Number of Americans Renouncing Citizenship Surges To Escape Oppressive Tax Rules
The Tools To Control The Masses Are Either To Print Money or Raise Taxes, That's Pretty Much It!
A record 4,279 individuals renounced their U.S. citizenship or long-term residency in 2015, according to data released by the Treasury Department.
Last year was the third year in a row for record renunciations, according to Andrew Mitchel, an international lawyer in Centerbrook, Conn., who tallies and tracks renunciation data. The Treasury Department renunciation list for the fourth quarter, which contained 1,058 names, was released on Friday.
“An increasing number of Americans appear to believe that having a U.S. passport or long-term residency isn’t worth the hassle and cost of complying with U.S. tax laws,” Mr. Mitchel said.
Experts say the growing number of renunciations by citizens and long-term holders of green cards is related to an enforcement campaign by U.S. officials against undeclared offshore accounts. It intensified in 2009, after Swiss banking giant UBS AG admitted that it encouraged U.S. taxpayers to hide money abroad.
Since then, the U.S. has collected more than $13.5 billion from individuals and foreign financial firms in taxes and penalties due on such accounts. This week, Swiss bank Julius Baer Group AG admitted it encouraged U.S. taxpayers to hide money abroad and agreed to pay $547 million to settle potential charges.
However, the campaign by U.S. officials also has complicated the financial lives of an estimated 7 million or more Americans living abroad, leading growing numbers to sever their U.S. ties.
Unlike many countries, the U.S. taxes nonresident citizens on income they earn abroad. According to Philip Hodgen, an international tax lawyer who practices in Pasadena, Calif., the law provides only partial offsets for double taxation when taxes are owed to both the U.S. and a foreign country, and complying with the law is onerous.
Mr. Mitchel adds that since 1995, the penalties for noncompliance by Americans living abroad who didn’t intentionally avoid filing common IRS forms have increased dramatically—in some cases from as little as $2,000 to as much as $70,000 annually.
IRS scrutiny of Americans abroad is also intensifying because of a new law known as Fatca, which requires foreign financial institutions to report income information for their customers who are U.S. taxpayers to the IRS, or else face severe penalties. More than 180,000 foreign banks and other firms have signed up to comply with Fatca.
The Treasury Department is required by law to publish quarterly lists of people who renounce their citizenship or long-term residency. The list doesn’t distinguish between people turning in passports and those turning in green cards, or indicate which other nationality the individuals hold.
There is often a lag between when a person renounces and the government’s publication of his or her name. No information appears other than the name.
In the fiscal year ended Sept. 30, 2015, nearly 730,000 people became U.S. citizens, according to a spokesman for the U.S. Citizenship and Immigration Services division of the Department of Homeland Security.
U.S. Fee to Drop Citizenship Is Raised Fivefold
The fee for individuals to renounce U.S. citizenship is jumping to $2,350 as of Sept. 12—more than five times the current charge of $450.
The U.S. State Department, in its explanation for the increase, said that documenting a renunciation is “extremely costly” and requires a minimum of two intensive interviews with the applicant as well as other procedures.
The fees charged for a number of other services, such as “fiance(e) visas” and employment-based visa applications, increased far less than those for renunciation and in some cases declined.
The large increase in the renunciation fee comes at a time when record numbers of Americans living abroad are cutting ties with the U.S. Last year, 2,999 U.S. citizens and green-card holders renounced their allegiance to the U.S., a record number, and renunciations in 2014 are on track to exceed that. The State Department estimates that 7.6 million Americans live abroad.
In its explanation of the fee increase, the State Department referred to the growth in renunciations, noting that since 2010 the demand has “increased dramatically, consuming far more consular time and resources.” It also referred to a 2010 statement saying that the $450 fee was substantially less than what it cost to provide the service, adding that “there is no public benefit or other reason for setting this fee below cost.”
According to a State Department spokesman, the wait time for an expatriation interview has increased to as much as six months in some areas, while it is as short as two to four weeks in others. He added that three-quarters of all renunciations are processed by consular offices in Canada, the U.K. and Switzerland.
Advocates for U.S. expatriates reacted angrily to news of the increase. “I’m so disappointed and insulted by the continuing punitive actions of the U.S. in trying to prevent persons and companies from leaving,” said Carol Tapanila, who was born in New York state but has lived in Canada for more than 40 years. She renounced her citizenship in 2012.
“The cost of U.S. tax lawyers, accountants and immigration lawyers made a good dent in our retirement savings. With these new fees, we would have had to take out a loan,” she added.
