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.
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.
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.
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.
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!