Americans Living Abroad Renouncing US Citizenship

A Wall Street Journal article titled: “U.S. Expats Balk at Tax Law” reports that the government’s quest to find tax evaders is prompting some Americans living in Asia and around the world to rethink their citizenship. Their biggest complaint: the increasing burden of paperwork required by Foreign Account Tax Compliance Act, or FATCA.

As per FATCA regulations foreign institutions are required to disclose the overseas assets of U.S. citizens and green-card holders to the U.S. government. FATCA was enacted to identify tax evaders through offshore bank accounts or other investments.

Here are some of the grievances U.S. citizens living abroad have against FATCA and U.S. tax laws according to the Wall Street Journal article:

  • To comply with FATCA regulations, U.S. citizens living abroad are forced to complete massive amounts of paperwork to declare their financial holdings and other assets.
  • The biggest complaint is the paperwork associated with U.S. tax compliance. An investment banker cited in the article who is now a Hong Kong citizen said his decision was more based on “the system” and “the hassle with all the paperwork”.
  • A growing number of wealthy Americans in Asia cite the onerous tax obligations as their reason for giving up their citizenship.
  • The frustration has most likely increased the attraction of becoming a foreign citizen in places like Hong Kong, where the individual tax rate is capped at 15%.
  • More than 1,000 people gave up their citizenship in the second quarter of 2013. While the numbers don’t seem particularly high, recently released figures indicate that those numbers have increased.

The U.S. Congressional estimates state that the U.S. loses as much as $100 billion a year to tax evasion and the IRS has stepped up efforts to go after and collect every penny due. The article admits many are still coming forward and participating in the offshore voluntary disclosure program, with wealthy Asian families simply deciding to pay their back taxes, and penalties of 27.5% on the value of previously undeclared assets. One family alone was said have paid up $60 million to become compliant.

There are some global trends that support an increase in renounced citizenship. There were 1,130 names on the IRS list of renounced citizens in the second quarter, considerably higher than the 679 names that appeared in the first quarter and more than were reported in all of 2012.

Like any other law, people are finding ways around FATCA regulations. According to the Wall Street Journal article some are opting to set up special “foreign grantor trusts” to escape paying taxes while maintaining citizenship.  A non U.S. citizen family member is designated as the settlor and places assets in a designated trust for the children who are U.S. citizens. The income generated from those assets isn’t subject to U.S. taxes.

Many believe that the tax laws governing Americans abroad completely discourage citizens the right to live and work abroad. However, when the IRS collects $60 million in back taxes from one family, it’s easy to see why the government is not rushing to amend offshore tax legislation or limit collection practices.

Offshore tax compliance is top priority at the IRS. If you have undisclosed offshore accounts or missed the June 30 FBAR filing deadline, the only way forward is voluntary disclosure. Coming clean with the IRS means you will pay back taxes and penalties but not be prosecuted. But you must act now!

Contact a certified tax resolution specialist to represent you who will take over all IRS communication, make the required disclosures, file FBAR reports, amend your tax returns and help work out an offshore tax settlement that gets you back in a more favorable position with the IRS.

More Tax Help, IRS News and Tax Relief Tips:

  1. Cayman Island Tax Haven No Longer Secret Due to FATCA
  2. Swiss Adopt Plan to Cooperate with U.S. and Avoid Charges
  3. Offshore Tax Evasion-US and Swiss Make A Deal
  4. U.S. Investigates Swiss Bank Rahn Bodner for Secret Accounts
  5. Treasury Proposes Multilateral Agreement for Offshore Compliance

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