Americans living abroad are increasingly renouncing their citizenship to avoid potentially massive tax penalties for failing to comply with a little-known reporting requirement in the U.S. tax code, The Wall Street Journal
In the first three months of this year, 1,001 U.S. citizens and green card holders renounced their American allegiance, with the annual total already on track to be higher than last year's 2,999 renunciations.
"The increase is due to current and future changes in tax law and enforcement," Freddi Weintraub, a New York attorney at the Fragomen firm who specializes in immigration law, told the Journal.
The United States, unlike other developed countries, taxes citizens on income regardless of where it is earned. While the law exempts roughly $100,000 per year of income earned overseas, there are steep penalties, in some cases as high as 50 percent of the highest account, for failure to submit a form called the Foreign Bank Account Report.
The State Department estimates that 7.6 million Americans live abroad but only a tiny percentage file the required financial disclosure forms, the Journal reported.
Five years ago, the government started searching for undeclared foreign bank accounts of U.S. citizens after UBS AG bank in Switzerland admitted helping wealthy American taxpayers conceal money overseas. In May, Credit Suisse Group also pleaded guilty to a similar charge.
Both banks paid heavy penalties to the U.S. government, while dozens of other Swiss banks are currently tied up in Justice Department inquiries. The admissions have effectively ended the secrecy of Swiss banking system, which had for decades concealed the assets of some of the wealthiest people across the globe.
The reporting requirement, instituted in 1970, was intended to catch wealthy citizens who may have been trying to hide assets abroad, but many middle-class people have been caught up in the recent crackdown.
"We have reached the point where middle-class American citizens abroad are being forced to renounce — especially if they have assets and are moving toward retirement — because of taxes, paperwork, and huge potential penalties," John Richardson, a Toronto lawyer, told the Journal.
The government campaign has yielded $6 billion for the U.S. Treasury from interest and penalties from more than 43,000 taxpayers. Millions more could be affected, even though they may not be deliberately hiding funds from the tax man and are already paying taxes in their host countries.
Mark Mazur, the Treasury Department's assistant secretary for tax policy, said the government's new enforcement was intended to help make sure all taxpayers pay what they owe "regardless of where they live."
© 2014 Newsmax. All rights reserved.