. Now, most people don’t realize that in 2008, US Congress introduced a US inheritance tax on recipients from a covered expatriate.
I’ll give you an example. If an individual has a $3 million net worth but it’s all in cash, they’ll be classified as a covered expatriate because they have more than $2 million of net worth. However, they’re not subject to the exit tax, because they’re only asset is cash. Cash is not an appreciated asset. However, if they go on and move to Hong Kong or Europe and create $100 million dollar business and they have US heirs, since they’re classified as a covered expatriate on the day they renounce or give up their green card, their heirs will be subject to a 40% inheritance tax when they receive the business. Even if the covered expatriate is dead in 40 years. It’s a very pernicious tax. Not a lot of US tax professionals fully understand it, but it’s something that David and I talk about with our clients every day. We view the inheritance tax as more problematic than the exit tax.
David:
We work together. I called myself a tax-savvy immigration advisor, and Mel is an immigration-savvy tax advisor. We work in a coordinated manner.
Again, we did a four part series on all the elements you need to consider when considering giving yourself the option of expatriation.
Available Citizen Options
The first element is, because of citizenship based taxation, you need to have another citizenship. You may have that from birth, from lineage, maybe you did Aliyah in Israel or maybe you have moved to another country and already became naturalized. Or, some countries have said in lieu of a naturalization period, they’ll take some type of investment or fee. Those are called citizenship by investment programs.
That’s one element, but you also need to design an escape plan, to either avoid or minimize the exit tax and inheritance tax that Mel just mentioned.
So we design what we call a “fire insurance” and a “fire escape plan” that we do in coordination.
Most advisors are quite used to dealing with what I call fire prevention. Those would be gifting programs, GRATs… All the normal, domestic planning that you would do. And we’ll continue with this analogy. If you think of the “tax the rich” wildfire that’s out there, we’re looking at all kinds of proposals:
- A billionaire tax,
- Taxing unrealized capital gains,
- Loss of step-up,
- tax on GRATs…
We recommend clients put together a fire insurance and fire escape plan, because the cost is fairly minimal.
We know that giving up US citizenship is not just a financial decision, it’s an emotional decision. Part of that is also making sure that the family members who are going to be impacted are going to not only tolerate, but actually enjoy the future tax and lifestyle situation.
Marc:
You mentioned a good point: It’s not just financials, emotions and lifestyle do come into play. Is tax the most common reason that people are leaving the US?
Melvin:
I would say that it’s not only the taxes they have to pay, but also the record keeping. Clients today, particularly those with businesses overseas, are forced to cord and submit voluminous ports to the IRS about their overseas income. Since 2017, the US has shifted from a worldwide tax system to what’s called the territorial tax system, which naturally favors the US. What happened in 2017 is that Congress with the help of some of the large corporations basically told all multinational corporations, “You must repatriate all of your earnings and profits that are sitting in Ireland or low tax jurisdictions to the IRS and pay a 15% tax.” So a company like Apple repatriated 250 billion back to the US. So multiply that and you’ll see all this money coming into the US from pre 2018 earnings and profits and then going forward there’s essentially phantom current income on a portion of your business income earned abroad.
There’s only one country that could really have a tax system that calls for that and that’s the US. It’s rather unusual. If I could just go back and add a comment about the optimal planning opportunity Marc, in a pre-expatriation situation, one of the things that David and I see unfortunately too late is individuals who come to us and say, “David, can you help me get a second passport in a couple months because I want to expatriate this year.” From a US tax planning perspective in setting up a pre-expatriation trust, it’s probably too late. The Internal Revenue service takes the position and I’m not going to tell you whether I agree or don’t agree, but this is their position and I respect it in my planning. And that is that any gifts that you make in the year, the calendar year in which you expatriate, you have a zero lifetime exemption.
So what I do in November and December is I typically have several clients that are setting up pre-expatriation trusts. They’ll put 10 or 12 million into a use up their lifetime exemption because that’s the last year in which they’ll have a lifetime exemption in the US because the US Internal Revenue Service takes a position that in the year you expatriate, you have a zero lifetime exemption because on the last day of the year, December 31st, you’re no longer a US citizen. And so what I do is we typically try to put into the expatriation trust highly appreciated assets because those are the assets that are going to be subject to exit tax. The purpose of the pre-expatriation trust is twofold. One, avoid exit tax on any assets that are in the trust and that might appreciate while in the trust. And number two, as long as the individual who sets up the pre-expatriation trust has not yet been classified as a covered expatriate than any distributions to US individuals as beneficiaries is not subject to inheritance tax.
Marc:
But at what point is the best or optimal time to engage someone like the two of you?
David:
Well, it depends on a couple of factors.
In order to have the option to leave the country, you need to have another citizenship. The fastest lineage citizenships we see still take eight to 10 months. The countries that offer citizenship by investment will market the idea that it can be done in three months, for example. That’s a salesman’s puffery. Mel and I have a case like this, which claimed to only take three months, but we’re looking at a year’s total processing time.
