Record Number of Americans Renounce U.S. Citizenship
June 26, 2014
A record number of Americans and green-card holders living outside the U.S. are renouncing their citizenship, partly because of a five-year-old U.S. campaign to crack down on undeclared bank accounts held by Americans abroad, according to the Wall Street Journal.
The 1,001 U.S. citizens and green-card holders renouncing citizenship in the first quarter of 2014 is on pace to surpass the 2,999 renunciations last year, the previous high number of Americans cutting ties to the U.S. Experts say that the government campaign to collect taxes, interest and penalties from Americans living abroad, along with the filing of more than 100 federal criminal indictments, can help explain the rising renunciations.
While those who surrender their citizenship are still liable for past years' taxes, renouncing may save them and their children high taxes and penalties in the future. Because of the paperwork, expense and penalties, tax enforcement could affect millions who are not wealthy, pay their taxes in their host country and are not trying to avoid U.S. taxes.
What kind of violations are Americans abroad facing?
- Often, the violations are not for unpaid taxes. Instead, many Americans fail to submit a Foreign Bank Account Report (Fbar), a requirement for taxpayers abroad who hold at least one bank account with more than $10,000.
- Before the recent enforcement crackdown, many citizens living abroad had never even heard of Fbar.
- Fbar penalties can reach as high as 50 percent of the highest value of the bank account for each year in which no Fbar form was filed.
Laws that are difficult to comply with, along with high penalties for missing deadlines or making reporting mistakes, have led to a crackdown that hurts innocent, middle-income taxpayers more than those who deliberately seek to hide their assets overseas. As such, many taxpayers have been prompted to make the difficult choice to renounce their citizenship.
Additionally, the Foreign Account Tax Compliance Act will take effect in July and will require foreign financial institutions to report U.S. citizen income to the IRS.
Source: Liam Pleven and Laura Saunders, "Expatriate Americans Break Up With Uncle Sam to Escape," Wall Street Journal, June 16, 2014.
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