us citizenship renounce income tax paperwork

Taxes Force People to Make Sub-Optimal Choices
privacy noncompliance

US Expats Renounce their US Citizenship

Superman declared plans to renounce his US citizenship after both the Iranian and American governments criticized him for joining a peaceful anti-government protest in Tehran. Last year, almost 1,800 people followed his lead. This 2012 article is from Reuters, Apr 16.

by Reuters

Last year, almost 1,800 people renounced their U.S. citizenship or handed in their Green Cards. That's a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998. It's also almost eight times more than the number of citizens who renounced in 2008, and more than the total for 2007, 2008, and 2009 combined.

Many say they parted ways with America for tax reasons. The United States is one of the few countries to tax their citizens on income earned while they're living abroad.

Just as Americans stateside must file tax returns each April, an estimated 6.3 million U.S. citizens living abroad brace for what they describe as an even tougher process of reporting their income and foreign accounts to the IRS. For them, the deadline is June.

The National Taxpayer Advocate's Office, part of the IRS, released a report in December that details the difficulties of filing taxes from overseas. It cites heavy paperwork, a lack of online filing options and a dearth of local and foreign-language resources.

For those wishing to legally escape the filing requirements, the only way is to formally renounce their U.S. citizenship. Last year, IRS records show that at least 1,788 people did, and that's likely an underestimate. Some who renounced say they haven't seen their name on the list yet.

The State Department said records it keeps differ from those published by the IRS. They indicate that renunciations have remained steady, at about 1,100 each year, said an official.

During the last 25 years, a number of millionaires and billionaires have renounced their citizenship. Among them: Ted Arison, the late founder of Carnival Cruises, and Michael Dingman, a former Ford Motor Co. director.

But those of more modest means renounce, too. They say leaving America is about privacy and red tape.

Two filing requirements affect Americans abroad: the Report of Foreign Bank and Financial Accounts -- which has been around since 1970 but now carries penalties for noncompliance -- and the Foreign Account Tax Compliance Act, passed in 2010 with the aim of reducing offshore tax evasion.

The first regulation requires all Americans, including those living abroad, with at least $10,000 in overseas bank accounts, to file a supplementary form disclosing all of their foreign accounts. That includes any accounts in which the U.S. citizen has a financial interest. That could include a joint account with a spouse or child, accounts for corporations in which the American owns more than 50 percent of the value of shares of stock, or any trust or estate that benefits the U.S. citizen.

The tax compliance act -- the newer law -- asks foreign financial institutions such as banks, hedge funds, and private equity funds to provide the IRS with information on U.S. clients.

The United States and five European Union countries recently announced their intent to allow institutions to report the information through their own governments, rather than directly to the IRS. Institutions that do not comply will be subject to a 30 percent withholding tax on certain U.S.-sourced payments and proceeds of property sales beginning in the 2013 tax year -- for instance, dividends on investments in U.S. companies.

In 2004, the stakes for noncompliance rose. Failure to file meant potential fines and criminal charges. Americans abroad can be punished for noncompliance even if they owed no income tax -- and IRS data show that most of them don't owe money.

Income up to $95,100 isn't taxed under a rule called the Foreign Earned Income Exclusion. In 2009, the income cap was $91,400, and 88 percent of all taxpayers claiming the foreign earned income exclusion owed nothing. Since 2008, the IRS has offered several voluntary-disclosure grace periods during which expatriates can file back taxes without facing criminal charges -- but with the possibility of incurring penalties.

Francisca N. Mordi, vice president and senior tax counsel at the American Bankers Association, says she has received a number of calls from Americans in Europe complaining about banks closing their accounts. Mordi says, "The foreign banks are upset enough about the regulations that they're saying they just won't keep American customers, and it's giving (Americans living abroad) a lot of sleepless nights."

"American women married to non-Americans are only just now finding out that they have to disclose years and years of income and accounts," says Lucy Stensland Laederich, a leader of an American women's club who lives in Bordeaux, France. "When they decide to come clean and report everything," she says, "they have to go ask their husbands for all of their bank information, retirement funds, and investment accounts, everything."

Some of their husbands, Laederich says, refuse to hand over information to the IRS. "Your options are to ignore the IRS and stick your head in the sand; take your name off of all the accounts and live in a completely cash economy; divorce; or renounce U.S. citizenship," Laederich says. "We've seen all of these things happen."

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JJS: Taxes often put people between a rock and a hard place. To avoid taxes in the past, people have declined marriage and co-habitated (or vice versa), driven miles across a border to do their shopping, chopped down fruit trees, boarded up windows and bricked up fireplaces and died of pneumonia, have built houses very skinny on the street side, have left the top story unfinished, etc -- the list is quite long. It makes me wonder: do governments have any legitimate business laying claim to one’s earnings?

While everyone should contribute to their society, forking over money to politicians is not the only way to do it (if a way at all). Another way is: when paying for land, pay one’s community. Of course you’re not going to go door-to-door handing over cash to your neighbors and they’d not come knocking on your door to do the same. Instead, residents could pay in land dues to the public treasury and get back rent dividends. In some places, the people might like to get back straight cash, some might like to get back social services, and some might like a mix. But the land dues would make it possible to eliminate taxes and the rent dividends could replace subsidies.

Each citizen would pay their community the rental value of their location, not a slice of their earnings. So everyone would pay for what they take (a parcel of land), not for what they make (useful goods and services). It’s the geonomic way and it’d automatically solve the issue of contributing to society while living abroad -- or anywhere.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

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