In 2011, a record number of citizens renounced their U.S. citizenship or turned in their Green Cards. There were almost 1,800 people that turned their back on the U.S. , this is more than the totals for 2007, 2008 and 2009 combined.
Many of these people have done so because of the U.S. tax regulations. The U.S. taxes its citizens on money they made while living abroad, even if that citizen has never stepped foot on U.S. soil. The U.S. government still requires them to file taxes.
If you think that filing your taxes is hard, Americans living abroad have an even harder time. A report was released in December by the National Taxpayer Advocate’s Office, part of the IRS, that details some of the problems associated with filing taxes from overseas. It cites heavy paperwork, a lack of online filing options and a shortage of local and foreign-language resources.
Anyone wishing to legally escape the filing the requirements is forced to renounce their U.S. citizenship. The IRS publishes names of those who give up their citizenship in the Federal Register and many who say they have renounced their citizenship say that their names have not yet been published.
Many who are leaving America say it is about more than money; it’s about privacy and red tape.
On April 7, 2011, Peter Dunn stood before a U.S. consular officer in Toronto Canada and surrendered his citizenship. Dunn is a dual U.S.-Canadian citizen who has not lived in the U.S since 1986 and says he renounced because he felt American citizenship had become more of a liability than a privilege.
As an American citizen, Dunn had to report all of his bank accounts, including joint accounts and his Canadian retirement fund. Per U.S. law Dunn could pay penalties of $100,000 or 50 percent of his undeclared accounts, whichever is larger. Mr. Dunn says that he had no intention of returning the U.S. and was tired of tired of tracking U.S. policies.
“If it was just me then it would be one thing,” says Dunn, a part-time investor, “Disclosing joint accounts I hold with my wife and anyone I ever want to do business with – that’s just too much. My wife’s account is none of their business.”
The U.S has two filing requirements for U.S. citizens abroad: the Report of Foreign Bank and Financial Accounts, which was written in 1970 but now carries penalties, and the Foreign Account Tax Compliance Act, passed in 2010 to reduce offshore tax evasion.
The first requirement requires that all U.S. citizens with at least $10,000 in overseas bank accounts file a supplementary form disclosing all of their foreign accounts; including any account that the citizen has a financial interest in. That could include a joint account with a spouse or child, accounts for corporations in which the American owns more than 50 percent of the value of shares of stock, or any trust or estate that benefits the U.S. citizen.
The tax compliance act requests foreign financial institutions to provide the IRS with information on U.S. clients. Institutions that do not comply will be subject to a 30 percent withholding tax on certain U.S.-sourced payments and proceeds of property sales beginning in the 2013 tax year – for instance, dividends on investments in U.S. companies.
Many overseas citizens claim they were unaware of the first regulation. American nationality law grants citizenship to almost everyone born in the United States or born abroad to American parents, many have never set foot on U.S. soil. As of 2004 Americans abroad face potential fines and criminal charges for failure to file, even if they owe no income tax. IRS data show that most of them don’t owe money.
Marylouise Serrato, head of American Citizens Abroad, a nonprofit organization based in Geneva, says that many members feel scared about reporting requirements they did not even know existed and that this is pushing some to renounce.
“Americans abroad are terrified. We’ve had people pay tens of thousands of dollars in fines. We’ve had people … pay huge amounts of back taxes,” she says. “Up to this point, we never heard of anyone renouncing, or if they did, they didn’t talk about it,” says Serrato, who says her group does not advocate renunciation.
“Now,” she says, “we’re seeing a lot of people speak openly about it and come to us for information.”
Francisca N. Mordi, vice president and senior tax counsel at the American Bankers Association, says she has received a number of calls from Americans in Europe complaining about banks closing their accounts. “They’re going to drop Americans like hot potatoes,” Mordi says. “The foreign banks are upset enough about the regulations that they’re saying they just won’t keep American customers, and it’s giving (Americans living abroad) a lot of sleepless nights.”
“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,” says a report issued by Nina Olson, the U.S. taxpayer advocate for the IRS. “For some, this means paying more U.S. tax than is legally required, while others may be subject to steep civil and criminal penalties. For some U.S. taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their U.S. citizenship.”
“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.
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.”
Genette Eysselinck renounced early this year, her husband saw no good reason to share his account information with the IRS, she says. After considering all her options, Eysselinck decided that renouncing citizenship was the best path.
“It created a lot of tensions 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.”
“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?”
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