Last year, almost 1800 individuals renounced their U.S. Citizenship or handed in their green cards. That's a record number since the IRS started publishing an inventory of people who renounced in 1998. It's also almost eight times more than the number of residents who renounced in 2008, and more than the total for 2007, 2008 and 2009 put together. Many say they parted ways with America for tax reasons.
The US is one of the few countries in the world that taxes citizens on earnings made while they're living abroad. And just as stateside North Americans must file each April - this year, the cut-off point was Tuesday - an estimated 6.3 million U.S. Subjects living abroad brace for what they describe as an even tougher process of reporting their revenue and foreign accounts to the IRS. For them, the deadline is June.
The National Taxpayer Advocate's Office, part of the IRS, released a dispatch in December that details the difficulties of filing taxes from overseas. It cites serious paperwork, an absence of online filing options and a dearth of local and foreign-language resources.
For those wishing to legally escape the filing necessities, the only way is to formally renounce their U.S. Citizenship. Last year, IRS records show that at least 1788 individuals did, and that's likely an under estimation. The IRS publishes in the Fed Register the names of people who give up their citizenship and some who renounced say they have not seen their name on the list yet.
The State Department declared that its records differ from those published by the IRS. They indicate that renunciations have remained steady, at about 1100 each year, related an official.
The decision by the IRS to make public the names is referred to by lawyers as "name and shame." That's because people who renounce are seen as willing to give up their citizenship primarily for financial reasons.
There's also an "exit tax" for the very rich that choose to leave. During the last 25 years, numerous millionaires and billionaires have renounced their citizenship. Among them : Ted Arison, the late founding figure behind Carnival Cruises, and Michael Dingman, a former Ford Motor Company director.
OLD, NEW REGULATIONS
There are 2 filing necessities that have an effect on USA citizens abroad : the Report of Foreign Bank and Money Accounts - it's been around since 1970 but now carries penalties for noncompliance - and the Foreign Account Tax Compliance Act, passed in 2010 with the aim of reducing offshore tax evasion.
The first regulation requires all Americans, including those living abroad, with at least $10,000 in overseas accounts to file an extra form divulging them. That includes any accounts in which the U.S. Citizen has a finance interest. That might include a common account with a better half or child, accounts for corporations in which the American owns more than fifty percent of the value of shares of stock, or any trust or estate that benefits that person.
The tax compliance act - the more modern law - asks foreign finance institutions such as banks, hedge funds, and personal stock funds to supply the IRS with info on U.S. Clients.
The U.S. and five other European Union states recently announced their intent to allow institutions to report the info through their own executives, instead of right to the IRS. Institutions that don't comply will be subjected to a 30 % withholding tax on certain U.S.-sourced payments and proceeds of property sales beginning in the 2013 tax year - for example, dividends on investments in U.S. Firms.
Some immigrants say they were blind to the first regulation for years and even decades. In 2008, the IRS received only 218,840 such filings. American nationality law grants citizenship to nearly everybody born in the U.S. or born abroad to Americans, regardless of what kind of time they have spent in the U.S. Many may not know the limits of their U.S. ties.
In 2004, the stakes for noncompliance rose. Neglecting to file meant potential fines and legal charges. Northern Americans abroad can be punished for noncompliance even if they owed no tax - and IRS info shows that many citizens abroad don’t.
Income up to $95,100 isn't taxed under a rule called the Foreign Earned Earnings Exclusion. In 2009, the earnings cap was $91,400, and 88 % of all taxpayers siting the foreign earned income exclusion owed nothing. Since 2008, the IRS has offered 1 or 2 voluntary-disclosure grace periods during which expatriates can file back taxes without facing legal charges - but with the likelihood of shouldering penalties.
Marylouise Serrato, head of American Subjects Abroad, a non-profitable organization based in Geneva, announces that many people feel frightened about reporting rules that they didn't know existed. Their disenchantment, she asserts, is pushing some to renounce.
"Americans abroad are scared. We've had people pay tens of thousands in fines. We have had people pay huge amounts of back taxes," she says. "Up to this point, we have not heard about anybody renouncing, or if they went and did, they didn't talk about it," announces Serrato, who asserts her group doesn't advocate renunciation.
"Now," she is saying, "we're seeing a lot of people talk openly about it and come to us for information."
Congress is taking note. "While I absolutely support measures that reduce crime and address offshore havens, the U.S. Should not have policies that place unjustified burdens on legitimate North Americans abroad," announces Representative Carolyn Maloney, D-N.Y, and the chair of the Congressional Americans Abroad Caucus.
In Europe, American women say they feel pressure to renounce even from their husbands.
"American women married to non-Americans are only just now finding out that they have to disclose years and years of income and accounts," says Lucy Stensland Laederich, a leader of the women's club who lives in Bordeaux, France.
Laederich has been acting as the group's liaison with politicians and bureaucrats in Washington, D.C., and attended a meeting to discuss expatriate tax issues with Maloney and Treasury Department officials on Tuesday.
"When they decide to come clean and report everything," she says, "they have to go ask their husbands for all of their bank information, retirement funds, and investment accounts, everything."
Some of their husbands, Laederich says, refuse to hand over information to the IRS. That leaves the women in difficult predicaments.
"Your options are to ignore the IRS and stick your head in the sand; take your name off of all the accounts and live in a completely cash economy; divorce; or renounce U.S. citizenship," Laederich says. "We've seen all of these things happen."
DIVORCE OR DISCLOSE
Genette Eysselinck, a friend of Laederich's, renounced early this year. Her husband, a European Union civil servant, saw no good reason to share his account information with the IRS, she says. And after considering all her options, Eysselinck decided that renouncing was the best path.
"It created a lot of tension around here," she says. "Divorce seemed a little extreme, so I asked myself, 'What am I gaining as an American?' And the cons outweighed the pros."
Eysselinck was born in Fort Bragg, North Carolina, and says she grew up on military bases all over the world. Her father, she says, was an Air Force pilot. Eysselinck has lived abroad for decades and no longer has any close connections in the United States.
She spent her final months as an American collecting paperwork and filing tax returns from the past five years, even though she says she owed nothing. Her last act as a citizen was to swear before an American flag that she renounced all ties with the United States. She called the process "gut wrenching."
"I grew up in a military family where patriotic feeling was very strong" Eysselinck says. "I'm amazed at how terrible I felt renouncing. But it was the only way to get them off my back. It's very distressing and time consuming to keep up with all the paperwork. But if it's this bad when I'm 64, how bad will it be when I'm 74?"
Don't let your tax problems overwhelm you to the point of taking such extreme measures in order to escape them. Contact JG Tax Group today and talk to our knowledgeable professionals about finding an affordable solution to your IRS problems.
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