A controversial new tax law that Kentucky Sen. Rand Paul is attempting to repeal is driving hundreds of well-heeled Americans living abroad to renounce their U.S. citizenship.
The Foreign Account Tax Compliant Act, passed in 2010, requires financial institutions overseas to provide the Internal Revenue Service with annual reports on their U.S. account holders.
The law, which is aimed at expatriates holding $50,000 or more in their banks, was enacted to prevent Americans fom evading taxes. But Americans with dual citizenship are up in arms, and are dumping their U.S. passports at a record rate, McClatchy Newspapers
Singer Tina Turner, Facebook co-founder Eduardo Saverin, and Democratic fundraiser Denise Rich all have renounced their citizenship in the past two years.
The number of people who have relinquished their citizenship has soared from 742 in 2009 to more than 1,854 this year, according to the State Department.
"[The law] is a textbook example of a bad law that doesn’t achieve its stated purpose but does manage to unleash a host of unanticipated, destructive consequences,” said Paul as he introduced a bill this year to repeal it. "Tax evasion is a problem that should be addressed, but not in an egregious way.”
U.S. tax experts believe the renunciation figures could be even higher, based on the increased waiting times for appointments at U.S. consulates, McClatchy reported.
According to U.S. expatriate-advocacy groups and tax lawyers, the law has angered foreign households where a non-American spouse doesn’t want the IRS looking into their financial statements.
Passed under President Barack Obama, the law is causing foreign banks to shut down the accounts of Americans and ban the opening of new accounts by expatriates in case the institutions are penalized by the U.S. government for non-compliance.
The banks are also said to be refusing loans and mortgages to Americans for the same reason.
"Many foreign financial institutions are turning Americans away. It's easier for them not to have American clients," said Marylouise Serrato, executive director of American Citizens Abroad. "For some people [renunciation] becomes a solution."
According to McClatchy, the ban on U.S. accounts by foreign banking institutions has also caused problems for Americans who have business dealings overseas.
Jimmy Sexton, president of the tax firm Esquire Group, with offices in Las Vegas and Austria, said, "My bank told me I had to close my account by the end of the year. I moved to a larger bank with an ex-pat division. That’s all fine and good if you live in Vienna, but if you live in an area with only small banks, good luck."
Ruth Anne Freeborn, who was born in Oklahoma but has lived in Kingston, Ontario, for 30 years, handed back her U.S. passport in September because her Canadian husband was furious that his financial information had to be given to another country.
"My decision was either to protect my Canadian spouse and child from this overreach or I could relinquish my U.S. citizenship," she said. "It was with great sorrow I felt I had to relinquish, but there was no other choice for me and many like me.
"My husband cannot understand why Americans are so offended by having their personal emails and phone calls monitored by the NSA, yet are very comfortable requiring a Canadian to hand over their bank-account data, which is far more sensitive."
Cynthia Bennett, who lives in Germany, relinquished her citizenship in 2011 after the law was passed. "Congressmen and senators will happily throw middle Americans living and working abroad under the bus," she said.
Earlier this month Tina Turner, who has a Swiss spouse and has lived in Switzerland for 20 years, went to a U.S. embassy there to renounce her citizenship. Eduardo Saverin dropped his U.S. citizenship last year and now resides in Singapore, a move that reportedly saved him $67 million in taxes.
And Denise Rich, the ex-wife of Marc Rich, who was pardoned by President Bill Clinton for making illegal deals with Iran, gave back her U.S. passport last year and lives in Austria.
The U.S. Treasury Department, however, has warned Americans overseas that dumping their U.S. passports does not necessarily let them off the hook.
"Individuals that have used offshore accounts to evade tax obligations may rightly fear that the law will identify their illicit activities," says a Treasury web posting.
"Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency."
© 2014 Newsmax. All rights reserved.