Survey of Citizens Renunciation Intentions: A Lannister Always Pays His Debts, but Americans Change Kingdoms to Evade Taxation
After the IRS shouted “Dracarys” in 2010, the Foreign Account Tax Compliance Act (FATCA) breathed fire on American taxpayers, causing more chaos than the destruction immortalized in the Rains of Castamere. The law mandates that U.S. citizens, including those residing outside the country, report their financial accounts outside the U.S. The IRS didn’t stop there; using its network of spiders, the IRS is compelling global non-U.S. financial institutions to report any U.S. persons on their books to the U.S. Treasury.
As you can see, there’s no way out of this mess. However, some people try tricking the IRS, not realizing that it’s the Khaleesi of government agencies, biding for time and waiting to unleash acts that bring defaulting taxpayers to their knees. As wise men do not make demands of kings, U.S. taxpayers have found a way out of their predicament: renouncing their citizenship.
Whispers from the Seven Kingdoms
According to The Treasury Department’s official U.S. citizenship renunciation numbers for the fourth quarter of 2014, annual renunciations rose to 3,514 by 2014, beating the previous year’s highest level ever at 2,999. Dr. Amanda Klekowski von Koppenfels, Director of the MA in International Migration at the University of Kent in Brussels conducted a study between December 5th, 2014 and January 20th, 2015, surveying 1404 citizens and 142 former citizens in 69 countries. According to her results, 31% were seriously considering renouncing their citizenship, 33% gave it a passing thought, while 3% were in the process of doing so.
Based on Dr. Klekowski von Koppenfels’ study, renunciation intentions aren’t linked to income. 43% of those who relinquished their U.S. citizenship have annual pre-tax household incomes below $100,000. 28% of citizens whose annual income is below $100,000 have actively thought about it while 3% are in the process. Meanwhile,33% of those whose annual income exceeds $250,000 have actively thought of taking this step while only 4% are currently in the process of doing so.
When Winter Comes…
Further analyzing the data, Dr. Klekowski von Koppenfels reveals that U.S. citizens who relinquished their citizenship or are seriously considering this option mention a few reasons. First off, they are likely to remain overseas. Of the Americans who renounced their citizenship, 56% have lived in the U.S. for at least 20 years whereas 75% spent over 20 years in their current country of residence. However, a majority stated that “increasingly onerous and intrusive” financial reporting requirements are responsible for their decision. The three sets of requirements mentioned in the survey are tax returns on global income, all bank accounts with a combined total of $10,000 minimum (FBAR – Report of Foreign Bank and Financial Accounts), and FATCA.
In open-ended responses, respondents revealed that the costs of complying with U.S. filing requirements are influencing their decision. FBAR-filing alone can cost between $1000 and $5000 per year, with most of the money going into accountants’ pockets. “To maintain tax compliancy with my pension account I was going to have to pay my accountant at least £1500 per year and I only earn £18 to £20,000 per year,” said one of the 1546 surveyed. Moreover, overseas Americans don’t get to enjoy pre-tax retirement savings options like their U.S. based counterparts. As a result, they’d rather relinquish their citizenship.
Aside from costs, non-resident taxpayers are riled by the IRS’s choice to name FBARs’ e-filing portal as the “Financial Crimes Enforcement Network.” Non-working spouses especially voiced their anger as filing their FBARs made them feel like criminals. Moreover, spouses whose income-earning spouses weren’t from the U.S. spoke of stress in their marriages because of U.S. filing requirements. FATCA was just as a burden on mixed nationality marriages as joint accounts with non-U.S. spouses were not spared from the reporting requirements. Some respondents shared that banks refused U.S. customers, creating hurdles while opening or retaining investment and bank accounts, securing mortgages, and planning for retirement.
Now many respondents are in a “wait and see” stage; if FATCA’s regulations don’t change, they’ll consider renouncing their citizenship. However, aside from current citizens and former ones, there’s a third group that feels that it’s targeted by the latest reporting requirements and U.S. citizenship policy. “Border babies” who were born in the U.S. because it had the closest hospital or left the country as young children didn’t know that they held U.S. citizenship as they weren’t aware of legal changes, especially since they had naturalized or held Canadian passports. Even individuals who have been assured by consulate officials of not complying with the U.S. citizenship policy are now surprised to be facing five years’ tax returns or at least a $2350 renunciation fee. If they don’t pay, they face fines up to $10,000.
What Do We Say to the IRS? “Not Today”
Those who express strong pride in being Americans and refuse to renounce their citizenship believe that the IRS’s act can be revised. However, even those who are willing to accept expensive accountant fees and no pre-tax savings options are starting to experience frustration and resentment. Numerous respondents have gone as far as losing faith as they pointed out the lack of representation of overseas Americans.
Now the IRS can be as ruthless as Tyrion Lannister when it comes to revenge; ‘a day will come when you think you are safe and happy, and your joy will turn to ashes in your mouth. And you will know the debt is paid’ does apply to both. However, you can take a step towards complying with the current regulations without stressing yourself, your marriage and/or bank account. In addition to learning as much as you can about the current taxation regulations, consult a tax attorney.
And if you’re thinking about trying to trick the IRS, remember Littlefinger’s words of wisdom, “Chaos isn’t a pit. Chaos is a ladder. Many who try to climb it fail and never get to try again. The fall breaks them.” So unless you want to break financially or end up in prison, don’t take the IRS for granted!
Original Post By: Michael DeBlis
Subscribe to TaxConnections Blog
Enter your email address to subscribe to this blog and receive notifications of new posts by email.