Americans living abroad are giving up citizenship at a record level

  • Money issue: Tax obligations and restrictions are seen as a major reason why many US citizens living overseas are giving up their citizenship

    Money issue: Tax obligations and restrictions are seen as a major reason why many US citizens living overseas are giving up their citizenship

WASHINGTON (Bloomberg) — More Americans living outside the US gave up their citizenship in the first quarter of 2015 than ever before, according to data released by the IRS.

The 1,335 expatriations topped the previous record by 18 per cent, according to data compiled by Bloomberg. Those Americans are driven to turn in their passports in part because of laws that have expanded bank reporting and tax compliance requirements for expatriates.

The increase in early 2015 follows an annual record in 2014, when 3,415 Americans gave up their citizenship.

An estimated six million US citizens are living abroad, and the US is the only country within the Organization for Economic Cooperation and Development that taxes citizens wherever they reside.

In many cases, those choosing to give up their citizenship have limited connections to the US and have lived outside of the country for most of their lives. Anyone born in the US automatically receives citizenship, and people born abroad to US parents are typically citizens as well.

For some the decision is easy, because they perceive little benefit from holding US citizenship. For others, the choice is more complicated.

“The cost of compliance with the complex tax treatment of non-resident US citizens and the potential penalties I face for incorrect filings and for holding non-US securities forces me to consider whether it would be more advantageous to give up my US citizenship,” Stephanos Orestis, a US citizen living in Oslo, wrote in a March 23 letter to the Senate Finance Committee. “The thought of doing so is highly distressing for me since I am a born and bred American with a love for my country.”

London Mayor Boris Johnson, who had a tax dispute with the IRS, said earlier this year that he would give up the US citizenship he received because he was born in New York. His name isn’t on the IRS list. Eduardo Saverin, a Brazilian-born co-founder of Facebook, gave up his US citizenship in 2012.

US citizens who live abroad can exclude as much as $100,800 in earned income and in many cases can receive tax credits for payments to foreign governments.

The US has increased efforts to catch tax cheats after the Swiss bank UBS AG paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts. That has led some banks to forgo doing business with people who have ties to the US.

One of the primary US moves took effect last year as asset-disclosure rules under the Foreign Account Tax Compliance Act kicked in. The measure, known as Fatca, requires US financial institutions to impose a 30 per cent withholding tax on payments made to foreign banks that don’t agree to identify and provide information on US account holders.

It allows the US to scoop up data from more than 77,000 institutions and 80 governments about its citizens’ overseas financial activities.

The new laws, combined with past rules, can make tax filing difficult for US citizens living overseas who are trying to start businesses or set up trusts, said Andrew Mitchel. He’s an international tax lawyer in Centerbrook, Connecticut, who has been tracking expatriations.

“These are complicated rules, and these are laypeople who don’t really understand the rules,” he said. “It can be tens of thousands of dollars to file tax returns.”

In establishing the 2010 law, Congress and President Barack Obama in effect threatened to cut off banks and other companies from easy access to the US market if they didn’t pass along such information. It was projected to generate $8.7 billion over 10 years, according to the congressional Joint Committee on Taxation.

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Published May 11, 2015 at 8:00 am (Updated May 10, 2015 at 7:15 pm)

Americans living abroad are giving up citizenship at a record level

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