Helping boost the exodus of U.S. citizens, say experts, is a five-year old campaign by U.S. authorities to track down tax evasion by Americans hiding money abroad. While the campaign has collected more than $6 billion in taxes, interest and penalties from 43,000 U.S. taxpayers, it has also swept up many middle-income Americans living abroad who pay taxes in their host country and say they weren’t trying to dodge U.S. taxes.
Scrutiny of these Americans by U.S. authorities is intensifying under the Foreign Account Tax Compliance Act, known as Fatca, which Congress passed in 2010. The law’s main provisions took effect in July and require foreign financial firms to report income and account balances above certain thresholds to the Internal Revenue Service.
The heightened enforcement is prompting many to renounce their citizenship. While a renunciation doesn’t free them of taxes due for past years, these people don’t want to risk large tax bills for themselves and their children in the future
Record Numbers Living Abroad Renounce U.S. Citizenship over IRS Reporting Requirements.
A total of 1,130 names appeared on the latest list of renunciations from the Internal Revenue Service, according to Andrew Mitchel, a tax lawyer in Centerbrook, Conn., who tracks the data. That is far above the previous high of 679, set in the first quarter, and more than were reported in all of 2012.
Taxpayers aren't required to explain the move, but experts said the recent rise is likely due to tougher laws and enforcement.
"The IRS crackdown on U.S. taxpayers living abroad seems to be having an effect," said Mr. Mitchel.
Lags in reporting renunciations might mean that many who appeared on the current list made the move months earlier. Taxpayers who renounced can be subject to an exit tax, and people who renounced last year may have avoided higher taxes on capital gains and income that went into effect in 2013.
The U.S. is rare in that all income earned by citizens and permanent residents, even those living abroad, can be subject to U.S. tax, according to Bryan Skarlatos, a New York lawyer. The U.S. also confers citizenship on people who are born on American soil.
The U.S. launched the tax crackdown after the terrorist attacks of Sept. 11, 2001, and ratcheted up its efforts after 2009, amid evidence that UBS AG and other foreign institutions helped U.S. taxpayers hide assets.
Some taxpayers have applied for IRS limited-amnesty programs, in which they pay stiff penalties for past noncompliance but avoid prosecution.
Tax lawyers say the crackdown has ensnared smaller violators who weren't intentionally evading U.S. taxes.
In addition, a law enacted in 2010, the Foreign Account Tax Compliance Act, or Fatca, requires foreign financial institutions to certify they aren't hiding U.S. taxpayer assets, which lawyers say is leading some to reject U.S. customers.
Taxpayer penalties for failing to report assets can be severe, including up to 50% of an account balance for each year.
The web of rules is "overly burdensome," said Jeffrey Neiman, a former federal prosecutor who led the 2009 UBS case, which resulted in the bank's agreeing to a $780 million settlement. He now is a lawyer in private practice in Fort Lauderdale, Fla. "You basically find yourself in this continuous nightmare."
The cost of complying with various rules and regulations can be steep even for people with small tax bills.
Carol Tapanila, who moved to Canada more than 40 years ago and is now retired, renounced her citizenship in November and appeared on the current list. She says her U.S. taxes amounted to about $250 last year and she didn't take the step to avoid paying them.
Legal and accounting fees and other costs of making sure she was in compliance in recent years have added up to nearly $40,000, says Ms. Tapanila. "It is nothing but stress."
Expatriation can also be costly, requiring that taxpayers prove they have properly paid five years' taxes, among other things.
Countries With And Without Income Tax Treaties With The U.S.
|Country||Income Tax Treaty with U.S.? (Yes/No)|
|Central African Republic||No|
|Democratic Republic of the Congo||No|
|Sao Tome and Principe||No|
|Country||Income Tax Treaty with U.S.? (Yes/No)|
|Timor-Leste (East Timor)||No|
|United Arab Emirates||No|
3) AUSTRALIA AND OCEANIA
|Country||Income Tax Treaty with U.S.? (Yes/No)|
|Papua New Guinea||No|
|Country||Income Tax Treaty with U.S.? (Yes/No)|
|Bosnia and Herzegovina||No|
|The Czech Republic||Yes|
5) NORTH AMERICA
|Country||Income Tax Treaty with U.S.? (Yes/No)|
|Antigua and Barbuda||No|
|Saint Kitts and Nevis||No|
|Saint Vincent and the Grenadines||No|
|Trinidad and Tobago||Yes|
6) SOUTH AMERICA
|Country||Income Tax Treaty with U.S.? (Yes/No)|
The program is the latest move in the agency's effort to combat what it sees as a widespread problem: failure by businesses, including mom-and-pops, to report all cash sales in order to minimize tax bills.
