Mister Taxman: Why Some Americans Working Abroad Are Ditching Their
Citizenships
By Helena Bachmann <
http://world.time.com/contributor/helena-bachmann/>Jan.
31, 2013104 Comments<
http://world.time.com/2013/01/31/mister-taxman-why-some-americans-working-abroad-are-ditching-their-citizenships/#comments>
Why is Tina Turner switching from American to Swiss citizenship? The
legendary singer, a longtime Zurich resident, told the *Blick* newspaper
that she has been very happy in Switzerland and “can’t imagine a better
place to live.” But some observers believe she may be one of thousands of
American expatriates who have taken the drastic and irrevocable step of
giving up their citizenship because of what they consider to be the unjust
and discriminatory taxation practices of their government.
While Turner has indicated nothing other than a practical decision behind
the switch, it comes at a time when American expats all over the world are
turning in their passports in record numbers to avoid double taxation and
other financial burdens imposed on them by Uncle Sam. According to
government figures, nearly 1,800 Americans relinquished their passports in
2011, a process that requires a special application and a $450 exit fee.
True, that number is just a drop in the bucket, considering that an
estimated 6 million U.S. citizens live abroad. But the numbers are growing
dramatically — a sevenfold increase since 2008, and that is not counting
thousands of applications waiting to be processed in U.S. consulates and
embassies around the world.
(*MORE:* Renouncing Your U.S. Citizenship to Stick It to the Tax Man? Not
as Easy as It Looks<
http://business.time.com/2012/06/22/renouncing-your-citizenship-to-stick-it-to-the-tax-man-not-as-easy-as-it-looks/>
)
The U.S. is the world’s only industrialized nation that taxes citizens
who live overseas, even if their income is generated in a foreign country
and they never return to America. And while high-profile cases like that of
Turner or that of Facebook co-founder Eduardo Saverin (who renounced his
American citizenship last year to become a resident of Singapore) catch
public attention, the vast majority of expatriates affected by double
taxation and increasingly draconian filing rules are middle-class or
retired, or those who have never lived or worked in the U.S. at all but
were born to American parents overseas.
Even though expatriates can claim a $97,000 exclusion on their U.S. taxes,
most Americans who work in high-cost nations earn salaries far exceeding
this amount, for which they already pay hefty income taxes in their
countries of residence.
“I became increasingly frustrated by the necessity to file in two
countries,” says Peter Dunn, an Anchorage native who now lives in Toronto
and renounced his U.S. citizenship in 2011. Dunn became even more outraged
when the IRS insisted on taxing his Canadian Tax-Free Savings Accounts,
which are similar to the tax-free Roth IRAs in the U.S. “I could not live
with the abuse of America taxing me even though I could not receive any
services or benefits of living in the U.S.,” he adds.
In addition to the burden of double taxation, expats must deal with a
myriad of increasingly complex and confusing IRS rules, like the Report of
Foreign Bank and Financial Accounts, which requires expatriates to report
all foreign accounts exceeding $10,000, including those held jointly with
their non-American spouses. Stiff financial penalties are imposed for
noncompliance.
(*MORE:* Switzerland: Are Its Days as a Tax Haven for Foreigners
Over?<
http://world.time.com/2012/10/31/switzerland-are-its-days-as-a-tax-haven-for-foreigners-numbered/>
)
While filling out this form, Genette Eysselinck, a North Carolina native
who lives in France, included the details of her accounts held jointly with
her Belgian husband, as required by the IRS. “When I realized how
distressed he was over my breach of confidence, I decided the only recourse
left was to renounce my nationality,” she says. Eysselinck gave up her
American citizenship last year.
Another law that affects expatriates is the Foreign Account Tax Compliance
Act (FATCA), which will go into effect in July and require all foreign
banks to report to the IRS information about accounts held by Americans.
While this new regulation aims to prevent tax evasion, it also makes life
difficult for millions of law-abiding expats.
“FATCA is the straw that broke the camel’s back,” says Jackie Bugnon,
director of American Citizens Abroad (ACA), a Geneva-based expatriate
advocacy group. Because this legislation forces local banks to invest in
expensive new infrastructure in order to comply with the IRS rules,
“access to foreign financial institutions is being shut off and Americans
abroad are treated like criminals,” she adds.
Switzerland-based Amy Webster experienced the bias firsthand when she and
her Swiss husband encountered difficulties getting a mortgage because of
her U.S. citizenship. “This was infuriating and humiliating,” she says.
“These unfair regulations imposed by the U.S. government are having
adverse effects on the lives and well-being of U.S. citizens living in this
country.”
(*MORE:* Why the Swiss Aren’t Neutral: Chocolate and the
CIA<
http://world.time.com/2012/10/31/switzerland-are-its-days-as-a-tax-haven-for-foreigners-numbered/>
)
Webster notes that while she understands “the political motivation of the
current Administration to chase tax evaders and punish banks that
contributed to such transactions, I am outraged that these regulations have
impacted honest and hardworking citizens.”
One way to stave off the surge in renunciations, ACA’s Bugnon points out,
is to tax expatriates on the same basis as nonresident aliens, who maintain
a tax home in a foreign country and benefit from the same tax laws as
American citizens within U.S. territory. That’s the proposal the ACA will
push during the Overseas Americans Week, to be held in Washington, D.C.,
the week of Feb. 11.
