Tax Time Pushes Some Americans to Take a Hike
April 23, 2012
Last year, almost 1,800 people renounced their U.S. citizenship and handed in their Green Cards. That's a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998. According to many who have undergone the process, taxes remain the primary motivation, specifically taxes governing income that is earned abroad. The United States is one of the only countries to tax its citizens on that form of income. Many of those who renounce are quick to emphasize that the decision is not solely based on saving money by avoiding tax payouts, but rather frustration with the process as a whole, says Reuters.
Tax filing for foreign income is significantly less convenient than standard tax filing.
- There is significantly more paperwork, as reporting the income can require intimate details and explanations.
- Filers face a lack of online filing options, which is particularly troubling for those who live abroad while maintaining their citizenship.
Furthermore, general privacy concerns exist among many who choose to renounce.
- The Foreign Account Tax Compliance Act, passed in 2010 with the aim of reducing offshore tax evasion, asks foreign financial institutions such as banks, hedge funds and private equity funds to provide the IRS with information on U.S. clients.
- Several European governments have taken this a step further by requiring their financial institutions to report the information to them before it is transmitted across the Atlantic.
Finally, foreign income filers emphasize the incredible complexity of the process and the huge potential that exists to commit an accidental error. The risk of mistakes is compounded by the enormous penalties that the IRS can levy on filers.
- If a filer fails to disclose foreign holdings in excess of explicit amounts, he or she could face penalties of up to $100,000 or 50 percent of the undeclared accounts, whichever is larger.
- Mary Louise Serrato of American Citizens Abroad, a nonprofit organization based in Geneva, Switzerland, says that many members feel scared about reporting requirements they did not know existed.
- Nina Olson, the U.S. taxpayer advocate for the IRS, argues that taxpayers are trying their best to comply but simply cannot.
Source: Atossa Araxia Abrahamian, "Special Report: Tax Time Pushes Some Americans to Take a Hike," Reuters, April 16, 2012.
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