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Record number of Americans renounce citizenship last year

I know it's long, but bear with me.  Even last year at this time when the figures were announced people weren't outright stating that they were renouncing because of the Foreign Bank Reporting Act or the tax issue.  

 

Taxes Prompt More Americans to Renounce Citizenship

A year ago, in Action Comics, Superman declared plans to renounce his U.S. citizenship.

 

"'Truth, justice, and the American way' ? it's not enough anymore," the comic book superhero said, after both the Iranian and American governments criticized him for joining a peaceful anti-government protest in Tehran.

Last year, almost 1,800 people followed Superman's lead, renouncing their U.S. citizenship or handing in their Green Cards. That's a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998. It's also almost eight times more than the number of citizens who renounced in 2008, and more than the total for 2007, 2008 and 2009 combined.

But not everyone's motivations are as lofty as Superman's. Many say they parted ways with America for tax reasons.

The United States is one of the only countries to tax its citizens on income earned while they're living abroad. And just as Americans stateside must file tax returns each April ? this year, the deadline is Tuesday ? an estimated 6.3 million U.S. citizens living abroad brace for what they describe as an even tougher process of reporting their income and foreign accounts to the IRS. For them, the deadline is June.

 

The National Taxpayer Advocate's Office, part of the IRS, released a report in December that details the difficulties of filing taxes from overseas. It cites heavy paperwork, a lack of online filing options and a dearth of local and foreign-language resources.

For those wishing to legally escape the filing requirements, the only way is to formally renounce their U.S. citizenship. Last year, IRS records show that at least 1,788 people did, and that's likely an underestimate. The IRS publishes in the Federal Register the names of those who give up their citizenship, and some who renounced say they haven't seen their name on the list yet.

The State Department said records it keeps differ from those published by the IRS. They indicate that renunciations have remained steady, at about 1,100 each year, said an official.

The decision by the IRS to publish the names is referred to by lawyers as "name and shame." That's because those who renounce are seen as willing to give up their citizenship primarily for financial reasons.

There's also an "exit tax" for the very rich who choose to leave. During the last 25 years, a number of millionaires and billionaires have renounced their citizenship. Among them: Ted Arison, the late founder of Carnival Cruises[CCL  31.44  image  0.22  (+0.7%)   image], and Michael Dingman, a former Ford Motor [F 11.88  image  -0.04  (-0.34%)   image] director.

But those of more modest means renounce, too. They say leaving America is about more than money; it's about privacy and red tape.

Liability, Not Priviledge

On April 7, 2011, Peter Dunn raised his right hand before a U.S. consular officer in Toronto and swore that he understood the consequences of giving up his U.S. citizenship. Dunn, a dual U.S.-Canadian citizen who has lived outside the United States since 1986, says he renounced because he felt American citizenship had become more of a liability than a privilege.

As an American, Dunn had to file tax returns and report all of his bank accounts - even joint accounts and his Canadian retirement fund. If he didn't, he would be breaking U.S. law and could face penalties of up to $100,000 or 50 percent of his undeclared accounts, whichever is larger. Dunn says he was tired of tracking IRS policy changes, and he had no intention of returning to the United States. Renouncing his citizenship, as he puts it, was "a no-brainer."

"If it was just me then it would be one thing," says Dunn, a part-time investor who worried that having to share information with the IRS would deter future business partners - and upset his wife, who is Canadian. "Disclosing joint accounts I hold with my wife and anyone I ever want to do business with ? that's just too much. My wife's account is none of their business."

Dunn, who blogs about expatriation, takes issue with being characterized as a tax evader. He says the taxes he pays in Canada are higher than what he would pay in the United States, and he says he had always complied with the IRS before renouncing. But, Dunn says, the IRS approach to enforcing compliance is misguided. "It's making life difficult for a lot of people," he says. "It's driving us away."

Old, New Regulations

Dunn is referring to two filing requirements that affect Americans abroad: the Report of Foreign Bank and Financial Accounts ? which has been around since 1970 but now carries penalties for noncompliance ? and the Foreign Account Tax Compliance Act, passed in 2010 with the aim of reducing offshore tax evasion.

The first regulation requires all Americans, including those living abroad, with at least $10,000 in overseas bank accounts, to file a supplementary form disclosing all of their foreign accounts. That includes any accounts in which the U.S. citizen has a financial interest. That could include a joint account with a spouse or child, accounts for corporations in which the American owns more than 50 percent of the value of shares of stock, or any trust or estate that benefits the U.S. citizen.

 

The tax compliance act ? the newer law ? asks foreign financial institutions such as banks,hedge funds[cnbc explains] , and private equity funds to provide the IRS with information on U.S. clients.

