March 07, 2017
Americans Give Up Citizenship at Record Rates
According to federal government records, a record 5,409 Americans renounced their citizenships in the year 2016, including a whopping 2,364 in the final quarter of the year alone. That's a more than 26% increase from the 4,279 who handed in their passports in 2015.
The cause of the defections, which led the U.S. to say so long last quarter to , is primarily the .
When it comes to taxes, the United States is an outlier because, unlike nearly every other country, it taxes people based on nationality rather than residency. While U.S. citizens can claim credits with the IRS for what they pay to foreign tax authorities, those amounts are not always enough to offset what they owe.
U.S. expats also face the burden of annual filings with the IRS with the prospect of stiff penalties if they fail to comply.
According to tax lawyer Andrew Mitchel,
those who deliberately fail to report foreign accounts to the IRS can face a fine of $100,000 or half the value of the account—whichever is greater. Meanwhile, there are a range of other penalties for small business owners abroad and for those with assets of more than $30,000.
"The IRS has been very gracious in saying they won’t take more than 100% of your money," says Mitchel, ironically. "These people are terrified they will go bankrupt because of the United States. They just want to get out of the U.S. tax system."
The upshot is that Americans living abroad—many of whom or married someone in another country decades ago—are simply choosing to give up their citizenship rather than face the ongoing tax hassle.But even renouncing comes at a cost as those who want to surrender their passports must first pay application fees and settle up any outstanding debts.
Meanwhile, despite calls for reform by U.S. ex-patriates groups and media outlets like the , there's little hope the law will be changed anytime soon. According to Mitchel, the discussions taking place in Congress for a once-in-a-generation overhaul of the tax system are focusing on extra-territorial corporate taxes,not individual tax-payers.
As for the source of the current uptick in Americans renouncing their citizenship, it lies in a law passed in 2010 that forced foreign banks to disclose U.S. citizens—or pay to the IRS 30 percent of gross proceeds generated by those accounts. The restrictions caused some foreign banks to stop serving US expats altogether.
When the law was passed, it appeared to be aimed at fat cats who sought to hide money in secret Swiss bank accounts. But today, it could affect nearly any of the 7 million Americans, who Mitchel says live abroad—many of whom are people of modest means.
There are, though, some famous names among the latest list of foreign Americans. These include Boris Johnson, the former mayor of London and current Foreign Affairs minister for the United Kingdom. Born inthe US to British parents, he was registered with the UK consulate and US authorities.