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The hottest trend in avoiding the IRS has people bailing on the United States altogether. From Facebook co-founders to Massachusetts socialites, thousands of Americans are renouncing their citizenship to lighten their tax burden.
And it turns out a law aimed at reducing the number of offshore accounts has also reduced the amount of American citizens.
The Foreign Account Tax Compliance Act (FATCA) was passed in 2010 in an attempt to discourage U.S. taxpayers from moving assets overseas into foreign financial accounts in order to avoid paying taxes. As Temple Law professor Peter Spiro told Philly.com, "The U.S. is the only country that taxes on the basis of citizenship rather than residency."
This means that Americans must file U.S. tax returns no matter where they live or where they make money. Even if an American abroad doesn't owe income tax, the report requirements alone can be a hassle, carrying civil or criminal penalties for doing it wrong. And for an increasing amount of U.S. citizens, that risk (and the possibility of paying more in taxes) isn't worth pledging allegiance to the red, white, and blue.
So is renunciation right for you? You may want to think twice before shedding your citizenship. First off, renouncing your citizenship also means renouncing your residency: you have to file your "loss of nationality" paperwork at a U.S. embassies or consulate abroad. You can't file in America, and your petition can be rejected if you're trying to retain the right to live in the U.S. while claiming you're not a citizen.
In addition, the cost of renouncing your citizenship isn't cheap. With a bump in renunciation claims after FATCA passed, the renunciation fee also bumped up from $450 to $2,350. And renunciation is generally irrevocable, so there's no coming back once you give your citizenship up. So keeping your American citizenship might be worth a few extra tax dollars.
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.