The number of U.S. citizens applying to renounce their citizenship surged in the third quarter, as 2017 is expected to be yet another record year for the number of Americans opting to surrender their U.S. passports.
The legions of those giving up their citizenship were already expected to continue growing exponentially, before the Republican Party-backed tax bill revealed last week did not offer any measures of much-hoped-for tax relief for overseas residents.
Ways and Means Committee Republicans have said they were discussing measures to end taxes on foreign earned income. Representative George Holding (R., N.C.) previously publicly advocated ending taxes on foreign-earned income and reportedly said he was optimistic that the proposal would be part of the bill submitted Thursday. Mr. Holding noted how multinational companies are often reluctant to hire U.S. citizens because of the extra costs to do so. Republicans also discussed repealing the Foreign Account Tax Compliance Act (FACTA) last year as part of their part platform. However, both of these provisions are missing from the new tax bill submitted late last week.
After the Foreign Account Tax Compliance Act (FACTA) was enacted in 2010, U.S. citizens began to abandon their citizenship in record numbers. Under FATCA, expat tax filers whose assets reach a certain threshold are now required to file Form 8938 in their annual tax filings in addition to the Report of Foreign Bank and Financial Accounts (FinCEN Report 114 or “FBAR”). Foreign banks also face penalties by not disclosing details of accounts belonging to U.S. citizens to the Internal Revenue Service (IRS). Prior to FACTA’s enactment, it was previously more difficult for U.S. tax authorities to access foreign bank account records in the event of an audit.
According to a report published in the Federal Register last week by the IRS, 4,400 U.S. citizens filed to cancel their citizenship during the first three quarters of 2017. The IRS said the number totaled 1,370 in the third quarter ending Sept. 30. The total annual number is expected to surpass last year’s record total of 5,411 at the current pace.
Curiously, the IRS also opted to publish the full names of those who opted to renounce their U.S. citizenship in the third quarter in the Federal Register.
Those who renounce their citizenship must pay a $2,350 fee. They also must declare that they were compliant with U.S. tax code for the past five years. Those whose net worth totals more than $2 million or have paid an average of $162,000 net income tax during the past five years will be subject to the expatriation tax rules in order to give up their citizenship.
Renouncing your U.S. citizenship thus does come at a price, but a rapidly growing number of Americans apparently think it is well worth the cost.