What’s Driving More Americans to Leave The Country
We may have a wildfire if the Democrats hit a trifecta in November of next year, that’s only 18 months away, so there’s not a lot of runway left.
Tax is traditionally the reason that people want to leave the country, but over the last couple years, we’ve seen a lot more non-tax issues as motivators. And, oftentimes clients are motivated by more than one thing.
The reasons are as diverse as a rise in antisemitism, a rise in racism for Asians and Black people, a recognition of gun violence, LGBTQ issues… There’s all kinds of reasons why clients come to us and say, “I’m a bit concerned. I may not be financially or emotionally at the stage of giving up my citizenship, but I may want to leave temporarily.” It’s all about giving clients optionality.
Marc:
So it sounds like getting a second citizenship is the starting point of the process. You said it could take up to a year. Do people start the process, even if they haven’t finalized their decision yet?
Melvin:
That’s actually how David and I met. David and I met about three, four years ago when we were both working on a very large expatriation, this particular individual California Silicon Valley entrepreneur in 2015, he got himself a Maltese passport through David and the individual knew that he wanted to work or live in Europe and wanted that type of optionality. He didn’t know when he was going to pull the plug. Finally in 2021, David got him an interview at a consulate in the far east and he did walk into the consulate and renounce his US citizenship. By then he was settled in Switzerland and he has what’s called a forfait in Switzerland because for this individual it was all about taxes. He lived in California. California has the highest state income tax of over 12%. And so he wanted out from under California and the US tax system.
David:
Again, Mel has more experience than I do, but I’ve been doing this for over 30 years. There are not a lot of tax lawyers that really know about immigration, and vice versa. Each of us are a bit of a unicorn.
And I deal with a lot of US tax lawyers who are excellent at fire prevention, but very few are used to the fire escape plan and we have clients coming and saying, “Okay, give me the comparison between Singapore, Dubai, Italy, Switzerland, the UK non dom system, Canada, et cetera.” And there just aren’t a lot of advisors who can talk to all those jurisdictions and design and actually implement plans and pull together. Oftentimes we’ll need to pull in local lawyers in given jurisdictions, but it’s very rare to find other unicorns.
Marc:
Once that process starts and you start looking at different countries or start pursuing a second citizenship, is there anything that gets triggered on the US side where now they come in and say, “Okay, now you’re a covered expatriate,” or “You’re now have to fall into this,” or is it done kind of separately?
Melvin:
Well, no, you can acquire a second passport without any implications for your US citizenship. You need to understand that if you’re going to live abroad, you’re going to have to go through the FBAR filings and the FATCA filings and maybe if you have a foreign corporation that filing, and I am sure David can address the issue of how difficult it is for Americans abroad to open up bank accounts because no foreign financial institutions want to be in the situation of having to disclose the account that they hold in a foreign country back to the US Internal Revenue Service. David, your thoughts?
David:
Yeah, it’s the compliance cost of a lot of financial institutions. When an American walks in a door versus name any other country that the bank is sitting there saying, “There’s a whole bunch more compliance that I have to deal with for this American that I’ve signed off to the treasury to do than I do for the Canadian or the Kiwi or the Brit or the whomever.”
And one of the things to get to your point, when you trigger either the exit, you’re doing that consciously, there’s no impact on you from a US tax point of view until you either decide, “I’m going to move out, remain an American, but have foreign bank accounts and start declaring a foreigner an income exemption,” or until you actually either give up your US citizenship or what’s called your long-term permanent residence or green card status, you’ve got the plan. You know that if you trigger it, this is what’s going to happen and you’ve calculated that versus the damage if you stay, but it’s only if and when you decide to actually trigger it by giving up your US citizenship or giving up your long-term green card status that the theoretical becomes the actual.
Melvin:
And Marc, what I would add is where the planning becomes even more intricate is not for US citizens but for green card holders. Because as David and I see, and David and I have written about in our published articles and blogs, an individual might retain their green card and live outside the US And so in that particular profile, the individual would be considered a US income tax resident because there’s an objective test for US income tax residency of either the substantial presence test or just holding a green card. However, for US gift a state and generation skip tax purposes, if the individual has no intent to move back to the US, it’s a subjective test for transfer tax. So if I’m living in England holding a green card, I could very well be a US income tax resident subject to worldwide income tax of the US and subject to the US-UK tax treaty. But for transfer tax purposes, I’m probably domiciled in England. That’s my new domicile.
David:
And there was a perfect example in two recent UK prime ministers. So Boris Johnson was born in the United States, US citizen, he was unaware of or nobody thought to advise him of his US tax liability and he happened to sell his home in the UK. Now in the UK they’d say that’s, “You sold your principal residence, you have an exemption for principal residence. You don’t have to pay any capital appreciation.” But remember he’s a US person for tax purposes. So the United States says “That’s all very nice, but for our purposes when we look at that, you’ve just disposed of an appreciated property. Where’s our capital gains tax? Thank you very much.” And when he was informed of this, when he was about to go on a book tour, at that point he wasn’t the prime minister, he was still the mayor of the City of London.
