US Expatriations Reach Record Levels In 2013

By Editorial 13 February, 2014

According to Treasury Department statistics published in the Federal Register, a record number of 2,999 United States taxpayers gave up their passports or their green cards in 2013, more than twice the level seen in 2012, and even greater than the previous record level of 1,781 set in 2011.

The Treasury is required by statute to publish a quarterly list including the name of each individual who has lost or renounced US citizenship during the period. For purposes of this listing, long-term residents, or green card holders, are treated as if they were citizens of the US who lost citizenship.

The increase has come as actions being taken by the Treasury and the Internal Revenue Service (IRS) to trace American undeclared assets and income held abroad gather pace, particularly as the deadlines within the Foreign Account Tax Compliance Act, which is intended to ensure that the IRS obtains information on accounts held abroad at foreign financial institutions by US taxpayers approach, and the US negotiates more agreements with foreign jurisdictions.

In addition, more Americans living abroad are becoming aware of their unwanted US tax reporting obligations. For example, individuals are still required to file the Report of Foreign Bank and Financial Accounts if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, and if the aggregate value of the financial accounts exceeds USD10,000 at any time during the calendar year.

In his International Tax Blog, Andrew Mitchel, a tax lawyer from Centerbrook, Connecticut, also puts the rise in expatriations down to the US "worldwide" tax code, which subject all of an individual's earnings to US taxation.

He points out that "the US is almost the only country in the world that requires its citizens that live permanently in another country to continue to file tax returns and pay taxes in the country of citizenship. Many believe that income earned from foreign sources is not subject to US tax, and that while residing overseas there is no need to file US tax returns. This is not an unreasonable belief, considering that most countries in the world operate in that way."

Given that, "in the last several years, there has been increased publicity surrounding US citizens who have actively attempted to hide assets overseas," he considers that "US citizens living outside the US have become much more aware of their obligation to file US tax returns."

Mitchel also notes that "any individuals can now expatriate without paying any US tax and without having to continue to file US tax returns for 10 years. An individual expatriating in 2014 faces an 'exit tax' only if he or she has a net worth of USD2m or more on the date of expatriation, has an average annual net income tax liability exceeding USD157,000 for the five years ending before the date of expatriation, or fails to certify that all US federal tax obligations have been complied with for the five years preceding the date of expatriation."

Furthermore, even if one of these conditions is met, and a mark-to-market regime is triggered, "for 2014, an expatriate subject to the mark-to-market regime can exclude up to USD680,000 of gain from being taxed under the exit tax."

Tags: Individuals | Compliance | Tax | Tax Compliance | Law | Internal Revenue Service (IRS) | Tax Authority | United States | Exit Tax | Individual Income Tax | Compliance | Expats | Tax |


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