The United States and five European Union countries recently announced their intent to allow institutions to report the information through their own governments, rather than directly to the IRS. Institutions that do not comply will be subject to a 30 percent withholding tax on certain U.S.-sourced payments and proceeds of property sales beginning in the 2013 tax year - for instance, dividends on investments in U.S. companies.

Some expatriates say they were unaware of the first regulation for years and even decades. In 2008, the IRS received only 218,840 such filings. American nationality law grants citizenship to almost everyone born in the United States or born abroad to American parents, regardless of how much time they've spent in the United States. Many may not even know the extent of their U.S. ties.

In 2004, the stakes for noncompliance rose. Failure to file meant potential fines and criminal charges. Americans abroad can be punished for noncompliance even if they owed no income tax - and IRS data show that most of them don't owe money.

Income up to $95,100 isn't taxed under a rule called the Foreign Earned Income Exclusion. In 2009, the income cap was $91,400, and 88 percent of all taxpayers claiming the foreign earned income exclusion owed nothing. Since 2008, the IRS has offered several voluntary-disclosure grace periods during which expatriates can file back taxes without facing criminal charges - but with the possibility of incurring penalties.

Marylouise Serrato, head of American Citizens Abroad, a nonprofit organization based in Geneva, says that many members feel scared about reporting requirements they did not know existed. Their disenchantment, she says, is pushing some to renounce.

"Americans abroad are terrified. We've had people pay tens of thousands of dollars in fines. We've had people . pay huge amounts of back taxes," she says. "Up to this point, we never heard of anyone renouncing, or if they did, they didn't talk about it," says Serrato, who says her group does not advocate renunciation.

"Now," she says, "we're seeing a lot of people speak openly about it and come to us for information."

Congress is taking note. "While I fully support measures that reduce fraud and address offshore havens, the U.S. should not have policies that place undue burdens on legitimate Americans abroad," says Representative Carolyn Maloney, D-N.Y., and the chair of the Congressional Americans Abroad Caucus. Maloney says she has taken the matter to the Department of the Treasury, which oversees the IRS.

 

Lawyers report that banking is a big reason why people renounce. "I hear about banking problems again and again and again," says Phil Hodgen, an attorney who has been helping Americans expatriate since 2008. The new reporting rules, he says, pose "a huge administrative burden. It's made Americans too expensive to keep."

Francisca N. Mordi, vice president and senior tax counsel at the American Bankers Association, says she has received a number of calls from Americans in Europe complaining about banks closing their accounts. "They're going to drop Americans like hot potatoes," Mordi says. "The foreign banks are upset enough about the regulations that they're saying they just won't keep American customers, and it's giving (Americans living abroad) a lot of sleepless nights."

Taxpayer complaints sometimes make their way to Nina Olson, the U.S. taxpayer advocate for the IRS, who addressed some of the international tax issues in a December report.

"The complexity of international tax law, combined with the administrative burden placed on these taxpayers, creates an environment where taxpayers who are trying their best to comply simply cannot," the report reads. "For some, this means paying more U.S. tax than is legally required, while others may be subject to steep civil and criminal penalties. For some U.S taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship."

In the same report, the IRS responded to the criticism, stating that the penalties for failing to report foreign accounts issued in its guidelines are maximums, not set amounts. It said the agency will not fine filers if the lapse is due to a "reasonable cause." The IRS also acknowledged the need for more public awareness, and it detailed its efforts to inform Americans overseas through fact sheets, a telephone help line and Twitter.

The IRS did not respond to requests for comment.

 

http://www.cnbc.com/id/47064295 

 

 

Re: Record number of Americans renounce citizenship last year

  • If you renounce your citizenship, then want to come back, how does that work?

     

    image
  • Come back for good or to visit?  You'd have to do what everyone else who isn't an American does, get a visa.  If your other citizenship is from a visa waiver country you can come back for up to 90 days at a time.  To come back for good you'd have to get a green card.
  • I've thought about it a number of times, this year as my tax bill looks larger and the fact that I am uninsurable under the current US medical insurance system it doesn't look likely that I will ever move back. But for some reason I don't seem to be able to actually do it.

    Australia recently became the second country to instigate this system, but based on wether you are a resident or non resident while working overseas.

    The world is a book and those who do not travel read only one page.
  • I swear I saw a story like this last year.  I wonder if that means that it's a long term trend (getting larger year on year) or if this will just turn out to be a blip.

    I'll have Italian citizenship in a few years and would consider it if we had steady jobs outside of the US (which we don't, sadly). 

