Expatriates Opt to Renounce US Citizenship to Avoid Paying Taxes
An increasing number of Americans renounced their citizenship and cut-off long term residencies during the initial three months of 2015 due to a crackdown in the foreign tax rules. The exit wave went down a little in the second half, but has continued.
The Internal Revenue Service and Treasury Department have started to enforce tax rules for the expatriate American citizens. Although the law was in force from the 1970s, such a crackdown related to the Foreign Bank Account Report is unprecedented. According to the law, American taxpayers must file taxes in case they possess one or multiple foreign accounts, which together stumps up in excess of $10,000 in a year. Andrew Mitchel, a specialist in analyzing complex data obtained from the Treasury Department, said that a number of individuals are caught in the net of US tax filings, prompting them to renounce their citizenship.
Rules pertaining to tax returns for income, gift and estate and paying the estimated taxes are usually identical whether an individual is resident within the United States or outside the country. The worldwide income of both US citizens and resident aliens come under the purview of US income tax, independent of the residence address.
Foreign Account Tax Compliance Act
The Internal Revenue Service uses Foreign Account Tax Compliance Act to obtain information on those accounts, which are held abroad in the name of US taxpayers. Such information can be obtained from foreign financial institutions. The initiative is the result after UBS was accused of abetting US taxpayers to ferret away money out of the country in 2009. The institution subsequently paid about $780 million to the American government and also gave information related to approximately 4,000 Swiss accounts. The financial institution was not alone. Credit Suisse (NYSE: CS) also pleaded to almost identical claims in 2014 and promptly paid about $2.6 billion.
The ensuing scandal led to a greater awareness among American citizens about their tax related needs. It is partly responsible for many people renouncing their American citizenship as they become increasingly aware of their tax filing obligations. They also became cognizant of potential penalties which could be imposed for the failure to file a few particular disclosure forms. The standard penalty for an individual who unintentionally fails to file FBAR is $10,000 per year.
Taxpayers with links to “tax havens” are suddenly finding a conflict between minimizing taxes and keeping assets with keeping their United States residency. The Treasury Department reported approximately 1,335 expatriates during the initial months of 2015. In contrast, the number fell to 460 expatriates during the subsequent period.
