Giving up your US citizenship is one way to rid yourself of a US tax headache. To be allowed to renounce your citizenship, you have to be caught up on five years of US tax returns. Even then, if your total net worth is over USD $ 2 million, you may be subject to the exit tax when you finally relinquish your citizenship. This exit tax is levied on the difference between what you paid for your assets and their current value.
The advantage of renouncing your citizenship is obvious – no more US tax problems. The downsides are less obvious, but very real. You can no longer vote in US elections, rely on US consular services abroad, or live and work freely in the US. You might also be subject to future problems at the border. The 1996 Reed amendment gives the US Attorney General the power to deny entry to former US citizens who have renounced their citizenship for tax reasons. This law has rarely been applied but it remains on the books. Some US lawmakers have tried, without success, to pass harsher versions of it. It’s hard to say what the future holds.