Why Americans are renouncing their citizenship in record numbers (It's not Trump)

...And indeed, government statistics show record numbers of people are renouncing their U.S. citizenship. But it’s not Trump that has persuaded them to go. It’s taxes.

The IRS publishes the names of each American who gives up his or her citizenship. The list comes out every three months, and international tax lawyer Andrew Mitchel has tallied them up. In the first quarter of this year, 1,158 people expatriated — more than 10 times the number in the first quarter of 2008, when Mitchel began his count. Last year, a record 4,279 people renounced their citizenship.

Expatriations have grown steadily since 2008 but began to spike in 2013. That timing undermines the theory that Trump is responsible. (Back then, he was busy suing talk-show host and comedian Bill Maher for calling him the spawn of an orangutan.) But the increase dovetails with the implementation of new federal reporting requirements and penalties for assets held overseas by U.S. citizens.

The rules were passed back in 2010 as part of legislation intended to encourage businesses to hire more employees and jump-start the nation’s economic recovery. Attached to the law was a provision called the Foreign Account Tax Compliance Act (FATCA) that was supposed to “detect, deter and discourage” tax evasion through offshore bank accounts. 

The law requires foreign banks to report whether their clients are U.S. citizens. The penalty for not complying is stiff: a 30 percent withholding from the proceeds of the bank's financial transactions in the United States. That has caused plenty of consternation among foreign firms, some of which have reportedly closed accounts belonging to Americans as a result.

The regulations also created new filing requirements for individuals with assets overseas and increased the fines for missing a form. The penalty for failing to file is $10,000 per form. The consequences are even steeper for intentionally not filing a document known as the Report of Foreign Bank and Financial Accounts, which could result in a fine of $100,000 or 50 percent of what’s in the bank account — whichever is greater.

“They’re like, 'Oh my, God, the IRS is going to bankrupt me,'” Mitchel said of his clients. “People get terrified of this, and they don’t want to have anything to do with the IRS, and then they want to renounce.”

Mitchel said that many of his clients have been paying taxes in the country where they live now and may not have bothered filing a U.S. return. Most countries in the world expect you to pay taxes only when you live inside their borders. But two nations — the United States and Eritrea — require its citizens to pay taxes on income while living in other countries. And Mitchel said it’s not just the very wealthy who are chafing under the new regulations. Many of his clients are moderate-income households and retirees living overseas who find navigating the morass of requirements more trouble than it is worth.

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Johnathan Tepper: Why I'm giving up my passport

LONDON — THE mayor of London, Boris Johnson, who was born in New York and holds both American and British passports, recently said that he would not pay a tax bill from the United States on capital gains from the sale of his home in the London borough of Islington. Mr. Johnson pointed out that he hasn’t lived in America since he was 5. He’d like to renounce his citizenship, but said the process was “very difficult.”

It is, but I am doing it. My “in-person final loss of citizenship appointment” is scheduled for Jan. 14 at the United States Consulate here. My British passport, acquired in 2012, will be my only one.

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Thinking of getting out while you can? It may be too late

Charles Schumer and Bob Casey, the two U.S. Senators behind the Ex-PATRIOT act — a proposal to go after early Facebook backer Eduardo Saverin and others like him that have renounced U.S. citizenship and are getting out of paying capital gains tax on stock windfalls — have now revealed the details of their plan. We first wrote about it earlier today when the offices of the two senators first announced their intentions.

It’s pretty big: any ex-pat with either a net worth of over $2 million, or an average income tax liability of at least $148,000 over the last five years, “will be presumed to have renounced their citizenship for tax avoidance purposes.” The ex-pat will have to demonstrate to the IRS that this is not the case if it is not. If there is a “legitimate reason” for that person living outside the U.S. no penalties will apply. But if the IRS finds that someone gave up their passport for tax purposes, they will impose a tax on that individual’s investment gains “no matter where he or she resides.”

The rate of that capital gains tax will be 30 percent — the same that non-resident aliens currently pay on dividends and interest earnings.

The tax detailed this act, if approved, will backdate for 10 years after its approval.

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