New tax
law driving expats to renounce U.S. citizenship
By William Douglas
McClatchy Washington Bureau
November 27, 2013
WASHINGTON — For Ruth Anne Freeborn, it boiled down to a choice between
country and family.
Born in Oklahoma, Freeborn has lived in Kingston, Ontario for more than 30
years as an American expatriate with a Canadian husband and 22-year-old son.
But
a U.S. law passed in 2010 that will
require international financial institutions to provide the Internal Revenue
Service with information on their U.S. account holders forced her to weigh her
citizenship. Her husband, a $51,000-a-year electronics
technician and the family’s sole income earner, strenuously objected to having
his financial data shared with a foreign nation.
“My decision was either to protect my Canadian spouse and child from this
overreach or I could relinquish my U.S. citizenship,” she said. “It was with
great sorrow I felt I had to relinquish, but there was no other choice for me
and many like me.”
In September, Freeborn formally surrendered her citizenship and joined
a record number of Americans who are ditching their U.S.
passports out of frustration and fear of the Foreign Account Tax Compliance
Act. The law was created to root out Americans evading taxes overseas by
requiring foreign financial institutions to annually report to the IRS on U.S.
citizens who hold more than $50,000 at the end of the year.
The reporting requirements are putting a strain on dual citizenship
households where a non-American spouse or partner doesn’t want the IRS prying
into their bank accounts or financial portfolios, according to U.S. expat
advocacy groups and tax lawyers.
“My husband cannot understand why Americans are so offended by having their
personal emails and phone calls monitored by the NSA yet are very comfortable
requiring a Canadian to hand over their bank account data, which is far more
sensitive,” Freeborn said.
The number of citizenship renunciations
has surged from 742 in 2009 to more than 1,854 so far this year, according to
the State Department. Some U.S. tax experts and expats believe the number is
higher, based on foreign media reports of Americans renouncing in other
countries and Internet chatter about increased waiting periods at some U.S.
consulates for appointments to drop citizenship.
In addition to complaints about the reports to the IRS, expats say the law
is prompting several overseas banks and financial institutions to close out
longstanding accounts of American clients, refuse to open new ones, and deny
loans and mortgages to expats rather than face a U.S. penalty if they don’t
comply with the tax law.
The turning away of U.S. citizens by some foreign financial institutions is
making it tough for some Americans to do business overseas, according to Jimmy
Sexton, president of the Esquire Group, an international tax firm with offices
in Las Vegas and Vienna, Austria.
“My bank told me I had to close my account by the end of the year,” Sexton
said. “I moved to a larger bank with an expat division. That’s all fine and
good if you live in Vienna, but if you live in an area with only small banks,
good luck.”
“Many banks, foreign financial institutions, are just turning Americans away
– it’s easier for them not to have American clients,” said Marylouise Serrato,
executive director of American Citizens Abroad. “For some people it
(renunciation) becomes a solution. But it’s done with a very heavy heart.”
Expats don’t want their cause tied to the rich and famous, many of whom are
fleeing taxes.
Singer Tina Turner traveled to the U.S. Embassy in Bern, Switzerland,
earlier this month and relinquished her citizenship. Her husband is Swiss and
she’s lived there for more than 20 years.
Facebook co-founder Eduardo Saverin dropped his U.S. citizenship last year
and now resides in Singapore, a move that some financial experts estimate saved
him $67 million in U.S. taxes.
Denise Rich, formerly a high-profile Democratic Party fund-raiser, also
handed in her U.S. passport last year and resides in tax-friendlier Austria.
“The rich can afford expensive tax attorneys,” Freeborn said. “The poor and
the middle class cannot. My bank down the street is not an offshore account and
I’m not hiding money.”
The U.S. Treasury Department said the law doesn’t impose a burden that would
prompt foreign banks to turn away Americans or force Americans to give up their
citizenship.
“Individuals that have used offshore accounts to evade tax obligations may
rightly fear that FATCA will identify their illicit activities,” says a
Treasury web posting. “Yet a decision to renounce U.S. citizenship would not
relieve these individuals of prior U.S. tax obligations, and might well create
additional U.S. tax obligations for certain citizens and long-term residents
who give up citizenship or residency.”
There are proposals in Congress to repeal or reconsider the law, though none
has gone far yet.
“FATCA is a textbook example of a bad law that doesn’t achieve its stated
purpose but does manage to unleash a host of unanticipated destructive
consequences,” said Sen. Rand Paul, R-Ky., when he introduced a bill this year
to repeal FATCA. “Tax evasion is a problem that should be addressed, but not in
an egregious way.”
Reps. Carolyn Maloney, D-N.Y., Charles Rangel, D-N.Y., and Mike Honda,
D-Calif., introduced a bill in the House of Representatives last year to create
a bipartisan commission to study the impact of government policy on Americans
living abroad. Ironically, Rangel co-sponsored FATCA in 2009.
Cynthia Bennett, who lives in Germany, didn’t want to wait for Congress. She
renounced in 2011 and told BBC News that FATCA was the last straw.
“
U.S. congressmen and senators will
happily throw middle Americans living and working abroad under the bus,” she
said, “if that can garner sound bites under the pretense of ‘punishing rich tax
evaders.”
Read more here: http://www.mcclatchydc.com/2013/11/27/209810/new-tax-law-driving-expats-to.html#storylink=cpy