Tax officials say the letters don't constitute an audit and instead are simply a request for more information. Some business owners and some lawmakers, however, call the new IRS program alarming.
"There's an emotional thing when you get a pretty ominous-looking letter from the IRS, [saying] you might have done some bad things," said Tom Reese, owner of Hearing Well Inc., which operates a small chain of stores that fit and sell hearing aids in eastern Tennessee, who received a letter in recent weeks. "I really work hard with my accountant to make sure that I not only follow the law, but follow the letter of the law."
The IRS says it is sending out about 20,000 letters to business owners as the program cranks up. While that is a small portion of the total number of U.S. small businesses, which is estimated in the millions, some tax accountants say they expect the program to expand.
Roger Harris, president of Padgett Business Services, a nationwide accounting firm that specializes in small businesses, said the letters have "created some heartache in the small business community."
The IRS program stems from a 2008 change in the law that gave the agency broader access to merchants' credit- and debit-card transaction records. The IRS has been comparing the data to information that small businesses report on their tax returns. If the data suggest an unusually large percentage of a business's receipts come from card transactions, the IRS might send a letter asking the business owner to explain why cash receipts seem relatively low.
Underreporting of income comprises the majority of the so-called "tax gap," the difference between what Americans owe and pay, according to IRS data. In 2006, the most recent year available, the total tax gap was $450 billion. Underreporting accounted for $376 billion of that total, and underreported small-business income totaled at least $141 billion.
One typical letter to a small-business owner is headlined, "Notification of Possible Income Underreporting." It begins, "Your gross receipts may be underreported."
The letter instructs the owner to complete a form "to explain why the portion of your gross receipts from non-card payments appears unusually low." It says the business owner must respond within 30 days.
"The letter implies that this is a serious matter that could lead to assessments of additional tax, penalties and interest," says a letter sent to the IRS Friday by Rep. Sam Graves (R., Mo.), chairman of the House Small Business Committee. The IRS is now the target of a series of congressional investigations into its giving extra scrutiny to conservative groups seeking tax-exempt status.
Fran Coet, who runs an accounting business in Westminster, Colo., says the new IRS practice will cause a lot of fear among small businesses because it can often be difficult to match credit transactions with income.
"There are so many reasons why, even if you're the most honest tax payer, you're not going to match" what card records show, says Ms. Coet, whose company advises about 250 small businesses. Ms. Coet cited sales of gift cards, which for accounting purposes don't count as a sale, but look that way to a credit-card company.
There are legitimate reasons why a business might report relatively high proportions of card receipts versus cash receipts. Card receipt totals can include cash that the customer takes back. Mr. Reese said his hearing aids carry price tags of $1,000 or more, which encourages clients to use cards.
Peter Fleming, a small-business accountant in Carnegie, Pa., said a client with a gift and souvenir shop received a letter from the IRS in December saying the revenue she claimed in tax returns the previous year was lower than sales reported in merchant card and third-party payments data. The retailer reported gross receipts of $243,462, versus $249,994 in the payment data, according to the IRS. The letter told her to ensure she was "fully reporting receipts from all sources" and gave her 30 days to respond. Mr. Fleming said the discrepancy was because payments data included sales tax, which wasn't included in revenue claimed in tax returns. For small retailers, "Sales tax is a liability and is not reported as revenue," Mr. Fleming said.
The IRS in a statement said the agency is "taking its first early steps" in using the new data, and promised "to carefully review the results of these initial steps." It said the agency is "working diligently to minimize burden on both taxpayers and tax professionals."
The agency defended its approach as "measured and equitable in several ways, including giving taxpayers the opportunity to explain and fix errors." It added: "An important component of this project is [to] help ensure that people who are non-compliant don't get an unfair advantage over those that play by the rules and follow the law."
The IRS has told accountants that a principal aim of its program is to verify the quality of the card-transaction data the agency is getting.
Famous Americans Who Renounced U.S. Citizenship
Most Chose Renunciation To Avoid Paying Their Tax Bills
Renunciation of U.S. citizenship is an extremely serious matter that the federal government handles carefully.
Section 349(a)(5) of the Immigration and Nationality Act (INA) governs renunciations. The U.S. Department of State oversees the process. An individual who seeks renunciation must appear in person at a U.S. embassy or consulate outside the United States. The petitioner, in effect, forfeits the right to be in the United States and to travel freely here, and also the other rights of citizenship. Since the Great Recession of 2007, renunciations have increased as more U.S. citizens have tried to avoid taxes by giving up their citizenship and moving overseas.
