There is little doubt that wealthy Americans are under scrutiny for tax collection. Nowhere is this more obvious than for those who have offshore bank accounts. More U.S. citizens living abroad are deciding to renounce their U.S. citizenship instead of facing IRS tax problems concerning new U.S. tax regulations namely the Foreign Account Tax Compliance Act (FATCA) aimed at curbing tax evasion.
The subject of renouncing citizenship made front page headlines just last Friday when 30 year old Facebook co-Founder, Eduardo Saverin announced he was giving up his. Since then, the news media has been busy speculating the reason, with most circling back to the same conclusion: he wants to avoid tax debt.
In her article Facebook Co-Founder Won’t Escape All U.S. Taxes By Renouncing Citizenship, Forbes’ Tax Girl, Kelly Phillips Erb concurred that Saverin’s U.S. citizenship renouncement was probably a calculated tax dodge in advance of the public offering (IPO) for Facebook (Saverin began this process in 2011.) She also provided a few more details about this case:
- Brazilian-born Eduardo Saverin was neither born in the U.S. nor is he a resident. He moved to the U.S. as a young boy, went to Harvard, where he met Mark Zuckerberg and became Facebook’s first investor.
- Those giving up their American citizenship, including Saverin are subject to certain reporting and tax requirements under U.S. tax laws.
- Saverin will be subject to pay an “expatriation tax” because his net worth is $2 million or more on the date he expatriated.
According to the article, the assets a person takes with them when they exit the country are treated as though they were sold prior to leaving, with any gains realized had those assets been sold, subject to tax. Saverin’s are no exception. In his case, however, the value of his assets pre-Facebook IPO are still considerably less than their value will be after Facebook goes public.
Severin’s decision to leave is part of a recent trend. A recent article by Bloomberg/BusinessWeek entitled Wealthy Americans Queue to Give up Their Passports, reports that around 1,780 expatriates gave up their nationality at U.S. embassies last year, that figure up from 235 in 2008. The biggest problem, according to American Citizens Abroad (ACA), a Swiss based advocacy group, is that the U.S. government does not entirely distinguishing tax cheats from those American citizens who live and work abroad and use banking services on a day to day basis. Chief among the reasons American’s are relinquishing in their passports:
- The U.S. is the only country that mandates its citizens file and pay taxes and even if they already pay taxes to the country they reside.
- The government has made it a major priority to close the “tax gap” and is continuing to put pressure on European banks, specifically Swiss banks.
- Foreign Account Tax Compliance Act (FATCA) that requires Swiss banks to track down its clients. Swiss and other European banks think it’s just too risky to deal with Americans abroad, making everyday banking nearly impossible.
With FATCA comes more U.S. regulation. FATCA law requires banks to withhold 30 percent from American clients who don’t disclose enough information to the IRS. These obstacles have many Americans living overseas weighing the cost of holding a U.S. passport, with some such as Saverin making the drastic decision to turn his in.
You don’t have to relinquish your citizenship to get IRS tax relief. If you have not yet disclosed your offshore bank accounts, it is important you do so immediately; failure to file the requisite reports can result in a fine of as much as $50,000!
Even if you missed the October 15, 2009, tax amnesty deadline for voluntary disclosure, you can still get tax help and possibly reduce severe IRS penalties on undeclared funds in overseas bank accounts. You are advised to hire a tax attorney or Certified Tax Resolution Specialist to take over all IRS communications, make the required disclosures, file FBAR reports and amend previous tax returns to bring you into compliance with an offshore tax settlement.
More Tax Help, IRS News and Tax Relief Tips:
- IRS Help for Americans with Foreign Income
- FATCA-No Tax Relief for Americans Living Abroad
- Swiss Pressured to Reveal All Offshore Accounts
- Treasury Proposes Multilateral Agreement for Offshore Compliance
- Offshore Banking-Swiss Tax Evasion Advisors Indicted
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