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Renunciations in the News

This entry is part 15 of 23 in the series US citizenship

Last week new numbers were published about how many overseas Americans renounced citizenship in the fourth quarter of 2015, and they show, as expected, an increase in 2015: a record year for renunciations.

the fist of the IRS increases renunciations

Image from Youtube video: “IRS Goes Global” by Corbett Report

Each quarter a “name and shame” list is published by the US Treasury Department based on IRS figures of those renouncing, and in the fourth quarter of 2015 the list totaled 1,058 for a 2015 total of 4,279. In 2014 it was 3,415. That’s about a 20% increase.

The announcement was, not surprisingly, followed by a flurry of articles reporting the new record and, to a greater or lesser extent, discussing why this is happening. Forbes, the Wall Street Journal, and even the BBC have explored the question.

Inaccurate Numbers

These numbers, however, aren’t very accurate.

The “name and shame” list doesn’t count people the IRS isn’t aware of: in other words, those who renounce without filing exit forms with the IRS.

According to the Wall Street Journal article listed above, the published IRS total may not count people giving up green cards. Green card holders who move away from the US are “US persons”: taxed under the same laws as overseas American citizens, including the same risks of double taxation, the same invasion of privacy that accompanies the FBAR form, and the same difficulties in banking overseas.

The IRS also may not count people who relinquish citizenship, which is a legally slightly different way of giving up citizenship than renouncing.

Other Numbers

Two other US government departments—the State Department and the FBI—also try to keep track, with differing results.

You would think that the State Department would be closest to accurate, since the renunciations happen at embassies and consulates. Its yearly estimates come to about twice the IRS numbers.

As for the FBI, according to the Wall Street Journal article, its estimate for the fiscal year ending Sept. 30 was 6,000 Certificates of Loss of Nationality issued. If that’s so, the IRS is missing a lot of names.

(The FBI’s interest in renunciations, by the way, is that they want to keep track of people who are not allowed to buy firearms in the US. Those who have renounced US citizenship may not buy guns.)

The Vultures are Circling

Starting well before these latest figures came out, I was struck by the various on-line articles and Facebook posts from tax professionals warning about FATCA.

The general pattern of these is to list all of the potentially dire things that can happen to an overseas American who doesn’t get compliant with the IRS—huge fees and even possible imprisonment—followed by an offer of financial advice or accountant services. Our fear of the IRS means increased income for these businesses, to such an extent that I sometimes wonder if they aren’t actively lobbying in favor of FATCA.

These messages are really just a desperate advertising gimmick. They are designed to get consumers scared enough that they’ll pay for financial services.

According to a recent press release from deVere Group, 73% of overseas Americans were considering renouncing citizenship because of FATCA. That’s the last thing these financial firms want, so they advertise, offering consumers a way out of the often very emotional decision for renunciation.

photo courtesy of pixabay

photo courtesy of pixabay

The deVere Group press release stood out from the flock because of its general message of sympathy. The author is Nigel Green, chief executive of deVere. I had never heard of him, but he has been widely quoted since its publication. After a very sympathetic description of the burdens imposed on US citizens overseas by FATCA, I was surprised by his advice not to renounce.

Don’t feel forced by Uncle Sam to give up your citizenship until all the options have been fully explored.

The U.S. authorities are taking this project very seriously and Americans must ensure that they are FATCA-compliant. The penalties are hefty.

 

This sounds like the usual fear-mongering. “Come to me, your friendly financial consultant. I’ll save you from the evil IRS.”

However, there are several well-established, bona fide, compliant ways that U.S. expats can mitigate the often unbearable burden of FATCA.  These include an additional overseas pension contract that’s specifically designed for U.S. taxpayers with assets in their country of residence.

I don’t even understand what that’s about, but he seems to be suggesting some pension plan in some other unspecified country that won’t be taxed as unearned income by the US. Or perhaps it’s some way to avoid tax in some other “compliant” (in other words, legal) way.