Eduardo Saverin, Co-Founder of Facebook
Eduardo Saverin, the Brazilian internet entrepreneur who helped Mark Zuckerberg found Facebook, caused a stir before the company went public in 2012 by renouncing his U.S. citizenship and taking up residency in Singapore, which does not permit dual citizenship.
Saverin gave up being an American to save millions in taxes from his Facebook fortune. He was able to avoid capital gains taxes on his Facebook stock but was still liable for federal income taxes. But he also faced an exit tax -- the estimated capital gains from his stock at the time of renunciation in 2011.
In the award-winning movie The Social Network, Saverin's role was played by Andrew Garfield.
Denise Rich, Grammy-Nominated Song-Writer
Denise Rich, 69, is the ex-wife of billionaire Wall Street investor Marc Rich, who was pardoned by President Bill Clinton after fleeing to Switzerland to avoid prosecution for tax evasion and profiteering allegations.
She has written songs for a dazzling list of recording artists: Mary J. Blige, Aretha Franklin, Jessica Simpson, Marc Anthony, Celine Dion, Patti LaBelle, Diana Ross, Chaka Khan and Mandy Moore. Rich has received three Grammy nominations.
Rich, who was born Denise Eisenberg in Worcester, Mass., moved to Austria after leaving the United States. Her ex-husband Marc died in June 2013 at the age of 78.
Ted Arison, Owned Carnival Cruise Lines and Miami Heat
Ted Arison, who died in 1999 at the age of 75, was an Israeli businessman, who was born as Theodore Arisohn in Tel Aviv.
After serving in the Israeli military, Arison moved to the United States and became a U.S. citizen to help launch his business career. He founded Carnival Cruise Lines and earned a fortune as it grew to be one of the biggest in the world. He became one of the richest people in the world. Arison brought a National Basketball Association franchise, the Miami Heat, to Florida in 1988.
Two years later, he renounced his U.S. citizenship to avoid estate taxes and returned to Israel to start an investment business. His son Micky Arison is Carnival's chairman of the board and current owner of the Heat.
John Huston, Movie Director and Actor
In 1964, Hollywood director John Huston gave up his U.S. citizenship and moved to Ireland. He said he had come to appreciate Irish culture more than that in America.
"I shall always feel very close to the United States," Huston told the Associated Press in 1966, "and I shall always admire it, but the America I know best and loved best doesn't seem to exist anymore."
Huston died in 1987 at the age of 81. Among his film credits are The Maltese Falcon, Key Largo, The African Queen, Moulin Rouge and The Man Who Would Be King. He also won praise for his acting in the 1974 film noir classic Chinatown.
According to family members, daughter Anjelica Huston in particular, Huston despised life in Hollywood.
Jet Li, Chinese Actor and Martial Artist
Jet Li, the Chinese martial arts actor and film producer, renounced his U.S. citizenship in 2009 and moved to Singapore. Multiple reports said Li preferred the education system in Singapore for his two daughters.
Among his film credits are Lethal Weapon 4, Romeo Must Die, The Expendables, Kiss of the Dragon, and The Forbidden Kingdom.
Meanwhile, The IRS Loses Lerner's Emails
Never underestimate government incompetence, but how convenient. The former IRS Director of Exempt Organizations was at the center of the IRS targeting of conservative groups and still won't testify before Congress. Now we'll never know whose orders she was following, or what directions she was giving. If the Reagan White House had ever offered up this excuse, John Dingell would have held the entire government in contempt.
The suspicion that this is willful obstruction of Congress is all the more warranted because this week we also learned that the IRS, days before the 2010 election, shipped a 1.1 million page database about tax-exempt groups to the FBI. Why? New emails turned up by Darrell Issa's House Oversight Committee show Department of Justice officials worked with Ms. Lerner to investigate groups critical of President Obama.
How out of bounds was this data dump? Consider the usual procedure. The IRS is charged with granting tax-exempt status to social-welfare organizations that spend less than 50% of their resources on politics. If the IRS believes a group has violated those rules, it can assign an agent to investigate and revoke its tax-exempt status. This routinely happens and isn't a criminal offense.
Ms. Lerner, by contrast, shipped a database of 12,000 nonprofit tax returns to the FBI, the investigating agency for Justice's Criminal Division. The IRS, in other words, was inviting Justice to engage in a fishing expedition, and inviting people not even licensed to fish in that pond. The Criminal Division (rather than the Tax Division) investigates and prosecutes under the Internal Revenue Code only when the crimes involve IRS personnel.
