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Are Americans fleeing due to taxes?

By Kay Bell ·
Thursday, September 5, 2013
Posted: 6 pm ET

When the hubby and I get bored or frustrated with our lives, we talk about moving to Italy. The attraction for him is the change of scenery; for me it's the Mediterranean food.

We would have lots of company. The State Department estimates that 7.6 million people no longer call the United States home.

And while U.S. statisticians don't track why people relocate, it's a safe bet that lots of the moves are because of taxes.

Foreign account tracking

Let's do some dot connecting. Starting Jan. 1, 2014, the Foreign Account Tax Compliance Act, or FATCA, will require U.S. taxpayers to make even more disclosures of their offshore financial accounts.

Uncle Sam started paying closer attention to Americans' money in foreign accounts after the Sept. 11, 2001, terrorist attacks. Efforts increased even more after the Internal Revenue Service and the Swiss national bank UBS reached a deal in 2009 under which the bank handed over the names of more than 4,000 U.S. taxpayers with secret accounts. Other banks have since followed suit.

Failure to follow FATCA reporting requirements carries stiff penalties.

So, it seems, a lot of folks are deciding to avoid the reporting or penalties for not doing so by making a new home near their overseas money.

There's also speculation within the tax world that the new 3.8 percent net investment income tax that takes effect this year could be prompting some wealthier portfolio owners to flee U.S. tax laws.

Increase in expatriates

Each quarter the Federal Register publishes the names of individuals who are surrendering their U.S. passports. More than 1,100 people are on the list published in August.

As with the State Department data, the Federal Register does not list why the people no longer want to be U.S. citizens.

But the dramatic increase in expatriates this last quarter and the impending FATCA rules are hard to ignore.

Andrew Mitchel, an international tax attorney in Centerbrook, Conn., has been tracking expatriation data for several years. The August listing of 1,130 expatriates, says Mitchel, is the highest quarterly published number ever.

The total of expatriates through the first half of 2013 is 1,809, says Mitchel, making this year tops in the number of published expatriates. The previous year-long total was 1,781 in 2011, according to Mitchel.

Paying a tax price to move abroad

Of course, surrendering U.S. citizenship for tax reasons is not cheap.

You generally must prove that you were compliant with tax law within the United States for five years before leaving the country.

If your net worth is greater than $2 million or you have average annual net income tax for the five previous years of $155,000 or more (note that this is not your income, but tax due), you also must pay an exit tax based on your assets.

Basically, the IRS treats you as if you had liquidated all your assets before boarding your international flight. Any amount from this deemed sale in excess of $663,000 (that's for the 2013 tax year; it's adjusted annually for inflation) is then taxed.

Of course, if you're a fat cat with that much money, you probably already have a home or two in a foreign country, along with some bank and investment accounts there. So the tax to leave might be worth it.

Would you ever leave the United States for good? Would it be because of taxes or other nonfinancial reasons?


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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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Byron Chapin
September 28, 2013 at 2:16 pm

Until they finally understood that I did not care to subscribe, International Living Magazine, would send me a couple of Emails daily about how you could live in other countries for virtually nothing (and not a word about any possible problems). My belief is that a lot of adventurous and "not so FATCATS" move to Central America (and other places) in the hopes of living like Kings on the means of a knave.

September 16, 2013 at 5:49 am

Also, my local checking account with my spouse here in Canada and our mortgage are NOT "foreign accounts" to us. They are the accounts we need to live here in Canada. I wish the IRS would distinguish between those living inside the U.S. actually "off shoring" and those of us who are long term expats with LOCAL bank accounts where we live just as those inside the U.S. need local accounts to function in daily life. The U.S. is going to make it impossible to keep local accounts as banks do not want to deal with FATCA and do not want U.S. customers. FATCA violates the Charter of Rights here in Canada so banks will be sued over it. If you do not waive your rights then the bank will not renew your mortgage or deal with you any longer. You can imagine how well this goes over with a foreign spouse making all of the family income on foreign soil.