That’s all fine and well, but it presumes a) that we have any choice as to where our pension is saved. Many of us don’t, since it’s regulated in our resident countries or through our jobs. And b) that we have extra money to invest and to pay a financial advisor.

What bothers me about this is that, despite his clear and well-stated opposition to FATCA, the message, in the end, is self-serving: if overseas Americans pay financial consultants to help them with their money, they can still be US citizens.

This again underlines the difference between the ones that FATCA is intended to target—people who have enough money to hire financial consultants—and the rest of us.

I suspect that most of those who have renounced up to now, like me, fall into that second category: we don’t have the money to pay financial consultants to help avoid taxation, and we’re not hiding anything from the IRS. We just want out from under the burden and expense.

I’ll use myself as an example. As a teacher, I earn well under the exemption available to overseas Americans, so I don’t owe taxes to the US (except when I have taken money out of an inherited IRA. That doesn’t fall under the earned income exemption, but I would have had to pay taxes on that whether or not I lived in the US).

However, I’ve been paying about €900 or so to an accountant for each year of tax forms I’ve filed. I simply can’t do them myself: they’re too complicated, and the threatened fines for mistakes are truly terrifying. She also helps me with the FBAR form, so I can prove to the Financial Crimes Enforcement Network that I’m not a criminal.

That €900 is low compared to what Americans in many other countries pay. Meanwhile, renunciations cost $2350: about €2080. That means that, once I file my last tax forms for 2015, the year I renounced, I will recoup that money in less than three years in savings on accountancy costs.

At the same time, while many people want to renounce, many can’t because they can’t afford that $2350 fee. People in that category certainly won’t be able to afford to hire deVere or any other sort of financial consulting services. My guess is that many of these are just holding on to citizenship long enough to save up the money they need.

In other words, last year’s 4,279 renunciations are just the beginning of a trend. Unless FATCA is repealed, the numbers will continue to rise. How many have to renounce before Congress takes notice?

Feel free to comment below, but please keep it civil!

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20 Comments

    • Rachel

      February 12, 2016 at 5:46 pm

      That’s a bit disingenuous. You’re assuming it would be the same number of renunciations per country, and that clearly isn’t the case. Just from anecdotal evidence, I’d say Canada is where the wait is longest, so they would have a much bigger number of the renunciations than smaller, less popular countries for overseas Americans. But obviously I agree that the numbers are probably significantly larger than reported.

      Reply
    • Rachel

      February 12, 2016 at 7:42 pm

      Yes, I know. In my case it was a choice, partly based on all that money I was shelling out for the accountant, and partly based on my indignation at the invasion of privacy inherent in the FBAR. And also our lack of representation in the face of unfair legislation. So far I haven’t had any banking troubles, but then I haven’t tried to open an account or get a mortgage recently. And I teach American Studies, so being American is actually an advantage. As a teacher, I have no power over any business accounts.

      Reply
  • Ruth

    February 12, 2016 at 7:35 pm

    I relinquished in 2012 and had my CLN arrive in 2013. I am still not on the list. I know many others who are also not on the list. The numbers are wildly fudged.

    As for the friendly consultant. Pension plans for U.S. tax payers won’t work if your family income is not made by an American citizen though the non U.S. spouse will still be impacted as to how they can save for retirement due to their marriage to a “U.S. person” So despite the compliance condor, ambulance chaser types advice, they do not have solutions for many people. If they did there are many on that list and those left off it who wouldn’t be among the CLN holders.

    This is another great blog post offering, Rachel!!

    Reply
  • John Richardson

    February 12, 2016 at 11:01 pm

    Rachel:

    Thanks for your willingness to continue exploring this important topic.

    Two “styles of relinquishments”

    1. Either renounce or give notice of a prior relinquishing act at a U.S. consulate

    Assuming the CLN is issued then one ceases to be a U.S. citizen under the Internal Revenue Code from the date of notice to the consulate. See S. 877A(g)(4) of the Internal Revenue Code. Therefore, I suspect that many people are renouncing and NOT notifying the IRS (Form 8854, etc.)