The Criminal Division knows this, which explains why the emails show that Ms. Lerner was meeting to discuss the possibility of using different statutes, specifically campaign-finance laws, to prosecute nonprofits. A separate email from September 2010 shows Jack Smith, the head of Justice's Public Integrity Unit (part of the Criminal Division) musing over whether Justice might instead "ever charge a 371" against nonprofits. A "371" refers to a section of the U.S. Code that allows prosecutors to broadly claim a conspiracy to defraud the U.S. You know, conspiracies like exercising the right to free political speech.
The IRS has admitted that this database included confidential taxpayer information—including donor details—for at least 33 nonprofits. The IRS claims this was inadvertent, and Justice says neither it nor the FBI used any information for any "investigative purpose." This blasé attitude is astonishing given the law on confidential taxpayer information was created to prevent federal agencies from misusing the information. News of this release alone ought to cause IRS heads to roll.
The latest revelations are a further refutation of Ms. Lerner's claim that the IRS targeting trickled up from underlings in the Cincinnati office. And they strongly add to the evidence that the IRS and Justice were motivated to target by the frequent calls for action by the Obama Administration and Congressional Democrats.
One email from September 21, 2010 shows Sarah Hall Ingram, a senior IRS official, thanking the IRS media team for their work with a New York Times reporter on an article about nonprofits in elections. "I do think it came out pretty well," she writes, in an email that was also sent to Ms. Lerner. "The 'secret donor' theme will continue—see Obama salvo and today's [radio interview with House Democratic Rep. Chris Van Hollen ]."
Several nonprofit groups have recently filed complaints with the Senate Ethics Committee against nine Democratic Senators for improperly interfering with the IRS. It's one thing for Senators to ask an agency about the status of a rule or investigation. But it is extraordinary for Illinois's Dick Durbin to demand that tax authorities punish specific conservative organizations, or for Michigan's Carl Levin to order the IRS to hand over confidential nonprofit tax information.
And it's no surprise to learn that Justice's renewed interest in investigating nonprofits in early 2013 immediately followed a hearing by Rhode Island Sen. Sheldon Whitehouse in which he dragged in officials from Justice and the IRS and demanded action.
It somehow took a year for the IRS to locate these Lerner exchanges with Justice, though they were clearly subject to Mr. Issa's original subpoenas. The Oversight Committee had to subpoena Justice to obtain them, and it only knew to do that after it was tipped to the correspondence by discoveries from the watchdog group Judicial Watch. Justice continues to drag its feet in offering up witnesses and documents. And now we have the two years of emails that have simply vanished into the government ether.
New IRS Commissioner John Koskinen promised to cooperate with Congress. But either he is being undermined by his staff, or he's aiding the agency's stonewalling. And now that we know that Justice was canoodling with Ms. Lerner, its own dilatory investigation becomes easier to understand. Or maybe that was a computer crash too.
Updated: August 6th, 2014
Fewer Americans Renounced Their Citizenship in the Second Quarter
The number of people renouncing their U.S. citizenship or ending long-term U.S. residency fell in the second quarter, compared with the first three months of 2014.
The total number of renunciations was 576, down from 1,001 in the first quarter, according to Andrew Mitchel, an international tax lawyer in Centerbrook, Conn. He tracks the data based on lists published by the Treasury Department that give the names of people who renounced their U.S. citizenship or turned in certain green cards. The list for the second quarter was published today.
Mr. Mitchel notes that the total for 2014 is still on pace to equal or exceed the record set in 2013, when nearly 3,000 people turned in U.S. passports or green cards.
There is often a lag between when a person renounces and the government’s publication of his or her name. No information other than the name appears on the Treasury Department list, such as where the person currently lives or what other nationality he or she has. An estimated 7.6 million U.S. citizens live abroad.
According to Mr. Mitchel’s data, nearly 8,000 taxpayers have renounced U.S. citizenship in the past five years, compared with fewer than 5,000 in the preceding decade. Helping boost the exodus, experts say, is a five-year-old campaign to hunt for undeclared accounts held by U.S. taxpayers abroad. U.S. officials launched the campaign after Swiss banking giant UBS admitted in 2009 that it helped wealthy American taxpayers hide money overseas.
Unlike other developed nations, the U.S. taxes citizens and green-card holders who live abroad on income they earn anywhere in the world. The rule dates to the Civil War.
Scrutiny of Americans abroad is also intensifying under the Foreign Account Tax Compliance Act, or Fatca, which Congress passed in 2010. The law’s main provisions, which took effect in July, require foreign financial institutions to report income of their U.S. customers to the Internal Revenue Service, much as U.S. banks and brokerages file 1099 forms.
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