The number of Americans choosing to give up their passports hit a record 3,415 last year, up 14% from 2013, and 15 times more than in 2008, when only 231 people renounced their citizenship.
Experts say the recent surge is coming from expats who no longer want to deal with complicated tax paperwork, a burden that has only gotten worse in recent years.
Unlike most countries, the U.S. taxes all citizens on income, no matter where it is earned or where they live. The mountain of paperwork can be so complicated that expats are often forced to fork over high fees to hire an accountant -- some say they pay as much as $1,000.
One new law designed to catch tax cheats -- the Foreign Account Tax Compliance Act -- requires individuals to report certain foreign assets, and for banks to disclose all foreign accounts held by Americans. That's in addition to another provision that mandates Americans to disclose foreign bank holdings worth more than $10,000.
"More and more are considering renouncing," said Vincenzo Villamena of Online Taxman, an accountant who specializes in expat taxes. "There are a lot of uncertainties about FATCA and [its] implementation; I don't think we've seen the full effect that FATCA can have on people's lives."
As both expats and financial institutions rush to understand the new law, some banks have chosen to kick out their Americans clients rather than comply. If a bank mistakenly fails to report accounts held by Americans outside the U.S. -- even checking and savings accounts -- they can face steep penalties.
As new procedures are put in place, "the pace of U.S. citizenship relinquishments is likely to slow," said Nigel Green, CEO of the deVere Group, a financial advisory firm. "People are becoming aware of the various compliant ways they can mitigate the negative effects of FATCA, without having to take the drastic and often emotional step of giving up their American citizenship."
But it's going to be a few years before renunciations start to taper off, Villamena said.
"You do have a lot of people queuing...there are people still waiting to get their second passport [before they] renounce," he said. "Obviously, you can't give up your [U.S.] passport unless you have another one."
Of course, some Americans giving up their passports could very well be fat cat tax cheats, fleeing to known tax havens to preserve their wealth. But it's illegal to renounce your U.S. status to escape paying taxes, and giving up your citizenship now doesn't mean Uncle Sam won't come after you later for back taxes.
Americans just cannot escape the Internal Revenue Service -- even by strapping on a space suit and blasting themselves into outer space.
Yes, that's right. Astronauts are on the hook to file taxes by April 15, even if they're orbiting hundreds of miles above Earth on a long-term mission.
The IRS -- the much-feared enforcer of the U.S. tax code -- makes no exceptions. Experts say astronauts don't get special treatment, no matter how far away they are from the planet.
NASA astronaut Leroy Chiao -- commander of the tenth expedition to the International Space Station -- was in orbit when tax day rolled around in 2005. Chiao had no choice but to manage his taxes from space.
But how exactly did that happen?
"Get someone to help you out on the ground," Chiao said. The mission commander's sister is an accountant, and she was able to file papers on his behalf to extend his tax return deadline.
"He certainly had a good, valid reason [for the extension]," said his sister, Judy Chiao Smith.
After eight months living on the International Space Station, Chiao returned to earth on April 24, 2005 -- just nine days after tax day -- and got busy working on his tax return.
Since astronauts are routinely gone for months, "you do have to anticipate everything," Chiao said. The astronaut ticked off a laundry list of events to prepare for: voting, birthdays, anniversaries and even Christmas.
Taxes are no exception. Astronauts need to "make sure their mail is getting redirected, so the [tax forms] and other information from the government actually goes somewhere, and isn't held at the post office," Chiao Smith said. "If you're up there in space, you can't get ahold of the data."
Another strategy is for astronauts to file taxes early, said NASA spokeswoman Nicole Cloutier. Some astronauts "file an extension pre-flight, or their spouse handles filing the taxes," she said.
Taxes have long stressed out astronauts -- Jack Swigert, a last-minute addition to the Apollo 13 crew, even radioed Houston's mission control center for tax help while the mission was underway.
"Hey, listen, it ain't too funny; things kind of happened real fast down there, and I do need an extension," Swigert said, according to NASA transcripts. "I didn't get mine filed, and this is serious."
With laughter in the background, mission control promised to help Swigert.
For accountants that work on astronaut taxes, the physical location of their clients raises some interesting -- or perhaps bizarre -- questions.
Americans living abroad can claim an exemption on income earned in a foreign country, for example. Could an astronaut also claim the exemption?
Experts say NASA astronauts working in outer space probably wouldn't qualify. That's because government workers aren't typically eligible, and the IRS doesn't consider international airspace or waters to be a foreign country, said Vincenzo Villamena, an accountant who specializes in expat taxes.
"Even if the astronaut was stationed on board the International Space Station, it would be considered an offshore shop or offshore installation [subject to U.S. taxation]," he said.
But does the IRS definition of "international airspace" extend to altitudes beyond the Earth's atmosphere? The tax code is silent on the issue, though it might come into play if the private space travel industry continues to develop. The IRS did not respond to a request for comment.