    2. The “DIY” (Do it yourself relinquishment) – just walking away.

    I suspect there are tens of thousands of people doing just that. They don’t have the financial resources to do anything else. Also it really is a lot easier. They may or may not have problems down the road.

    Either way the numbers are very understated.

    The problem (as you point out) is that one cannot be a “U.S. tax compliant” person and survive outside the United States. There are simply too many life restrictions associated with it.

    Then there is the question of where to get competent advice, if you want it. Very difficult to find and very expensive if you can find it.

    Whether you are U.S. tax compliant or NOT U.S. tax compliant you will have to endure the disabilities of a U.S. birthplace.

    The era of the U.S. expat is clearly over.

    Reply
  • Karen

    February 12, 2016 at 11:45 pm

    Great post, Rachel. I keep directing my unbelieving friends of all nationalities to your blog for an understanding of what these despicable laws are doing to real people.

    BTW, I prefer to think of the quarterly list as the “Freedom List”.

    Reply
  • Palle Swede

    April 2, 2016 at 12:00 am

    Hi Rachel, Just found your site and have been reading it for hours. I’m a US citizen living in Sweden for 20 years. Have always filed taxes in the US and my FBARs. Figured it was ok since I could do them myself without paying an accountant (I don’t earn much). But now my daughter just turned 18. We have been saving a little for her every month in a mutual fund here in Sweden since she was 2 years old. The bank contacted her when she turned 18 and asked if she was a US citizen. She answered that she was because she has dual citizenship (She was born here in Sweden, her mother is Swedish and she has always lived here) But I got her a passport when she was little. The bank gave her 1 month to close the account. So far we have not found any other bank willing to to the account over.

    I have a couple of questions for you that I cannot find answers to on the web. 1. Do you know if she can renounce for free between the ages of 18 and 18 1/2? I’m hoping you have investigated for you own kids. 2. If I finally decided to renounce do you know how my Swedish retirement account from my Swedish employer would be taxed? I can’t even touch it yet but I wonder if the US would tax it. 3. Did you have a US based IRA when you renounced? I have one from when I worked in the US 30 years ago. Would that get taxed immediately or first when I start taking out money from the IRA? Realize you are not an accountant but maybe you have some general ideas.

    Right now I am feeling bad I applied for my daughters US passport so many years ago. I have have a son who is only 14 but I now realize the US may go after him for armed forces service even though he is a Swedish citizen first. This is scary stuff

    Reply
    • Rachel

      April 2, 2016 at 5:37 pm

      I’ll start with the usual disclaimer: I’m no expert and not a lawyer! No, she can’t renounce for free. I just recently contacted our consulate about that for my son who’s turning 18 soon and got this response:

      “Before 9 November 2015 there was no fee involved in relinquishing ones U.S. citizenship, presently the fee is the same as for renouncing, which as you are aware is $2350. The fee applies to anyone wishing to relinquish/renounce their citizenship regardless of age.

      If your son is determined to renounce his citizenship we suggest that he waits until after his 18th birthday. The State Department is hesitant about approving renunciation requests for minors. He will also have to initiate the process himself, parents or guardians may not request the loss of nationality for their children.”

      I have no idea about your Swedish account. The treaty with each country is different.

      I have a US IRA and my accountant says there’s no problem with leaving it there even though I’ve renounced. It doesn’t get taxed till I start withdrawing from it. However, they’ll take 30% off each payment once I retire and start collecting from it. If I want to reduce the percentage I get taxed, I’ll have to start filing the forms again. At least that’s what my accountant said, but there’s a lot of confusion about it…

      I feel exactly the same about my son: regretful that I ever registered him with the US consulate. As far as I know, the US isn’t drafting kids at the moment, but my son is going to renounce anyway since he can’t see any reason to keep the US citizenship if it’s going to mean he has to fill in tax forms for life, and get no benefits from it.

      Reply

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