Nobody should be asked to waive the rights of their country of birth in order to comply with a law that only benefits a foreign nation to them. FBAR penalties on low and middle income long term expat families are draconian and are the real crime here. Shame on the U.S. for trying to implement this in countries they KNOW are not tax havens like Canada.

September 16, 2013 at 5:42 am

You do not have to show you were five years compliant "before leaving the U.S." That is false. Most expats are renouncing over the threats on FBAR fines. 82 percent of expats would never owe a dime in taxes due to the fact that most of them live in high tax countries that already have tax agreements with the U.S. The cost to file from abroad is high, average low to middle income families abroad cannot afford this year after year. Foreign spouses object to FBAR and to FATCA since they are not American they do not believe they should turn over such data to a country they are not a citizen of. My spouse is Canadian. He makes all of our income here at his Canadian job. He objects to giving over to the U.S. his account numbers, all balances and all transactions just because he happened to marry me.

Had he married anyone from any country other than the U.S. or Eritrea this would not be required of him. I'm renouncing because FATCA would be imposed on my foreign spouse and child because of me along with the cost to comply each year. This is money we do not have all to show the U.S. that I would never owe them a dime in tax while not living in the U.S. where I do not use services. FATCA goes to far including our foreign family living on foreign soil out side the U.S. And btw, the State dept. numbers are way, way too low. The FBI numbers for last year were over four thousand.

Maybe FATCA needs to go back the drawing board. Especially since the U.S. is one of the world's largest tax havens.

Expat in the UK
September 06, 2013 at 3:20 am

Only a very few US expats who file are required to pay taxes (under 10%) and that is because most US expats do not make enough money and are protected FEIE. So to say that most expat are 'fleeing' the US for tax purposes is disingenuous at best. Almost every US expat I have ever met have moved for love (married a foreign spouse), for work (job transfer overseas), or because they were born in the US but moved overseas as children. Your article is terrible and perpetuates the lies that are being told about honest, law-abiding US citizens who just happen to live overseas.
As a US expat who has lived overseas for over 20 years (my spouse is British), I am carefully considering giving up my US citizenship even though it will break my heart. I'm tired of my country requiring me to fill out dozens of forms, pay accountants thousands of dollars, and requiring my non-US spouse to cough up his financial information when I don't make enough money to owe any taxes. I also don't use any US services and can't use them for the most part. No US person living in the US would tolerate this for a minute.
You make me wonder how much money your organisation is making off of the plight of expat Americans. Your article is certainly perpetuating the fear-mongering position that the US government has taken against US expats.
We are criminals until proven otherwise - and even then we are still criminals. Disgusting.

Steve Klaus
September 05, 2013 at 7:55 pm

The vast majority of the citizens that renounce US citizenship are not 'fleeing' the US and moving overseas to avoid having to pay US tax - they are already living overseas, many with international families, and are already paying tax in the country where they live. Many are dual citizens or permanent residents of the country where they are living This article paints a VERY INACCURATE picture of what is happening. The US is the only country that bases its system of taxation on citizenship based taxation, rather than the world standard of residence based taxation. This results in a US citizen having to pay not only taxes where he/she lives (e.g. Canada) but also have to file US tax returns accounting in a very complex manner for 'worldwide' income. That, plus the draconian penalties and the requirement to file FBAR disclosing all 'foreign' (i.e. their local in country) bank accounts, and under FATCA the fact the person is a US citizen may well result in non US banks refusing to open accounts, give mortgages, or insurance are boxing these overseas US citizens into a corner giving them no choice but to renounce their US citizenship.

Americans are not leaving the USA and renouncing to avoid taxes. Overseas US citizens are being persecuted by the US Govenment tax policies, and treated in a way no other country treats its overseas citizens, leaving them no choice but to renounce.