Unless this change happens soon, disgruntled expats will continue to turn
their backs on America, perhaps singing Tina Turner’s old hit, aptly
titled, “Goodbye, So Long.”
*
MORE:
*
Why More U.S. Expatriates Are Turning in Their
Passports<
http://www.time.com/time/world/article/0,8599,1983238,00.html>
Chicago native Ben loves his country and is proud to be an American. Yet
the longtime resident of Melbourne has just relinquished his U.S.
citizenship. "This is not something I did lightly or happily, but I saw no
other choice," says Ben, a businessman who became an Australian citizen two
years ago.
His words resonate with another American expatriate, John, a business owner
based near Lausanne, Switzerland, who like Ben asked that his last name be
withheld for fear of alienating his family in the U.S. "Giving up my U.S.
citizenship is a genuine option," says the Ohio native, who recently
received his Swiss passport and is considering relinquishing his American
one. "I am at a breaking point being American costs me time [and] money,
but mostly aggravation." (See 50 authentic American
experiences.)<
http://www.time.com/time/specials/packages/article/0,28804,1909343_1909285,00.html>
For U.S. citizens, cutting ties with their native land is a drastic and
irrevocable step. But as Overseas American Week, a lobbying effort by
expatriate-advocacy groups, convenes in Washington this week, it's one that
an increasing number of American expats are willing to take. According to
government records, 502 expatriates renounced U.S. citizenship or permanent
residency in the fourth quarter of 2009 more than double the number of
expatriations in all of 2008. And these figures don't include the hundreds
some experts say thousands of applications languishing in various U.S.
consulates and embassies around the world, waiting to be processed. While a
small number of Americans hand in their passports each year for political
reasons, the new surge in permanent expatriations is mainly because of
taxes.
Considering that an estimated 3 million to 6 million Americans reside
abroad, the number of renouncements is small. But expatriate organizations
say the recent increase reflects a growing dissatisfaction with the way the
U.S. government treats its expats and their money: the U.S. is the only
industrialized nation that taxes its overseas citizens, subjecting them to
taxation in both their country of citizenship and country of residence. (See
"U.S. vs. UBS: A Fight Over Secret Swiss Bank
Accounts.")<
http://www.time.com/time/business/article/0,8599,1910389,00.html>
"Their income and wealth are generated largely outside the U.S., so why
does the U.S. get a slice of that?" says Phil Hodgen, a California-based
international tax attorney who helps Americans in the expatriation process.
"More and more people see no long-term benefit to retaining U.S.
citizenship."
Additionally, the U.S. government has implemented tougher rules requiring
expatriates to report any foreign bank accounts exceeding $10,000, with
stiff financial penalties for noncompliance. "This system is widely
perceived as overly complex with multiple opportunities for accidental
mistakes, and life-altering penalties for inadvertent failures," Hodgen
says.
These stringent measures were put into place to prevent Americans from
stashing undeclared assets in offshore banks, but they also make life
increasingly difficult for millions of law-abiding expatriates. "The U.S.
government creates conflict and abuses me," says business owner John. "I
feel under duress to understand and comply with laws that have nothing to
do with me and are constantly changing almost never in my favor." (See
the best business deals of
2009.)<
http://www.time.com/time/specials/packages/article/0,28804,1945379_1944139,00.html>
John says that since he moved to Europe 25 years ago, U.S. tax regulations
have become more and more burdensome. "Every time I turn around, I get
smacked in the face with some new restriction as a result of being a U.S.
citizen abroad," he says. And because the U.S. government requires other
countries to abide by its banking and financial rules when dealing with
expatriates, Americans living abroad are often denied services because of
the increasingly complex legalities and logistics involved in serving U.S.
customers. Many U.S. expats report being turned away by banks and other
institutions in their countries of residence only because they are
American, according to American Citizens Abroad (ACA), a Geneva-based
worldwide advocacy group for expatriate U.S. citizens.
"We have become toxic citizens," says ACA founder Andy Sundberg.
Paradoxically, by relinquishing their U.S. citizenship, expats can not only
escape the financial burden of double taxation, but also strengthen the
U.S. economy, he says, adding, "It will become much easier for these people
to get a job abroad, and to set up, own and operate private companies that
can promote American exports." (See "British Citizenship: Points Off for
Protest?") <
http://www.time.com/time/world/article/0,8599,1915753,00.html>
Relinquishing U.S. citizenship is a fairly simple process: after filling in
a few forms, and in some cases, paying an exit tax (based on the
applicant's worldwide income and assets), the former citizen receives his
canceled passport in the mail. But the decision can be difficult. "Cutting
my ties with America hasn't been easy," says Ben, who as a foreigner can
now spend only 90 days a year in the U.S. "My family and friends think I am
a traitor. But the financial burden was killing me."
Read more:
http://www.time.com/time/world/article/0,8599,1983238,00.html#ixzz2KZ8u1SL4
Read more:
http://world.time.com/2013/01/31/mister-taxman-why-some-americans-working-abroad-are-ditching-their-citizenships/#ixzz2KZ85ehbR
Received on Mon Feb 11 2013 - 10:49:25 EST
