Americans Renouncing Citizenship in Record Numbers

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Nearly 3,000 Americans gave up their citizenship or terminated their long-term U.S. residency in 2013. While that number may seem relatively small, it’s a 221 percent increase over 2012.

This new data from the U.S. Treasury Department begs the question: Why are people doing this?

While factors like family and convenience motivate a number of expatriations, taxes may be the leading factor.

Robert Frank of CNBC says Andrew Mitchel, an international tax attorney, attributes the increase in expatriations to the following:

  • New understanding of tax laws. The U.S. is unique in that Americans are taxed both as citizens of the U.S. and residents of wherever they live. Many people were unaware of this until the UBS tax scandal and crackdown on Americans with overseas assets hit headlines.
  • It’s difficult to comply. Dozens of complicated U.S. tax forms apply to those living overseas, which requires hiring professional help. Also, the Foreign Account Tax Compliance Act will soon require foreign financial institutions to report accounts held by U.S. taxpayers to the IRS. Mitchel said some banks are opting to instead close the accounts of their U.S. clients.
  • Huge penalties. The standard penalty for failing to file many of the tax forms is $10,000 per form, per year.

While the IRS may simply be trying to get what it is owed, there may be some unintended consequences. In a recent BBC article, David Kuenzi, founder of Thun Financial Advisors, said:

I’m all for people paying their taxes, but it’s very expensive to follow the letter of the law. … Some people are spending $4,000 to $5,000 a year to do their tax return only to find out they don’t owe anything to the U.S.

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Comments & discussion

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  • Rafael Mercedes

    I don’t see the point of paying taxes if you don’t live here… US like always trying to find new ways to make some money. It’s wrong period.

    • rtk25301

      If you make the money elsewhere and pay taxes on the money elsewhere, you get a tax credit for that which generally eliminates the US tax on that income. So you don’t really pay taxes here.

      • MargaretJacobson

        I read that corporations report their earnings overseas as taxes (even though they are partnerships) to the IRS and they are reimbursed. My opinion is If you live overseas and that country provides your services, they should get your tax money, NOT THE USA ?

        • AtticusinCanada

          The country you live in DOES get your taxes. You pay tax where you live but, you have to file to the US. too even though you wouldn’t owe there. Secondly, it’s not about taxes, it’s about collection of banking data. FATCA violates Canada’s laws so my spouse would not have the same rights as every other Canadian just because he is married to me.

    • chinaman03

      good point. i don’t see the point either. in case you are in trouble oversea, there’s always the russian marines to come and rescue.

      • AtticusinCanada

        Most Americans who live abroad live in Canada and Europe not some war torn region. Most pay higher taxes than they would if they lived in the U.S. and most are not “rich living on some island” Also, if the U.S. military has to come rescue any American on foreign soil you will be getting a huge bill for that from the government. It’s not paid for with taxes and neither are embassy services. Those are paid for with fees at the time of service.

    • AtticusinCanada

      Thank you and because of these new rules as the TAS said in 2011 it’s costing some people their citizenship as they simply CANNOT comply with this. These are not wealthy people escaping taxes. This is about something entirely different. FATCA needs amending.

  • Cabro Epico

    While they made that money, they paid their taxes to the US. They should be able to do whatever they want afterwards.

  • sorne

    Maybe we should use a drone and just eliminate them for good

  • James Davis

    As long as they head back from where they came from and take no money like social security, disability checks and etc. to their country.
    I am tried of paying for the whole world! If they owe taxes then they need to pay regardless.

    • AtticusinCanada

      You misunderstand. They don’t live IN the U.S. some of these families only have one American in them. They live outside the U.S. They do not use the roads, schools, libraries, police, fire services or any other services in the U.S. because they do not live there. They do not owe any taxes. These renunciations are NOT about taxes owed. In fact you cannot renounce unless you are tax compliant. They can no longer bank where they LIVE and you have to be able to bank where you live to pay bills, to have a mortgage, to exist. Why should someone who does not live in the U.S. pay taxes there? OR even have to file there? Since 80 percent of them never owe any tax this is all just a big data grab but, it’s resulted in people having bank accounts closed, foreign spouses saying “NO the U.S. can’t have my banking information” How would you like it if you were married to someone from Canada and one day Canada said they wanted YOUR bank account numbers, transactions and balances? It’s a foreign country to you, you don’t know what they will do with your banking information and have no control over that. It’s outrageous for the U.S. to do something like this and yet here we are. Citizenship based taxation is WRONG and that is why only the U.S. Eritrea do it. Eritrea is a tiny dictatorship. If someone does not live in the U.S. and earns nothing there, then they should not have to file paperwork to the U.S. If they get U.S. money or holdings then OKAY but, otherwise…no.

