Renouncing Your Citizenship to Stick It to the Tax Man? Not as Easy as it Looks

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To hear some tell it, we’ve got the beginning of an Ayn-Randian capitalist strike on our hands – at least amongst American expatriates fed up with writing checks to the IRS despite living abroad. Indeed, as tax attorney Jim Duggan notes, the number of expats who’ve renounced their American citizenship this year outnumber those in the the past three years combined, an apparent response to the IRS’s more aggressive attempts to make American expatriates pay the taxes Uncle Sam insists they pay.

The most famous recent renouncer is, of course, Facebook co-founder Eduardo Saverin, who gave up his citizenship before the Facebook IPO  in what many saw as a ploy to avoid paying taxes on his IPO bonanza. (This is a ploy which may well backfire on him, given the poor performance of Fabeook’s shares since the ill-starred IPO.) Other (relatively) recent renouncers include film director and Monty Python alum Terry Gilliam and actor Jet Li.

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So do we have a real exodus on our hands? Hardly. While Saverin’s story grabbed headlines, the actual number of renouncers, while indeed increasing, is still tiny. As Greenback Expat Tax Services note in a recent statement, renouncers made up

1,780 total in 2011 out of the estimated 3 to 6 million US citizens who live abroad – in other words, the percentage of American expats who renounced their citizenship increased from 0.008% to 0.059% between 2008 and 2011.

Saverin’s case did help to illuminate the complicated financial relationship American expats have with the US government. Despite living abroad, expats are still required to pay income taxes as well as taxes on their capital gains – though there are deductions available to expats (most notably something called the Foreign Earned Income Exclusion) that can reduce the amount of this tax to zero. The US is the only country, aside from Eritrea, that imposes such taxes on its citizens abroad.

But as Saverin learned, it’s not easy for expats to disentangle themselves from the IRS. Renouncing your American citizenship isn’t simply a matter of burning your passport. Uncle Sam makes the process both difficult – and pricey. When you give up your citizenship, you’re required to pay an “exit tax” based on what you would owe the government if you liquidated all your investments today.

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And it may get even more pricey in the future. Offended by Saverin’s “unpatriotic” actions, Democratic senators Chuck Schumer and Bob Casey introduced a bill called the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act  — more commonly known as the “Ex-PATRIOT Act.” The bill would double the “exit tax” from 15% to 30%, and prevent those who renounce their citizenship from ever returning to the U.S.

Ironically, as American liberals fulminate over “ex-Patriots” and some conservatives toast Saverin as a hero of sorts, wealthy foreign investors are clamoring to get in to the U.S. in record numbers. The State Department is on track to issue a record 6,000 “investor visas” this year, CNN reports. If there’s a capitalist strike going on , no one told them about it.

2 comments
AtticusinCanada
AtticusinCanada

This article really misses the mark on many levels. For one...most expats are liberal and live in liberal countries. Canada and Europe come to mind. They don't fit the U.S. centric "Randian" plot line.


The liberal party, Green Party and NDP and the Canadian Civil Liberties Association have all pointed out the many problems FATCA is causing here and spoken out against it. The U.S. needed to amend it to avoid some of this but, of course refused. 


See: http://globalnews.ca/news/782020/why-are-so-many-american-expats-giving-up-citizenship-its-a-taxing-issue/


Start there. You can find at least twenty articles like that one here as well as listen to CBC radio's "The Current" and a CBC television has covered it too. A lot more accurately I am sorry to say than "TIME"  


Secondly, the Canadian media have covered the reasons and problems with banking extensively. Using FB founder is not really a very good example since 90 percent of all expats are not rich and will never owe any U.S. taxes. The problems with FATCA do not have to do with taxes owed. They have to do with not being able to bank where you live with a foreign spouse, with accidental Americans getting caught in something they knew nothing about, with foreign born children having their bank data reported to the U.S. even if they never set foot there. FATCA has caused mortgages to be not renewed and local accounts people need to deposit pay checks and buy groceries to be closed. 


Also, the FBI has different numbers than State does and the numbers are notoriously low and inaccurate. I'm glad the U.S. media has finally decided to cover this issue but, I wish they had time to speak with the people this is happening to, and do their research a little more in depth before publishing an article. To my mind if even one person has to give up their citizenship or not be allowed to bank where they live with their foreign family then something is wrong with FATCA. That something is citizenship based taxation. Put into place as a punishment during the civil war and still functioning as a punishment. No other nation treats their expats the way the U.S. does other than the tiny African dictatorship of Eritrea. FATCA would work perfectly well if the U.S. went to the international norm of residency based taxation. Furthermore, I am in the same situation as these people. My Canadian spouse makes all of our income at his Canadian job here in Canada. He objected to the FATCA since it violates his rights as a Canadian under the Charter of Rights and Freedoms here. He would have all of HIS banking information sent to the U.S. for marrying me even though I make none of our income. I'll have to renounce too and that will is a disgraceful thing since I've always tried while living here in Canada to portray the U.S. as a good country with reasonable people. I'm not so sure what I think now. 

FrankDePriest
FrankDePriest

If I gave up my U S Citzenship would I also forfiet my Social Security ?