If you think residing in America is taxing, just talk to one of the many expatriates who is contributing to a shocking statistic recently discovered: across the globe, people are renouncing their US citizenship in record numbers.
At least 1,788 Americans officially threw away their US citizenship in 2011, exceeding the totals from 2007, 2008 and 2009 combined. The Internal Revenue Service has been keeping a tally of US citizens driven to renouncing that title since only 1998, but last year’s number has officially raised the bar when it comes to calling America quits. What’s more, experts say, is that more and more Americans will soon be saying ‘sayonara’ to Uncle Sam if the federal government keeps up its trend of heavily taxing US citizens abroad.
Out of the 34 countries that belong to the Organization for Economic Cooperation and Development, the United States is the only nation that taxes its citizens no matter where they reside on Earth. As long as a person maintains citizen status, they are expected to send the United States government pennies on every dollar earned no matter where they live, under current law. With the US enacting stricter guidelines in recent years that demand wealthy Americans abroad paying the IRS even more, citizens are voluntarily refusing the perks and protection of the United States in numbers unmatched in recent memory.
“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,” explains the IRS in a report published in 2011. “For some, this means paying more US tax than is legally required, while others may be subject to steep civil and criminal penalties. For some US taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their US citizenship.”
Following up on the trend, Reuters reveals that in recent years more and more millionaires and billionaires have voluntarily removed themselves from the American Empire in order to hold onto their earnings.
“Every dollar you save, you lose to the US tax man,” tax lawyer Matthew Ledvina explains to Bloomberg News. “That’s one reason why people give up citizenship.”
The US attorney, who now works for Anaford AG in Zurich, adds that more and more non-US banks are being pressured by the government to give away their clients’ cash. As a result, fewer banks are willing work with US citizens, even if they have millions or billions to install in their institutions.
“It started with the fallout from UBS and non-US banks feeling it’s too risky to deal with Americans abroad,” he adds. “It will increase because Fatca will require banks to track down people, some of whom will make voluntary disclosures before renouncing their citizenship.”
Facta, or the Fair and Accurate Credit Transactions Act, was amended in 2010 with harsher penalties for US citizens living abroad. Under that update, banks are required to take 30 percent from “certain US-connected payments” from those who don’t give the IRS enough information about their income, no matter how or where they earn it.
“There is incredible frustration at the audacity and imperial overreach of this law,” David Kuenzi of Thun Financial Advisors in Madison, Wisconsin tells Bloomberg of Facta. Brent Lipschultz, an accountant at New York’s EisnerAmper firm, adds that the whole thing is very “big brother” of America.
This year alone, around 6.3 million US citizens living abroad are expected to oblige to America’s tricky tax laws, lest they want to risk heftier penalties. Given the recent trend, however, that number is looking to only shrink.
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