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2013 Expatriations Increase by 221%: Number of Americans Who Renounced U.S. Citizenship Soars
International Tax Blog ^ | 02/07/2014 | Andrew Mitchell

Posted on 02/07/2014 8:14:31 AM PST by SeekAndFind

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the fourth quarter of 2013. 

The number of published expatriates for the quarter was 630, bringing the total number of published expatriates in 2013 to 2,999.  The total for the year shatters the previous record high of 1,781 set in 2011 and is a 221% increase over the 2012 total of 932.


We do not believe that the primary reason for the increase in expatriations is for political purposes or for individuals to reduce taxes.  Instead, we believe that there are likely three principal reasons for the recent increases in the number of expatriations:

  1. Increased awareness of the obligation to file U.S. tax returns by U.S. citizens and U.S. tax residents living outside the U.S.;
  2. The ever-increasing burden of complying with U.S. tax laws; and
  3. The fear generated by the potentially bankrupting penalties for failure to file U.S. tax returns when an individual holds substantial non-U.S. assets.

The increase in expatriations may also be partly due to a 2008 change in the expatriation rules.

Increased Awareness

The U.S. 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.  Most people, especially those living abroad, are unaware of the unique way in which the U.S. taxes its citizens and long-term residents.  Many believe that income earned from foreign sources is not subject to U.S. tax, and that while residing overseas there is no need to file U.S. tax returns.  This is not an unreasonable belief, considering that most countries in the world operate in that way.

In the last several years, there has been increased publicity surrounding U.S. citizens who have actively attempted to hide assets overseas.  The U.S. government discovered that UBS, Switzerland’s largest bank, actively aided its American clients in hiding assets from the I.R.S.  In 2009, UBS entered into a deferred prosecution agreement with the U.S. Department of Justice which required, among other things, that UBS cease to provide services to U.S. clients with undeclared bank accounts.  UBS additionally agreed to pay USD $780 million in fines and later agreed to disclose to the U.S. government the identities of more than 4,000 U.S. account holders suspected of evading taxes.  The Department of Justice also publicizes its successful tax prosecutions, including prosecutions of many individuals that have attempted to hide assets overseas.

The I.R.S. has also highly publicized several offshore voluntary disclosure programs where U.S. persons can disclose previously unreported income and assets, and pay (potentially) reduced penalties with the implied agreement that there will not be a criminal prosecution.

The UBS scandal also spurred the 2010 enactment of the Foreign Account Tax Compliance Act (“FATCA”).  FATCA will soon require many foreign financial institutions to report to the I.R.S. accounts held by U.S. taxpayers.

With the publicity surrounding these events (the UBS scandal, the offshore voluntary disclosure programs, and FATCA), U.S. citizens living outside the U.S. have become much more aware of their obligation to file U.S. tax returns.

Ever Increasing Compliance Burden

There are many potential U.S. tax forms that apply to individuals living outside the U.S.  Some of the items that need to be disclosed to the I.R.S. include:

The rules to determine which assets need to be included on the forms can be very complicated.  Attribution rules can apply to cause an individual to be considered to have an interest in an asset, even if he or she does not directly own the asset.  Individuals living outside the U.S. often have to pay significant fees to U.S. tax advisors just to remain compliant with the I.R.S.

FATCA increased the compliance burden by creating additional reporting requirements, some of which overlap existing reporting requirements, creating duplicate reporting requirements.  Starting in July of 2014, if a foreign financial institution, such as a bank, does not report its U.S. account holders to the I.R.S., U.S. payors must withhold 30% of the gross of any payments made to such foreign financial institution.  When faced with the administrative burden of complying with FATCA or being withheld upon, some foreign financial institutions are simply closing the accounts of their U.S. clients. 

Huge Potential Penalties

Although each form carries its own penalty, the “standard” penalty for failing to file many of the forms is $10,000.  That is, the $10,000 penalty applies per year and per form.  If an individual should have been filing 3 of the disclosure forms for the past 6 years, the penalties could be $180,000 or more (10,000 X 3 X 6).  Potential penalties of this magnitude are quite common, even for individuals of modest means.

Of course, the “elephant in the room” penalty is for intentionally failing to file the FBAR (Report of Foreign Bank and Financial Accounts --- now FinCEN Form 114).  The monetary penalty for a willful failure to file this form is the greater of $100,000 or 50% of the account balance at the time of the violation.  For example, say an individual has retired overseas and has accumulated a life savings of $1,000,000 that has been deposited in a foreign bank account.  If that individual intentionally does not file the FBAR for 4 years, the penalty would be $2,000,000 (twice the amount of the cash in the bank).

