A record number of Americans are giving up citizenship, largely due to the fear of facing punishment under FATCA (Foreign Account Tax Compliance Act).
As many as 6,705 Americans renounced citizenship in 2020, a 260% increase from 2019 when 2,577 Americans gave up their citizenship.
To renounce citizenship, they should appear before the US embassies at the countries of residence. The embassies were closed for large parts of the year because of the COVID-19 pandemic.
Had the embassies not been closed for so long a period of time, the number of renunciations would have skyrocketed, says Americans Overseas, a European organization specialized in US tax laws.
President Donald Trump’s ‘America first’ policy also contributed to the rise in renunciation, but the FATCA was the main driver.
Enacted by the Obama administration, FATCA is designed to uncover Americans stashing away money in banks overseas. The law requires foreign banks to report US authorities about all offshore accounts held by American citizens.
There are nearly 9 million US citizens living abroad. They should pay taxes on foreign income. Hiding financial and other assets is a punishable crime under the law.
Analysts say giving up citizenship is the only option for those who dislike the idea of revealing their assets abroad.
Renouncing citizenship is not easy either. Such persons need to pay $2000 in government fees and file a complete tax return.
Despite these obligations, there has been a growing trend of Americans renouncing citizenship. “A law intended to catch tax evaders inside the U.S. is now dragging innocent Americans living outside the U.S. down,” says Daan Durlacher, partner at Americans Overseas.
Once the embassies open up again full time, the number of people renouncing citizenship will leapfrog, says the organization.
First, the law is FATCA. FACTA is the Fair and Accurate Credit Transactions Act.
Second, 6’705 people did not renounce in 2020. The IRS released the names of 6’705 people who renounced as far back as 2014. The IRS has gotten way behind in their duty to name and shame expatriates. They started catching up in 2020.
Third, if the data were reported accurately and timely, 2020 would prove to be a record low because (as you stated, but seemed not to question), most of the embassies have not been taking renunciation appointments since March 2020.
Fourth, the renunciations have nothing to do with Trump. There is no evidence or data that draws such a connection. The people who were reported in 2020, but renounced in 2014-16 had no possible connection to Trump. It is important to be truthful about the circumstances driving Americans to this terribly difficult act. Which brings me to the most important point.
The ‘analysts’ who say “giving up citizenship is the only option for those who dislike the idea of revealing their assets abroad” are being misleading as is this article. FATCA is very costly for the local banks who serve Americans overseas and also very risky as it places a 30% penalty on Dollar transactions if a bank is found non-compliant. As a measure of good risk management, banks stopped providing financial services to Americans. This is a prudent and responsible action on the part of the banks – they have to protect their other account holders. As a result, American families overseas find it nearly impossible to live a normal life or save for retirement. They are forced into renouncing their American citizenship.
To imply that “they don’t like to reveal their assets abroad” is deeply offensive. They are revealing their local assets and, unlike nearly every other country, Washington has refused to join the OECD CRS which would provide reciprocal account information.
The people forced into this situation expected help from the GOP and, despite promises to fix the situation, the GOP did nothing. The surge of renunciations that started in 2009 continues and will spike as soon as the embassies allow it again. The refusal by the US to accept renunciations is a human rights issue. They are claiming that they cannot take renunciation appointments – all the while, they are taking visa applications.
As it is, the obscene $2350 fee, which is the highest in the world, is uncalled for and cruel. Blocking the exits is immoral. Washington could simply repeal FATCA and join the rest of the free world by participating in CRS. This alone would free Americans overseas to have access to financial services again. But, in any case, double taxation of non-residents also needs to stop. It has been repeatedly shown to be unfair and ineffective to its stated justifications.
This article treats every American living abroad as a rich tax evader. The journalist clearly does not understand the issue and why so many people are renouncing.
Here is what you wrote: “There are nearly 9 million US citizens living abroad. They should pay taxes on foreign income.”
WHY SHOULD THEY PAY TWO COUNTRIES? No one else in the entire world does.
1) All Americans living abroad full-time *already pay* full tax where they live and work. The United States is the ONLY country (along with Eritrea, a small African dictatorship that can’t enforce anything) to require them to file taxes at “home” too. This is exactly like being taxed not only by the state where you live, but also by the state where you were born. It’s deeply unfair.
2) US citizens abroad are required to file even if they owe nothing. The IRS does not provide help with this super complicated filing but it DOES threaten enormous penalties for doing it wrong. So many people who owe nothing have to spend large amounts to hire professional tax preparers.
3) US citizens abroad are required to file online on the IRS’s financial crimes page. They are all treated as tax cheats because of where they live.
4) But the unfair double taxation is not even the major complaint any more. No, FATCA makes it impossible for many Americans abroad to have a normal financial life. Foreign banks no longer want normal American citizens because the foreign bank has to file a report on every US-person bank account every year to the IRS. They can’t be bothered, so they just don’t accept any Americans at all. This means many Americans who live overseas permanently can’t even get a bank account, a credit card or a mortgage.
5) FATCA puts Americans with a foreign spouse in a horrible position. The spouse is supposed to report all joint bank account information to the IRS as well! The result is that Americans are being removed from bank accounts, mortgages, business ownerships and everything else financial, and are less protected than any other nationality.
6) Americans abroad have NO representation in Congress of their own, even though there are more US citizens living abroad than there are people in 50% of US states. Taxation without representation is wrong.
7) Almost all Americans living abroad are normal, non-rich people who work as teachers, small business owners, journalists (hey, maybe try talking to some of them), or retired people. Many just fell in love with a foreigner and now live abroad. Your article about “millionaires” leaves a seriously false impression.
8) Almost none of the Americans who renounced their citizenship wanted to do so. They were often forced to do so because of the huge financial penalty for being a US citizen abroad since FATCA.
Shame on you for implying that people who renounce their citizenship because of a deeply unfair, unconstitutional (unequal treatment under the law), harmful and unique-to-the-US law are all tax dodgers.