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US Taxes Cost Some Expatriates Their Citizenship


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US Taxes Cost Some Expatriates Their Citizenship

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Category: Tax

A year ago, in Action Comics, Superman declared plans to renounce his U.S. citizenship.    

“‘Truth, justice, and the American way’ — it’s not enough anymore,” the comic book superhero said, after both the Iranian and American governments criticized him for joining a peaceful anti-government protest in Tehran.

Last year, almost 1,800 people followed Superman’s lead, renouncing their U.S. citizenship or handing in their Green Cards. That’s a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998. It’s also almost eight times more than the number of citizens who renounced in 2008, and more than the total for 2007, 2008 and 2009 combined.

But not everyone’s motivations are as lofty as Superman’s. Many say they parted ways with America for tax reasons.

The United States is one of the few countries to tax their citizens on income earned while they’re living abroad. And just as Americans stateside must file tax returns each April — this year, the deadline is Tuesday — an estimated 6.3 million U.S. citizens living abroad brace for what they describe as an even tougher process of reporting their income and foreign accounts to the IRS. For them, the deadline is June.

The National Taxpayer Advocate’s Office, part of the IRS, released a report in December that details the difficulties of filing taxes from overseas. It cites heavy paperwork, a lack of online filing options and a dearth of local and foreign-language resources.

For those wishing to legally escape the filing requirements, the only way is to formally renounce their U.S. citizenship. Last year, IRS records show that at least 1,788 people did, and that’s likely an underestimate. The IRS publishes in the Federal Register the names of those who give up their citizenship, and some who renounced say they haven’t seen their name on the list yet.

The State Department said records it keeps differ from those published by the IRS. They indicate that renunciations have remained steady, at about 1,100 each year, said an official.

The decision by the IRS to publish the names is referred to by lawyers as “name and shame.” That’s because those who renounce are seen as willing to give up their citizenship primarily for financial reasons.

There’s also an “exit tax” for the very rich who choose to leave. During the last 25 years, a number of millionaires and billionaires have renounced their citizenship. Among them: Ted Arison, the late founder of Carnival Cruises, and Michael Dingman, a former Ford Motor Co. director.

But those of more modest means renounce, too. They say leaving America is about more than money; it’s about privacy and red tape.

Liability, not privilege
On April 7, 2011, Peter Dunn raised his right hand before a U.S. consular officer in Toronto and swore that he understood the consequences of giving up his U.S. citizenship. Dunn, a dual U.S.-Canadian citizen who has lived outside the United States since 1986, says he renounced because he felt American citizenship had become more of a liability than a privilege.

As an American, Dunn had to file tax returns and report all of his bank accounts — even joint accounts and his Canadian retirement fund. If he didn’t, he would be breaking U.S. law and could face penalties of up to $100,000 or 50 percent of his undeclared accounts, whichever is larger. Dunn says he was tired of tracking IRS policy changes, and he had no intention of returning to the United States. Renouncing his citizenship, as he puts it, was “a no-brainer.”

“If it was just me then it would be one thing,” says Dunn, a part-time investor who worried that having to share information with the IRS would deter future business partners — and upset his wife, who is Canadian. “Disclosing joint accounts I hold with my wife and anyone I ever want to do business with — that’s just too much. My wife’s account is none of their business.”

Dunn, who blogs about expatriation, takes issue with being characterized as a tax evader. He says the taxes he pays in Canada are higher than what he would pay in the United States, and he says he had always complied with the IRS before renouncing. But, Dunn says, the IRS approach to enforcing compliance is misguided. “It’s making life difficult for a lot of people,” he says. “It’s driving us away.”

Source: Reuters

Published: September 22, 2019