The penalty for unintentionally failing to file the FBAR is the “standard” penalty --- a mere $10,000 (per year).

And, of course, you had better now have Internet access in your foreign retirement retreat.  Starting July of last year, the FBAR must be filed electronically.

A more detailed summary of the potential penalties can be found here.

2008 Change to Expatriation Rules

In 2008, the expatriation rules were changed.  Many individuals can now expatriate without paying any U.S. tax and without having to continue to file U.S. tax returns for 10 years.  An individual expatriating in 2014 faces an “exit tax” only if he or she:

  1. Has a net worth of $2 million or more on the date of expatriation,
  2. Has an average annual net income tax liability exceeding $157,000 for the 5 years ending before the date of expatriation, or
  3. Fails to certify on Form 8854 that all U.S. federal tax obligations have been complied with for the 5 years preceding the date of expatriation.

If one of these conditions is met, a mark-to-market regime is triggered and all worldwide property of the expatriate is deemed sold for its fair market value on the day before expatriation.

For 2014, an expatriate subject to the mark-to-market regime can exclude up to $680,000 of gain from being taxed under the exit tax.  With the $680,000 exclusion, many individuals can expatriate without paying any U.S. tax.  

It is important to note, however, that some individuals, especially those with assets in foreign pension plans, may unexpectedly pay more tax than they realize.  Further, future gifts or bequests to U.S. persons can be subject to special gift and estate taxes (imposed on the recipient of the gift or inheritance).  The circumstances of each individual considering expatriation must be closely analyzed to determine the amount of U.S. tax that will be due upon expatriation.

Also, with the new rules in 2008, expatriates can now annually visit the U.S. for 120 or more days without becoming taxed as U.S. residents.  Under the pre-2008 rules, visits to the U.S. for more than 30 days during any of the 10 years following expatriation caused the individual to be treated as a U.S. resident for that year.

As stated above, we believe that the primary reasons for the increase in expatriations are due to: (i) the increased awareness of the obligation to file U.S. tax returns, (ii) the increasing burden of complying with U.S. tax laws, and (iii) the fear generated by the magnitude of the potential penalties.


Andrew Mitchel LLC is a law firm located in Centerbrook, Connecticut that focuses on the U.S. taxation of international transactions.  It also operates and the International Tax Blog.

TOPICS: Business/Economy; Society
KEYWORDS: citizenship; tax

1 posted on 02/07/2014 8:14:31 AM PST by SeekAndFind
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To: SeekAndFind

3000 in a year doesn’t concern me.

But, I don’t care much for expats to begin with. I work in the tech industry, work with them, and don’t care much for their attitudes.

2 posted on 02/07/2014 8:43:12 AM PST by AlmaKing
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To: SeekAndFind
Interesting. What do they know that we don't?

Our once free world has become a fledgling police state and has me not so happy, happy, happy with the hopey and changey tyranny on training wheels and wondering about the fate of US.

But, what to do? Get the Dodge outta Hell? Stand and fight? Bend with the wind? Or stick and move, step out of the way?

I suppose we'll have to give the "vote like your life depends on it" thing another shot first.

3 posted on 02/07/2014 8:47:09 AM PST by GBA (Here in the Matrix, life is but a dream.)
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300,000,000 US citizens and about 3000 leave. This whole article is totally rediculous.

4 posted on 02/07/2014 9:15:53 AM PST by nikos1121
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To: SeekAndFind

It is easy to send all monies out of the country, look poor, then leave. Of course, if you can do that, why leave? Send monies out of the country, invest in foreign accounts, and stay.

5 posted on 02/07/2014 9:28:51 AM PST by CodeToad (When ignorance rules a person's decision they are resorting to superstition.)
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To: CodeToad

RE: Send monies out of the country, invest in foreign accounts, and stay.

Not if you hold ONLY an American Passport.

Many foreign banks DO NOT WELCOME American account holders because of the long arm of the IRS, causing them lots of paper work and headaches.

Read these:

In short American foreign bank account holders are considered TROUBLESOME and UNDESIRABLE nowadays.

Better to apply for another citizenship first (if you can ) and THEN open an account using that passport.

6 posted on 02/07/2014 9:35:42 AM PST by SeekAndFind
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To: nikos1121

RE: 300,000,000 US citizens and about 3000 leave. This whole article is totally rediculous.

