Unlike most countries, the U.S. taxes its citizens on all income, no matter where they live and where their income is earned. The current United States tax laws, because of requirements for reporting income, filing tax documentation, as well as the ensuing tax obligations, have made many Americans renounce their citizenship. Section 349(a)(5) of the Immigration and Nationality Act details a U.S. citizen’s right to voluntarily renounce his or her citizenship. Signing an oath of renunciation is an irrevocable act unless the individual is under the age of 18.
The Foreign Account Tax Compliance Act (2010) is a legislative response by the U.S. government to curb a growing trend of tax evasion. It requires individuals to report certain foreign assets and banks to disclose all foreign accounts held by Americans. U.S. citizens living abroad are required to file an FBAR (Report of Foreign Bank and Financial Accounts) if they had a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all of these foreign financial accounts exceeds $10,000 at any time during the calendar year for which the taxpayer is reporting.
The number of Americans renouncing their citizenship increased more than 20% last year to 4,279, according to a CNN Money report of the latest data released by the federal government. Eighteen times as many Americans renounced their citizenship or long-term residency in 2015 compared with 2008. Last year was the third record-breaking year in a row.
Not only must offshore taxpayers file FBARs and otherwise comply with FATCA, they must financially come to terms with double taxation – the fact that they are likely to be taxed in the country in which they reside as well as the Unites States. Foreign tax credits are helpful but are of limited help for higher-income earners.
Taxpayers must remember that it is illegal to give up U.S. citizenship status to avoid paying taxes. The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 prohibits people who renounce their citizenship for the purpose of avoiding the payment of taxes from entering the US. The Act provides special rules for making the determination whether an individual has renounced citizenship with the principal purpose of tax avoidance.
Here is a summary of the tax law relating to renunciation of citizenship in the last ten-plus year period:
*If you renounced your citizenship on or after June 3, 2004, but before June 17, 2008, certain expatriation tax rules apply under Internal Revenue Code § 877. If you are subject to expatriation tax, you must file a Form 1040NR (a U.S. Nonresident Alien Income Tax Return) for each year in the 10-year period following renunciation. The expatriation tax for these filers applies to gross income and gains on a net basis from U.S. sources.
*If you expatriated after June 16, 2008, I.R.C. § 877A applies instead of I.R.C. § 877. Taxpayers are subject to an immediate exit tax, which deems for tax purposes that the taxpayer has sold all property for its fair market value the day before departure from the United States.
*If you expatriated on or after June 17, 2008, the new I.R.C. § 877A expatriation rules apply to you if any of the following statements apply.
- Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).
- Your net worth is $2 million or more on the date of your expatriation or termination of residency.
- You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
Among the various requirements contained in I.R.C.§§ 877 and 877A, individuals who renounced their US citizenship or terminated their long-term resident status for tax purposes after June 3, 2004 are required to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation. Otherwise, the individual will be subject to the I.R.C.§§ 877 and 877A expatriation tax provisions even if the individual does not meet the monetary thresholds in I.R.C. § 877 or I.R.C. § 877A.
3 Comments
Renouncers should also consider the costs of hiring a tax preparer to assist with preparing or amending tax returns when calculating the tab for expatriation.
Renouncers should also consider the costs of hiring a tax preparer to assist with preparing or amending tax returns when calculating the tab for expatriation.
You can simply answer that your US citizenship is no longer needed since you have established a home outsid 4 e the United States and do not intend to return to live permanently in the United States.