"Rich Americans renouncing U.S. citizenship rose sevenfold since UBS AG (UBSN) whistle-blower Bradley Birkenfeld triggered a crackdown on tax evasion four years ago.
About 1,780 expatriates gave up their nationality at U.S. embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports."
Didn’t read the linked article, but read an article on this a few weeks ago. The article I read focused on US citizens who have been living abroad for years and had no real ties to the US anymore except having been born there (i.e. no real estate holdings, no 401(k) or other retirement plans, no US bank accounts, etc.). They were still required to file a bunch of paperwork with the IRS every year disclosing income, foreign bank holdings, etc. Even required to disclose spouse’s financial particulars even when spouse was non-US. They weren’t trying to hide anything, but felt overwhelmed by the process of having to compile and disclose a bunch of information for a country they rarely even visit anymore.
Paperwork and hassle might be one factor. Escaping the US citizen income tax does look like a major motivation though. The people might not have intended to evade taxes initially - they probably just forgot or didn’t know that they were supposed to pay taxes. However, once you have lived abroad for 20 years and realize that the IRS might come after you, quitting the US might seem like an appealing choice.
The article I read wasn’t focused on wealthy individuals, just your average Joe/Jane who had left the US (usually because of a non-US spouse) and had no financial connection to the US anymore. They didn’t even owe any money to the US, just had to file the paperwork. One guy had been living in Canada for years with his Canadian wife and pointed out that he’d be better off if he had US based income because the tax rate is lower.
But you still have to pay all the back taxes, yes? I suppose in some countries you could get away with no paying, but I’m sure it would be hard to re-enter the US at some future point if you were a known tax evader.
I’m not familiar with the details, or how the US would be able to find you even if you enter the country. For instance, if your name is John Smith and you enter the US with a foreign passport, how would the US know that you are the same John Smith that was previously a US citizen? Plus, unless you evaded a huge sum of taxes, I doubt that the IRS will send your profile to immigrations.
Also, what if you just never reported any foreign income to the US at all? How would the US know how much money you made in a foreign country, and thus, how much you owe in taxes? At least if you quit the US, it seems like they would never be able to audit you for records of past income.
Maybe we should ask ChickenTikka. I’m sure he has been diligently paying US taxes for all these years and has thought about all these issues.
I believe in most cases, your first ~$90k/year in foreign income is exempt if you have taken up permanent residence in another country, but you still have to file a US return every year even if you only make less than that. If you don’t file, you are considered a tax cheat and are subject to all the same fines and penalties as someone living in the US. If you have joint assets with your non-US spouse, you have to report all of them as well.
BTW, passports indicate your country of birth, so they will know you used to be a citizen if you enter the US under a foreign passport.
Hmm. I think there are two questions here: 1) Are you breaking the law? (probably yes), and 2) Does the IRS actually bother to track all these people? (probably no).
You could also be a US citizen but were born in a different country. These are probably edge cases, but it seems like such people would be more likely to live and work in foreign countries than US-born people.
You have no idea how far this law goes. I started a thread months ago here about it.
Someone was born in the US while her parents were on vacation. She is automatically US citizen at birth. 30 years later (she has never lived nor worked in the US in her life), she was asked to report to the IRS.
Many in Canada are Amercans through naturalization (born in Canada from US parents). These individuals have never lived in the US but are required to report their taxes. The law is too extreme.