"It'd be an interesting argument to make, because technically, you are out of the country," Chiao Smith said.
Americans, take your money elsewhere!
That's what banks around the world have been telling their U.S. customers, as they try to avoid having to comply with a new tax law due to come into force next year.
Jimmy Sexton, an American, was forced to close his checking account at Volksbank in Austria earlier this year. And Genevieve Besser, an American living in Germany, was given two months notice last year to close her securities account at ING-Diba, the German arm of Dutch bank ING (INGVF).
The U.S. Foreign Account Tax Compliance Act, which requires businesses to report all assets held by Americans, aims to recoup thehundreds of billions the U.S. says it loses each year from tax evasion. But it's also leading global banks big and small to dump U.S. customers rather than wrestle with the complicated law.
"U.S. citizens living abroad are really having a hard time with their banks," said Gerard Laures, a partner in the financial services tax division at KPMG.
Proper compliance -- which means reporting everything from basic savings accounts, pension funds, investments, and more -- could easily cost institutions millions each year, he estimated. And penalties are severe; businesses face a 30% tax on U.S.-sourced income if they fail to comply.
"Many banks have taken the decision to tell U.S. customers to go away," Laures said.
Ross Badger, a tax adviser at Satis Asset Management, estimates that half of his clients have had difficulties with their banks, and expects the trend to continue.
Besser was told that new U.S. regulations would "mean a considerable increase in costs," according to a letter she received from the bank. Instead of charging American customers higher fees to offset the new costs, the bank simply decided to shut down the accounts. Sexton received a similar explanation.
A number of other banks have also kicked out Americans.
Deutsche Bank (DB) decided in mid-2011 to close the securities accounts of U.S. residents outside America because of the new law, and HypoVereinsbank, part of Italy's UniCredit, (UNCFF) followed suit.
HSBC is no longer offering wealth management services for Americans in some countries. Neither is the Bank of Singapore, the private banking operation of the Oversea-Chinese Banking Corp. And Raiffeisen bank in Switzerland has cut ties with Americans.
That's only a small sample of banks that are refusing to do business with Americans, who now face a "banking lockout problem," said Marylouise Serrato, executive director of American Citizens Abroad.
It's already a challenge to keep existing accounts open, and it's getting harder to open new ones. Americans are being refused financial services such as mortgages, insurance policies, and pension plans, she said.
"I mean, how do you function without a bank account or a charge card?" she said. "If you can't put your name in an account because a bank doesn't want an American, how do you even rent an apartment to live?"
Banking problems are adding to the tax headaches U.S. expats already face, many of whom say it's a burden to ensure their taxes are filed accurately each year. Growing numbers are even choosing togive up their U.S. citizenship as a way of escaping the paperwork.
After being told to leave ING-Diba, Besser said she was turned away by Barclays (BCS), Fidelity, Franklin Templeton, and a German savings bank, before she finally found a bank that would open an account.
Sexton, who is president of his own international tax firm, was also able to open a new account at another bank with a department specializing in expat accounts.
Financial institutions that are in a position to comply with the regulations could pick up some of the slack. "There is an awful lot of money around," Badger said.
"There's an assumption that if you have accounts outside the U.S. that you're a tax evader," Besser said. "It's not that easy to evade taxes. I mean, what taxes am I evading?
The mayor of London is probably regretting keeping his U.S. passport: He's being pursued by officials over an unpaid tax bill.
Boris Johnson was born in New York and still has U.S. citizenship, despite leaving the country when he was five years old.
On a recent visit to the U.S. to promote a book, Johnson told NPR that officials were "coming after him" for capital gains tax on the sale of his first London home.
The Daily Telegraph said the mayor owed more than £100,000 ($160,000) in tax after making a profit of £730,000 on the sale.
Asked whether he would pay the bill, he told NPR: "No is the answer. I think it's absolutely outrageous. Why should I? ... I haven't lived in the United States for, you know, well, since I was five years old."
His spokeswoman declined to comment further.
Unlike most countries, the U.S. taxes citizens, including expats like Johnson, on all income,regardless of where they live or earn.
This is not the only tax dispute between Johnson and the U.S.
The mayor, known for his unruly blond hair and the occasional gaffe, has criticized the U.S. embassy for not paying the congestion charge -- a levy on vehicles using central London streets during peak weekday hours.
He claims American diplomats owe more than $10 million for driving through the city center. He's even asked President Obama to pick up the bill.
The U.S. embassy, along with other embassies in London, refuses to pay. They say the fee is a form of tax -- and that as diplomats, they are exempt.
From an international perspective, the world is split into two halves -- the people who are desperate to get U.S. citizenship, and the people who are desperate to give it up
Source | Several posts have been combined into a single larger post; from CNN
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