In New York City, the top 1% pay nearly 40% of the city’s income taxes.

How many are they? They estimate about 35,000 out of 8 million inhabitants.

This is an old estimate:

So, 0.44% of New Yorkers pay 40% of the taxes. All you need is a few percentage of these 35,000 people to move to another state and your city revenue will DROP precipitously.

I will admit that the past 10 years, only about 14,000 of American one percenters have left the country.... but let’s not be complacent, the TREND is not our friend ( not if we keep harping on them as undeserving of their wealth and deserving of confiscation to solve “income inequality”).

7 posted on 02/07/2014 9:42:47 AM PST by SeekAndFind
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RE: Interesting. What do they know that we don’t?

I think the more relevant question is — What do they HAVE that we don’t?

8 posted on 02/07/2014 9:43:49 AM PST by SeekAndFind
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To: SeekAndFind

What happened to the millions of Libs who were gonna leave if George W. Bush got re-elected?

9 posted on 02/07/2014 10:08:36 AM PST by Buckeye McFrog
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I am not a travel agent. Expats are people like you and me....most are leaving due to Obamacare and fear of a Nazi type regime they think is coming, because in places like Panama and other countries the healthcare is better and cheap, and there are private hospitals one can join there...and no one is making them buy anything.

Costs have risen sharply in last 5 years in popular places for food and rent, and other Latin American countries due to wealthy Americans (mostly middle class). So don’t expect to have tremendous savings, mostly in healthcare and some pensionado programs; great outdoor market deals in fruits and vegetables....there is huge transformation in Panama with roads and progress...unemployement 5-6%...but jobs are mostly for Panamanians at lower pay scale.

Cities like David, Boquette in Mtns, Chitre, and Las Tablas more expat oriented in Panama.

Keep in mind...could you qualify to stay there if Obama cut off your social security or took your 401K? Other provisions may be necessary. Five years is the soonest one could be come a citizen in one of those countries without at least a few hundred thousand dollars to invest. There is a way to open a business with a lot less, and a different Visa, so investigate if interested.

Personally I ruled out Chile and Equador, but each to his own. Uruguay interested me, but I do not like excessive heat and flatlands...although the beef grown there would appeal to many.

Panama is a democratic republic, since Noreiga was deposed in 1989. Panamanian food is bland and lots of deep fried things, all out of my interest range. I’m a spicy food advocate and love Tex Mex and Mediterranean foods. So you may be eating at home, although some of our fast foods have made it to the Latin/South American countries. Too much sugar in some of their goods.

Uraguay is socialist country but stable and hot, and so is Chile and Guatemala...the other countries in South America are not safe ...imho. Belize is okay and speaks English, but real estate laws need to be understood. Agentina is a mess, and avoid at all costs, always volatile.

Those countries speak Spanish (Belize-English), but lots of English speaking people there. Remember that those countries that use the dollar will be affected financially, when the dollar is dumped as the trade money.

Expats understand that elections are taking place in 2014 in at least three places south of the border, so that will give an idea of where each country is headed politically.

Each person must decide what is best for them, but shipping household items is very expensive, and car parts are different in those places...a lot of those cars come from Argentina productions with different parts vs US are held for months with a $100+ mo storage fee, so this is not an easy move...but the good news is most major cities have great public transportation.

Research everything and know the corruption via the Expat blogs, website, and message boards if you decide to vacate America....protect yourself. Bank accounts are hard to open in some places...and don’t think you can take your passport, jump on a plane, and use your credit cards...Panama will expect you to have lots of cash for your stay, and felons will not necessarily be welcome to stay for any length of time, if at all....know the rules. Oh and for living in Panama, they turn down people who have had former bankruptcies according to all I have read.

I have done the research just in case, so don’t ask me any questions as numbers and information change often...look it up for yourselves if you think you may want to be an expat. Glowing travel info is not what you want, it needs to come from people who live there, and the countries laws regarding visiting visas, or living there programs. Enjoy!

10 posted on 02/07/2014 10:11:18 AM PST by Kackikat
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To: SeekAndFind

’ All you need is a few percentage of these 35,000 people to move to another state and your city revenue will DROP precipitously.’

That’s the best argument I’ve heard to be concerned about this. But, we all have only 1 vote. Changing hearts and minds seems impossible to do these days, particularly for those of us who have to work.

11 posted on 02/07/2014 10:29:12 AM PST by AlmaKing
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