His original reaction was pound sand, “I’m not going to pay anything,” until his banker informed him that not only do you have tax liability, we were at this point unaware of this fact we’re closing your accounts, you can’t bank with us. So all of a sudden life became very difficult from not getting a mortgage, not having bank accounts, having a US tax liability and all kinds of different things. And it never got of course to this extreme, but failure to file even US tax returns and was that tax evasion, et cetera. So he ended up giving up US citizenship. Now we go to the current prime minister.
Rishi Sunak has a slightly different situation. He was born in the UK, went to school and then worked in the United States, got a green card, then he moved back to the UK, became a member of parliament for York, eventually the Chancellor of the Exchequer, that’s the finance minister.
And then elevated to number 10, Downing Street as the prime minister. He had a similar situation and people said, “Well, my green card expired, therefore my resident mailing status expired.” To which I always reply, “Do you think you lose your US citizenship when your passport expires?” Of course not, but different than the citizen is as Mel says, it’s not for every green card holder, it’s for what are called long-term green card holders. So then you get into the point that Mel just made what years count? While you may have had the immigration status, does that year count for tax purposes for this calculation? And we’re hoping for prime minister Sunak’s interests that he had what we think were probably proper tax advice, and he certainly made treaty elections and all of those things that he did not trigger that exit tax or that inheritance tax issue.
So it’s a very complicated situation and you need proper advice. And unfortunately what tends to happen is you get advisors who may be very brilliant in their area, but they’re not specialist unicorns. And so I’ve seen horrible tax advice. I’ve seen horrible immigration advice and likewise Mel and I had another client whose immigration lawyer said, “Oh, well you have to stay out of the US before you renounce so that the officer will allow you to renounce your US citizenship.”
And so this guy spent a year staying out of the US based on this advice from a US immigration lawyer, a top US immigration lawyer, but he’d never dealt with renunciation. And I said, “No.” Renouncing is exercising a right, so long as you have capacity and are not under duress, it doesn’t matter. They’re just taking the fact that you’re exercising your right.” And likewise on the tax side, I just recently listened to a webinar from a tax lawyer who went on and on some of the tax advice, Mel and I would question, but I can tell you his immigration advice was absolutely horrible and off mark. And the problem is if you don’t do this right, the consequences are enormous. So the fees for fire insurance or fire escape plans and our fees, that’s a rounding error compared to the cost of not doing it right.
Melvin:
Marc, one of the things that I often do get involved with is remediation because many times, particularly green card holders who have moved out of the US, they’re no longer in US tax compliance and in order to properly expatriate. So for them, that means going to David and asking him “When can I file the I-407 with the CIS to voluntarily abandon my green card legal permanent residency?” I have to come in and remediate because one of the things you need to do when you file a Form 8854 expatriation statement with the Internal Revenue Service is you have to certify under pains and penalty of perjury that you’re fully US tax compliant for the preceding five years. That means that you have filed all your FBARs, filed all your foreign filings, and you may have to perfect your treaty elections. Remember, treaty elections help a green card holder take the position as a result of a treaty that they’re non-resident in the US.
Well, for a green card holder, that’s a big deal because for a green card holder who’s not living in the US and has no US source income, it may be as simple as filing a 1040-NR and attaching an 8833, and then they would have no US income tax liability. The problem for green card holders is if you file that 8833 and you don’t understand the definition of a long-term green card holder, which is the so-called eight to 15 test, you may inadvertently trip yourself up and cause an act of expatriation and the exit tax.
Can an American-Born Person Claim Back Their Citizenship?
Marc:
Is there any concept of a do-over, or is the decision to renounce your US citizenship final?
David:
That’s a common question. If you give up your US citizenship but you retain a US parent, spouse or child who would sponsor you, you can go through the process again. You’d have to get a green card and become naturalized again.
Otherwise, you could argue that you didn’t have the capacity or were under duress at the time of the decision, but that’s a high hill to climb.
But, in 30 years, I’ve yet to have a client try to claim back their citizenship. I had one client who was thinking about it, but when I asked why and he explained the situation, we solved it with some tax planning.” He never brought it up again.
Marc:
Yeah, that makes sense. Well, we’re just about out of time. David and Melvin, I’d like to thank you for being on the show. You gave us some great insight into the complicated world of international tax. How best can someone reach out to you, or find out more about what you do?
Melvin:
Your listeners can email me at [email protected] or go to my website, melvinawarshaw.com. I’m happy to talk with anyone.
David:
My email is [email protected] and my website is lesperanceassociates.com. On both of our websites, you’ll find the articles that we’ve co-authored, which will go into greater depth. It was a pleasure, Marc. Thank you.
Marc:
Great, we’ll link to that in the show notes. Thanks again, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.