New tax law driving expats to renounce US citizenship

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WASHINGTON (MCT) — For Ruth Anne Freeborn, it boiled down to a choice between country and family.

Born in Oklahoma, Freeborn has lived in Kingston, Ontario, for more than 30 years as an American expatriate, with a Canadian husband and 22-year-old son.

But a U.S. law passed in 2010 that will require international financial institutions to provide the Internal Revenue Service with information on their U.S. account holders forced her to weigh her citizenship. Her husband, a $51,000-a-year electronics technician and the family’s sole income earner, strenuously objected to having his financial data shared with a foreign nation.

“My decision was either to protect my Canadian spouse and child from this overreach or I could relinquish my U.S. citizenship,” she said. “It was with great sorrow I felt I had to relinquish, but there was no other choice for me and many like me.”

In September, Freeborn formally surrendered her citizenship and joined a record number of Americans who are ditching their U.S. passports out of frustration and fear of the Foreign Account Tax Compliance Act. The law was created to root out Americans evading taxes overseas by requiring foreign financial institutions to annually report to the IRS on U.S. citizens who hold more than $50,000 at the end of the year.

The reporting requirements are putting a strain on dual citizenship households where a non-American spouse or partner doesn’t want the IRS prying into their bank accounts or financial portfolios, according to U.S. expat advocacy groups and tax lawyers.

“My husband cannot understand why Americans are so offended by having their personal emails and phone calls monitored by the NSA yet are very comfortable requiring a Canadian to hand over their bank account data, which is far more sensitive,” Freeborn said.

The number of citizenship renunciations has surged from 742 in 2009 to more than 1,854 so far this year, according to the State Department. Some U.S. tax experts and expats believe the number is higher, based on foreign media reports of Americans renouncing in other countries and Internet chatter about increased waiting periods at some U.S. consulates for appointments to drop citizenship.

In addition to complaints about the reports to the IRS, expats say the law is prompting several overseas banks and financial institutions to close out longstanding accounts of American clients, refuse to open new ones, and deny loans and mortgages to expats rather than face a U.S. penalty if they don’t comply with the tax law.

The turning away of U.S. citizens by some foreign financial institutions is making it tough for some Americans to do business overseas, according to Jimmy Sexton, president of the Esquire Group, an international tax firm with offices in Las Vegas and Vienna, Austria.

“My bank told me I had to close my account by the end of the year,” Sexton said. “I moved to a larger bank with an expat division. That’s all fine and good if you live in Vienna, but if you live in an area with only small banks, good luck.”

“Many banks, foreign financial institutions, are just turning Americans away — it’s easier for them not to have American clients,” said Marylouise Serrato, executive director of American Citizens Abroad. “For some people it (renunciation) becomes a solution. But it’s done with a very heavy heart.”

Expats don’t want their cause tied to the rich and famous, many of whom are fleeing taxes.

“The rich can afford expensive tax attorneys,” Freeborn said. “The poor and the middle class cannot. My bank down the street is not an offshore account and I’m not hiding money.”

The U.S. Treasury Department said the law doesn’t impose a burden that would prompt foreign banks to turn away Americans or force Americans to give up their citizenship.

“Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities,” says a Treasury Web posting. “Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.”

Comments

SwissTechie 3 months, 3 weeks ago

It is not just a belief that the the number of renunciations is higher, but rather a fact which can be seen with the FBI NICS Index, which lists a higher number but is limited to renunciations, unlike the Federal Register which is supposed to include relinquishments and green card cancellations.

Also, in the United States, national origin discrimination is a US federal crime. An individual should be treated the same as a local regardless of their nationality. What the US is doing outside of its jurisdiction is national origin discrimination, it is causing many problems and the US refuses to assist Americans who are victims of American national origin discrimination outside of US jurisdiction.

This is unacceptable, America should do its best to treat its expats with respect and not cause them any unnecessary difficulties, especially considering the fact that the US government doesn't care about its expat population and that Americans living abroad have no representation.

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