Should I Stay Or Should I Go? Fee To Renounce Citizenship Has Dramatically Increased By 422%

Thinking about renouncing your citizenship? After reading this blog, you may want to think twice.

Over the last two years, the number of U.S. expatriations has risen dramatically. While it might not be Ellis Island in reverse, it’s damn near close. What has caused people to resort to an option as drastic as renouncing their U.S. citizenship? None other than global tax reporting and FATCA.

For 2013, there was a 221% increase, with record numbers of Americans renouncing. This statistic is based on a quarterly list published by the Treasury Department. As high as that might sound, it might fall woefully short of the actual number. Why? According to those in the “know,” these numbers are grossly understated.

Those interested in renouncing should be aware of the exit tax. So far, the impact that the exit tax has on a U.S. person’s decision to leave the United States is relatively insignificant. However, that could soon change. After Facebook co-founder Eduardo Saverin departed for Singapore, Senators Chuck Schumer and Bob Casey introduced a bill to double the exit tax to 30% for anyone leaving the U.S. for tax reasons. Fortunately, it has happened yet. But in the event that it were to come to fruition, it may well impact a person’s decision to renounce, since taxes are a big reason why people renounce.

What must you do if you want to expatriate? First, you must prove 5 years of U.S. tax compliance. To the extent that your net worth is greater than $2 million or you have an average annual net income tax for the last five years of $157,000 or more for 2014 (that’s tax, not income), you’ll pay an exit tax.

The exit tax is nothing more than a capital gain tax, no different than if you sold your property when you left. Thankfully, there’s an exemption, albeit a not very generous one if you own assets that are in the seven figures. For 2014, the exemption is $680,000.

Long-term residents giving up a Green Card are not exempt. They can be required to pay the tax too.

If what you’ve read so far has caused you some apprehension on whether this is right for you, what you are about to hear might just stop you dead in your tracks. Recently, the State Department raised the fee for renunciation of U.S. citizenship from $450 to $2,350. Critics note that it’s more than twenty times the average level in other high-income countries.

The State Department justifies this fee increase on the grounds that the high demand has put a strain on their already scarce resources, resulting in existing employees having to take on additional responsibilities in order to process people who are on their way out.

The notice says:

1. Consular officers must confirm that the potential renunciant fully understands the consequences of renunciation, including losing the right to reside in the United States without documentation as an alien.

2. Consular officers must verify that the renunciant is a U.S. citizen and they must conduct a minimum of two intensive interviews with the potential renunciant. Consular officers must even review at least three consular systems before administering the oath of renunciation.

3. The final approval of the loss of nationality must be done within the Directorate of Overseas Citizens Services in Washington, D.C. After that, the case is returned to the Consular officer overseas for final delivery of the Certificate of Loss of Nationality to the renunciant.

4. These steps add to the time and labor involved in the process. Accordingly, the Department is increasing the fee for processing such requests from $450 to $2,350.

According to recent information publicized on the IRS website, U.S. citizens with dual-Canadian citizenship who are trying to shed their U.S. citizenship have created a backlog at the U.S. consulate in Toronto on a scale that has never been seen before. It stretches into the third week of January 2015.

Finally, some practical and sound advice regarding expatriation is in order. A decision to expatriate should never be taken lightly. No matter how onerous the U.S. tax burden might be, it can be a big step. And around the world, more people are talking about taking it.

Original Post By:  Michael DeBlis

As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.

Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.

   

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6 comments on “Should I Stay Or Should I Go? Fee To Renounce Citizenship Has Dramatically Increased By 422%

  • I never earned enough for renouncing to be a tax issue. For me, it was a matter of refinancing my mortgage and I had to renounce to find a bank to do so. At the time, even paying $450 was a lot of money to pay for something that one shouldn’t have to do.

    • Thanks for sharing. If I had to guess, I’d say that your case is representative of the vast majority of U.S. expats that are contemplating renouncing their citizenship.

  • Nice post.

    Just one further reason why US citizens abroad are renouncing citizenship is the fact that any self-employed US citizen abroad is *required* to pay into Social Security and Medicare on their total net income under the so called SE tax. The foreign earned income exemption does *not* apply here.

    Medicare provides no benefits whatsoever for those living abroad.

    Social Security benefits may or may not be provided to those living abroad, depending on that country’s agreement with the USA. In any case, Social Security benefits will be reduced according to the “windfall” clause if that person had also paid into their home country’s system and receives benefits. These are severe disadvantages which may have a major impact ones living standard during retirement.

    Quarterly estimated payments in US $ are required as well, which is highly problematic. For “US persons”, transferring funds in a foreign currency to the USA in order to pay these estimates is costly and difficult. It may not be possible for those with a foreign address to maintain a US bank account, for instance. Many US banks do not accept international wire transfers or charge exhorbitant fees. Payments via credit card also involve exhorbitant fees. The electronic payment system of the IRS will not work for those who have a non-US address. The list goes on.

    You’re correct about the numbers of those renunciating being grossly understated. Many, like myself, renounced years ago and have never appeared on the Federal Register.

    • Excellent point about the SE tax. You are spot on about that: it is quite burdensome for U.S. persons living and working abroad and offers very little in return. Thank you for sharing your personal experience. It was very insightful.

  • I am someone who renounced. Corporations are persons but they are not subjected to the same world wide income tax penalties. The decision I made came because my bank accounts would have been closed…call it that old proverbial straw. At least I no longer fear being fined for this or that mistake on my taxes, pay 3x what I paid in taxes to make sure I didn’t get his with that fine. I gave up the right, often used, to lobby Congress for things I cared about. http://theexpatwriter.blogspot.ch/2011/12/one-of-saddest-days.html The blog was written to describe the emotional part.

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