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Why give up U.S. citizenship?

By Judy Martel · Bankrate.com
Sunday, May 13, 2012
Posted: 4 pm ET

Approximately 1,780 expatriates renounced their U.S. citizenship in 2011, up from 235 in 2008. Why? Money, honey. Bloomberg reports that rich Americans are giving up their nationality in higher numbers since the crackdown by the Internal Revenue Service on tax evaders who try to hide their money offshore.

Unlike many other countries, the U.S. imposes taxes on its citizens no matter where they live, although overseas income up to $95,100 is exempt from income tax.

Uncle Sam wants you income.But in the four years since the IRS hammer fell on Swiss bank accounts in particular, non-U.S. banks have increased rules around disclosure for U.S. citizens. In Bern, the Swiss capital, renunciations have been higher because of this increased scrutiny, according to Bloomberg. In fact, a representative of the Swiss-American Chamber of Commerce says Americans are lining up to give up their U.S. citizenship. It only takes an average of 10 minutes: Expatriates are asked if they are acting voluntarily and understand the ramifications of renouncing citizenship. Once they pay a $450 fee, they only have to wait for a certificate in the mail making it official.

However, the IRS still may not go away so quickly. If assets exceed $2 million or the average tax bill over the past five years has been more than $151,000, a tax may be due on unrealized capital gains.

Taxes aren't the only reason expatriates are renouncing citizenship. Some disagree with American politics. Others find it easier to establish foreign banking relationships and obtain mortgages. German lenders Deutsche Bank and HVB Group terminated the securities accounts of some U.S. citizens when stricter compliance laws were announced, and the third-largest Swiss banking group severed ties with U.S.-domiciled citizens and refuses any new account applications.

Would you ever consider renouncing U.S. citizenship for financial reasons?

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6 Comments
I
May 16, 2012 at 7:33 pm

Carrie, I don't have to decide about my citizenship since my former, current and future income do not seem to need any special tax shelter. We still need to go back to basics on income taxes. Many Americans want to be rich, but they also want income taxes to be fair. They feel that a graduated tax is what is fair and hate to find out that someone making billions in the USA can get away without paying ANY taxes, much less fair taxes. That feeling extends to corporate taxes where huge companies avoid paying taxes.

Steven
May 14, 2012 at 2:47 pm

Carrie: Please wait until November. And don't forget to VOTE for different people to go to Washington. You can still do that to try to move us closer to the right direction.

CP
May 14, 2012 at 8:44 am

"a tax may be due on unrealized capital gains"

That should tell you all you need to know about why people are giving up their citizenship. The government is now considering taxing money that people HAVENT EVEN MADE YET. Will the IRS give that tax money back if those gains are never realized? If you think so, then I have a bridge I'd like to sell you.

And as Carrie already stated, why should people who havent stepped foot in the country during the year have to pay any taxes at all?

Carrie
May 13, 2012 at 11:07 pm

It isn't just "wealthy" Americans who are considering renunciation and such reporting incorrectly sways public opinion against expats. I live and work in Canada, and make just over the exemption, meaning I will owe taxes to the US this year despite not receiving a single benefit.

I am by no means wealthy - I cannot and likely never will be able to afford a single-family home in the Vancouver area. The Patriot Act makes international banking difficult, and I will have spent over 50 hours doing my Canadian and US taxes this year. All to send the US government a couple of thousand dollars they will hand over to a very undeserving entitled individual (who ironically may not even *be* a citizen).

If I agreed with the political and ideological direction the US is headed, I might re-consider but as it stands now, I will renounce as soon as I am able. US citizenship just doesn't mean what it used to, sadly. It certainly isn't worth $3,000-$5,000 per year.