  • I would do it, I ain't even going to lie.
    "HOW many US citizens and ranchers have been decapitated in Arizona by roving bands of paperless aliens, and how will a requirement that I have papers on me make that not happen?"courtesy of SueSue
  • If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    DS 02.10.2008 * DD 04.05.2011

    [IMG]http://i44.tinypic.com/15gf6sz.jpg[/IMG]
  • What if you're not eligible for any other citizenship???
    image
  • imagetartaruga:
    What if you're not eligible for any other citizenship???

    Why would anyone renounce if they weren't?



    Click me, click me!
    image
  • imagefrlcb:

    If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    I've heard of the 10 year rule, but I thought even as a citizen you had to pay taxes for the days you were in the US (non working) even if you were working OS - I could be very wrong on that last point...

    The world is a book and those who do not travel read only one page.
  • imagemaggie78:
    imagefrlcb:

    If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    I've heard of the 10 year rule, but I thought even as a citizen you had to pay taxes for the days you were in the US (non working) even if you were working OS - I could be very wrong on that last point...

    You have to file taxes when you are working overseas, but you only have to pay if you make over a certain amount, which is somewhere in the range of like $92k. If you make less than that you won't be taxed on your earnings overseas, but if you make more than that you will.  

    DS 02.10.2008 * DD 04.05.2011

    [IMG]http://i44.tinypic.com/15gf6sz.jpg[/IMG]
  • imagefrlcb:

    If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    As I understand it, the law changed in 2008 and now instead of own taxes for x number of years (though there may still be a filing requirement) you have to pay an exit tax.
  • imagePublius:
    imagefrlcb:

    If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    As I understand it, the law changed in 2008 and now instead of own taxes for x number of years (though there may still be a filing requirement) you have to pay an exit tax.

    That makes sense. I seriously tried to read that link above and it made no sense to me and then I realized we aren't doing this anyway so why bother ;) 

    DS 02.10.2008 * DD 04.05.2011

    [IMG]http://i44.tinypic.com/15gf6sz.jpg[/IMG]
  • imagefrlcb:

    If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    I think it's 30 days per year, not 30 days over the course of the decade (which I think is what you're trying to say?). At least, that's how it was explained to me when I was working overseas. So, for ten years, in each year that you are in the US for more than 30 days (and not necessarily consecutively), you will be responsible for taxes for that year. 

    image
  • imagemcurban:
    imagefrlcb:

    If you renounce your citizenship don't you still have to pay taxes for 10 years? I swear I read that but I am not sure. I think it is if you spend more than 30 days in the US in the decade after you renounce then you have to pay taxes. 

    Then again I looked at this and am too tired to comprehend it properly -

    http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html 

    I think it's 30 days per year, not 30 days over the course of the decade (which I think is what you're trying to say?). At least, that's how it was explained to me when I was working overseas. So, for ten years, in each year that you are in the US for more than 30 days (and not necessarily consecutively), you will be responsible for taxes for that year. 

    sorry, yes, i meant per year! 

    DS 02.10.2008 * DD 04.05.2011

    [IMG]http://i44.tinypic.com/15gf6sz.jpg[/IMG]
  • We are dealing with this now kind of.  My H works overseas as a civ. contractor (he is in the middle east).   I went to do our taxes like 2 weeks ago. He has been there since Sept.  we still had to pay taxes (we did not renounce just used the tax free option on the first 90k) they would not allow us to do that untill he has been over there a year.  So in July I have to amend our taxes.
  • imageMallardDucky:
    We are dealing with this now kind of.  My H works overseas as a civ. contractor (he is in the middle east).   I went to do our taxes like 2 weeks ago. He has been there since Sept.  we still had to pay taxes (we did not renounce just used the tax free option on the first 90k) they would not allow us to do that untill he has been over there a year.  So in July I have to amend our taxes.

    I know this ship has sailed, but did they tell you this was easier than just filing for an extension and not having to amend?

    I think in either case, this only works if you end up out of the US for 335 days of the first year you are overseas.  Then you can switch to the bona fide test (if you qualify) and the days overseas are not as important.

  • imageLittleMoxie:

    imageMallardDucky:
    We are dealing with this now kind of.  My H works overseas as a civ. contractor (he is in the middle east).   I went to do our taxes like 2 weeks ago. He has been there since Sept.  we still had to pay taxes (we did not renounce just used the tax free option on the first 90k) they would not allow us to do that untill he has been over there a year.  So in July I have to amend our taxes.

    I know this ship has sailed, but did they tell you this was easier than just filing for an extension and not having to amend?

    I think in either case, this only works if you end up out of the US for 335 days of the first year you are overseas.  Then you can switch to the bona fide test (if you qualify) and the days overseas are not as important.

    Per his company they told us to go ahead and file, then amend.  It is what all the other employees doing. They said it makes it so much easier, but we shall see.

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