Expat Americans Continue to Renounce Citizenship
A steady stream of American citizens reportedly have renounced their citizenship since the implementation of stricter tax rules.
Many Americans who live in other countries face higher tax bills, difficulty in obtaining and keeping financial accounts and complex retirement savings rules
Some advocates urge the US government to tax its citizens based on residency instead of citizenship to reduce those obstacles.
The US government has tightened its rules in recent years to make it more difficult for Americans to evade taxes by hiding money offshore.
For Americans who reside in foreign countries, that can make it more difficult to find financial institutions who will let them open accounts.
In Q-1 of this year, 1,099 Americans gave up their citizenship, according to data from the Internal Revenue Service. More than 5,000 citizens living overseas gave up their US passports in Ys 2017 and 2016.
Americans living abroad face a number of tax complications that folks living at home probably have never heard about.
Americans who reside in another country must file a Report of Foreign Bank and Financial Accounts, or FBAR. That form should disclose any accounts Americans have that hold more than $10,000. If you fail to file an FBAR, you will face penalties.
Those fines vary based on whether or not a taxpayer failed to file those disclosures on purpose.
The penalty for a non-willful filing starts at $10,000. But if the act is deemed willful, it’s a $100,000 penalty or 50% of the balance of the account, whichever is greater.
At the same time, the Foreign Account Tax Compliance Act (FACTA) requires foreign institutions to disclose the holdings US citizens have.
Americans also need to disclose any foreign mutual funds and insurance or pension products that they own. Those holdings may be viewed as passive foreign investment companies, or PFICs, by the IRS.
Ironically, even leaving America can be costly.
America charges $2,350 to hand in your passport, a fee that is more than 20X the average of other high-income countries.
The US hiked the fee to renounce by 422%, as previously there was a $450 fee to renounce, and no fee to relinquish.
Now, there is a $2,350 fee either way. The State Department said raising the fee was about demand and paperwork, but the number of American expatriations kept increasing according to the data.
Plus, to exit, 1 generally must prove 5 years of IRS tax compliance. And getting into IRS compliance can be expensive and worrisome. For some, a reason to get into compliance is to renounce.
Have a terrific 4th of July Freedom Week