Goodbye, sayonara, ciao, Uncle Sam!
The number of Americans choosing to give up their passports hit a record 3,415 last year, up 14% from 2013, and 15 times more than in 2008, when only 231 people renounced their citizenship.
Experts say the recent surge is coming from expats who no longer want to deal with complicated tax paperwork, a burden that has only gotten worse in recent years.
Unlike most countries, the U.S. taxes all citizens on income, no matter where it is earned or where they live. The mountain of paperwork can be so complicated that expats are often forced to fork over high fees to hire an accountant — some say they pay as much as $1,000.
One new law designed to catch tax cheats — the Foreign Account Tax Compliance Act — requires individuals to report certain foreign assets, and for banks to disclose all foreign accounts held by Americans. That’s in addition to another provision that mandates Americans to disclose foreign bank holdings worth more than $10,000.
“More and more are considering renouncing,” said Vincenzo Villamena of Online Taxman, an accountant who specializes in expat taxes. “There are a lot of uncertainties about FATCA and [its] implementation; I don’t think we’ve seen the full effect that FATCA can have on people’s lives.”
As both expats and financial institutions rush to understand the new law, some banks have chosen to kick out their Americans clients rather than comply. If a bank mistakenly fails to report accounts held by Americans outside the U.S. — even checking and savings accounts — they can face steep penalties.
As new procedures are put in place, “the pace of U.S. citizenship relinquishments is likely to slow,” said Nigel Green, CEO of the deVere Group, a financial advisory firm. “People are becoming aware of the various compliant ways they can mitigate the negative effects of FATCA, without having to take the drastic and often emotional step of giving up their American citizenship.”
But it’s going to be a few years before renunciations start to taper off, Villamena said.
“You do have a lot of people queuing…there are people still waiting to get their second passport [before they] renounce,” he said. “Obviously, you can’t give up your [U.S.] passport unless you have another one.”
Of course, some Americans giving up their passports could very well be fat cat tax cheats, fleeing to known tax havens to preserve their wealth. But it’s illegal to renounce your U.S. status to escape paying taxes, and giving up your citizenship now doesn’t mean Uncle Sam won’t come after you later for back taxes.
“From an international perspective, the world is split into two halves — the people who are desperate to get U.S. citizenship, and the people who are desperate to give it up,” Chris McLemore, senior counsel at Butler Snow, told CNNMoney in December.