The new addition of FATCA has many Americans streamlining their financial affairs and some are choosing to ditch their U.S. passport in effort to ease their offshore tax responsibilities.
Jeffrey S. Freeman, J.D., LL.M
2013 was a year for goodbyes for many Americans as more than 3,000 citizens decided to turn in their passports and renounce their citizenship. According to CNN Money analysis of government data, this represents a spike of more than triple the average for the past five years. So why the sudden increase?
In 2010 Congress approved the Foreign Account Tax Compliance Act (FATCA) and there was a similar, but smaller spike coinciding with the new law requiring individuals to report foreign assets worth more than $50,00 and disclose foreign offshore bank holdings over $10,000. Now in 2013 we see a rush from expatriates who see their complicated tax filings only getting worse as FATCA goes into effect. Aimed at recouping some of the hundreds of billions the government says it loses in unpaid taxes each year, FATCA is a new law that requires offshore foreign institutions to report all assets owned by Americans and also requires individuals with overseas assets to file additional forms.
The U.S. taxes citizens on income, regardless of where it is earned or where they reside. Reporting taxes can be so difficult that individuals living abroad or with foreign assets are forced to seek expert help, costing upwards of thousands of dollars. More individuals are giving up their citizenship or relinquishing their green cars in order to simplify their financial obligations and only pay taxes to one jurisdiction.
Today, more than 6 million Americans live abroad. Expatriates are required to pay taxes in their country of residence and to the U.S., which at tax time means two complex piles of paperwork each with differing deadlines and regulations. Depending on the country of residence there is not always an experienced tax accountant available that is familiar with current U.S. tax regulations. Many individuals are forced to comb through IRS websites and decipher the regulations themselves. The mountain of tax work has some expats considering moving back to the U.S. or starting the process to renounce their American citizenship.
To add to expats tax headaches trying to comply with the additional FATCA paperwork, many banks are kicking their American customers to the curb to try and avoid having to comply with the new law. FATCA requires banks big and small to report everything on American clients from basic savings accounts, pension funds, investments and more adding additional costs to the institutions. Additionally, penalties are severe should banks err, a 30% tax on U.S. sourced income should they fail to properly comply. As many offshore banks are choosing to let their U.S. customers go, a growing number of individuals are choosing to give up their U.S. citizenship.
Renouncing citizenship is not such an easy thing. For those individuals who haven’t paid their taxes, giving up their citizenship is not an easy escape. There is no statute of limitations and the IRS can still go after former citizens for back taxes if evidence of tax evasion arises. For Americans who have assets over $2 million must also pay a hefty exit tax. Note that even heirs of people that have renounced their citizenship could be responsible for taxes on inherited assets if they choose to remain U.S. citizens.
The United States was once seen as the land of opportunity, but today we are seeing both naturalized and native-born citizens saying goodbye to Uncle Sam.
About Freeman Tax Law
Freeman Tax Law is a boutique tax law firm with national exposure equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.
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