  • AtticusinCanada

    Upwards of 80 percent of all expats would never owe any taxes as they already live in high tax countries such as Canada and existing tax treaties prevent it. However, you have the cost to file to who you don’t owe and filing from abroad usually calls for professional help. Low and middle income expat families simply cannot comply. Nina Olsen said in her 2011 report to congress that this would happen as some of the requirements for expat families are “too onerous” even when no tax is ever owed. Secondly, you have situations where you have one American in the family abroad but, no one else in the family is American, yet the whole family has to meet U.S. requirements and has to follow U.S. law whether they are American or not. The American in the family then becomes a burden to the rest of the family so there is a lot of pressure for the U.S. person to give up their citizenship. If a Canadian marries a British person or someone from any other nation they aren’t going to be having to deal with such things but, marry an American and YOU are on the hook too and so are any children you have even if they have never set foot in the U.S. These renunciations are not about taxes owed at all. They are about huge fines on FBARS *a piece of paper the U.S. did a very poor job telling expats about till now* They are about having a foreign spouse on foreign soil who already pays tax to their country of birth saying “NO, I won’t give the U.S. all my account numbers and banking data.” and they are about the children born abroad of one U.S. parent saying “I never heard of CBT and I’ve never lived in the U.S. how do I get out of this mess!” Then here in Canada we have border babies born to two Canadian parents who had their child in a border hospital, registered the child as Canadian and came back to Canada with the infant. These people are just now finding out the U.S. considers them liable and beholden to the U.S. tax laws. It sounds ludicrous to most foreigners as no one else in the world has Citizenship based taxation except the U.S. and Eritrea. Most nations do not attempt to tax their citizens where they do not live, earn, hold property…A lot of these renunciations would stop if the U.S. took into consideration the proposals put forth by Democrats Abroad, Republicans Overseas, Nina Olsen and American Citizens Abroad and at the very least went to Residency Based Taxation for long term expats who gain nothing monetarily from the U.S. CBT was put in place during the Civil War meant as a punishment for not living in the U.S. during a time of war. It still functions as a punishment but, even back then it was much smaller in rules and easier than it is now. Now it’s a behemoth. It needs to go. And those people in the UBS debacle? They were by a very large margin NOT expats. They were living IN the U.S. so going to RBT would not hinder catching those who really are off shoring while living in the U.S.

  • AtticusinCanada

    I agree with you one hundred percent. But most of this is not about taxes owed. It’s to do with the reasons I listed above. I am American. I live in Canada. My spouse is Canadian, goes to work at his Canadian job and pays all his taxes to Canada. I do not make ANY of our income and have not lived in the U.S. for a long time. However, with FATCA coming our bank would give the U.S. my husbands bank account information and he and I both must meet certain requirements to the U.S. So there’s a bank issue going on here *and in Europe some banks are closing accounts of residents with ANY “U.S. indicia” and not renewing people’s mortgages* My spouse has said “No, I won’t give a foreign country my bank account numbers, transactions or balances, it’s none of their business I am NOT American!” Therefore, you have problems in marriages and I am not the only one. So the American in the family has now become a burden to the rest. Oh, and your adult children will have to do the same as above even if born outside the U.S. and even if they never lived there. LOTS of pressure on the U.S. citizen in the family to just give up their citizenship and be done with the whole thing. It’s not about taxes owed in most cases and most of these people would never owe any. It’s about problems this is causing in families and the cost to file from abroad with a foreign family can be huge. The U.S. just needs to join the rest of the modern world and go to residency based taxation. Really what these new rules were intended to do? THAT is laudable. BUT what the collateral damages are? That is NOT laudable at all. Amend FATCA and this will all stop. Low and middle income expats are caught in a trap now because of what a bunch of Swiss bankers did…we’re not tax cheats, we’re not those people yet here we are and this is the result. No cost/benefit analysis was ever done on FATCA. Solutions have been offered up to congress so they could STILL meet their goal while not harming innocent families abroad who have no holdings or earnings in the U.S.

  • AtticusinCanada

    Sorry my spouse is Canadian and not a U.S. traitor. There’s no reason he should have to give the U.S. his banking data and he pays his tax in full every year on time to Canada where he IS a citizen. I don’t think you get the position this is putting people in. In Europe families are being told the bank will not renew their mortgage. A lot of these people are up in age and can’t afford to lose their home. They would NOT owe any tax to the U.S. ever.

  • AtticusinCanada

    one last note. The article says “would require banks to report accounts of U.S. taxpayers” No, that’s not the problem with FATCA. The problem is it reports on ANY account with “U.S. indicia” and the banks here and some other insurance firms and the like have already said they can’t look for “U.S. indicia” AND worry about the thresholds so they will just report every bank account. The problem with this is you do NOT have to be a U.S. person at all to have your bank account data given over to the U.S. and the crafters of FATCA have already said this data collection of bank data can be shared with other U.S. agencies. This has been a HUGE issue in households outside the U.S. where there is only one American and especially where that American does not make the income. How would you like to give your banking information account numbers etc. over to Mexico or Italy to do with as they wish without telling you?? THAT Is the problem. It is not the collection of bank data on U.S. persons * a too broad definition anyway* that is causing the renunciation issues.

  • AtticusinCanada

    Yes, IF you make income there. Most of these people don’t make any income there. They don’t live there at all.

  • AtticusinCanada

    They did not make their money in the U.S. and are not just up and leaving. You have misunderstood this issue. They don’t live there, they don’t earn there.

  • gmo2ashes

    There should be NO personal income tax. Money collected is only used to pay a micro-percentage of the interest due on the principle debt owed to the FED. The former glorious USA (before the communist bankster takeover in 1913) got along just fine taxing foreign entities wanting to import and sell their products in the USA. In fact, the US was a creditor nation, not a debtor nation at the time the Federal Reserve and Tax Act were established. Income tax wasn’t even needed. Abolition of allodial property title was also implemented in the same year. Untold $Trillions of dollars have been plundered from Americans since these policies were created. And now, look at the shape we’re in – homeless, jobless, freedoms lost – and the world hates us.

  • Looner

    As an American that is the most ridiculous thing I have ever read. Everyone knows you have to pay both state and federal taxes … And some people even have to pay city taxes. Is that the reason you are giving for people moving out of the US? Nope, it is probably Right Wing Nut Jobs that think the whole country is being taken over by a “Muslim dictator” because they are crazy. And you know what? You are welcome to them.