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?
Want the latest news on taxes, tax reform prospects, filing deadlines, political fights, Internal Revenue Service alerts and tax-saving tips? Subscribe to Bankrate’s free Weekly Tax Tip newsletter.
You also can follow me on Twitter @taxtweet.
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.”