A steady stream of American citizens reportedly have renounced their citizenship since the implementation of stricter tax rules.
Many Americans who live in other countries face higher tax bills, difficulty in obtaining and keeping financial accounts and complex retirement savings rules, CNBC reported.
Some advocates urge the U.S. government to tax its citizens based on residency instead of citizenship to reduce those obstacles.
The U.S. government has tightened its rules in recent years to make it more difficult for Americans to evade taxes by hiding money offshore. For Americans who reside in foreign countries, that can make it more difficult to find financial institutions who will let them open accounts.
In the first quarter of this year, 1,099 Americans gave up their citizenship, according to data from the Internal Revenue Service. More than 5,000 citizens living overseas gave up their U.S. passports in both 2017 and 2016.
“Americans living abroad face a number of tax complications that folks living at home probably have never heard about,” David McKeegan, co-founder of Greenback Expat Tax Services, told CNBC.
Americans who reside in another country must file a Report of Foreign Bank and Financial Accounts, or FBAR. That form should disclose any accounts Americans have that hold more than $10,000. If you fail to file an FBAR, you will face penalties.
Those fines vary based on whether or not a taxpayer failed to file those disclosures on purpose.
The penalty for a non-willful filing starts at $10,000. But if the act is deemed willful, it’s a $100,000 penalty or 50 percent of the balance of the account, whichever is greater.
At the same time, the Foreign Account Tax Compliance Act requires foreign institutions to disclose the holdings U.S. citizens have.
Americans also need to disclose any foreign mutual funds and insurance or pension products that they own. Those holdings may be viewed as passive foreign investment companies, or PFICs, by the IRS, according to McKeegan.
Ironically, even leaving America can be costly. America charges $2,350 to hand in your passport, a fee that is more than twenty times the average of other high-income countries, Forbes.com reported.
"The U.S. hiked the fee to renounce by 422%, as previously there was a $450 fee to renounce, and no fee to relinquish. Now, there is a $2,350 fee either way. The State Department said raising the fee was about demand and paperwork, but the number of American expatriations kept increasing," Forbes.com explained.
"Moreover, to exit, one generally must prove 5 years of IRS tax compliance. And getting into IRS compliance can be expensive and worrisome. For some, a reason to get into compliance is to renounce."
(Newsmax wire services contributed to this report).
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