The Foreign Account Tax Compliance Act (FATCA), which the government is using to chase down taxes from people with investment overseas or living overseas, goes into effect July 1.

"FATCA is an ambitious effort to root out wealthy U.S. taxpayers hiding money offshore and put an end to tax evasion as a profitable line of business for banks," Michael Graetz, a Columbia University law professor and former top U.S. Treasury Department official, tells The Wall Street Journal. "But U.S. authorities need to make an effort to avoid catching innocent middle-class citizens in its net."

The Journal offers a list of issues in the legislation.

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• Asset disclosure. U.S. taxpayers with foreign bank/investment accounts that contained more than $10,000 at any point in the previous year must file an annual Foreign Bank Account Report (FBAR) with the Treasury Department by June 30.
• Wages and other foreign-earned income. "U.S. taxpayers living abroad must report income from a job or a business, but each individual gets an exemption, currently around $100,000," The Journal reports.
• Retirement, savings and pension plans. Taxes must be paid on contributions to and investment gains in foreign plans, unlike U.S. plans.
• Investments. There are complex tax and reporting systems for offshore investments made by U.S. taxpayers. "The penalties for noncompliance can be severe," according to The Journal.

The imposing U.S. tax rules have led many Americans to renounce their U.S. citizenship. In fact, a total of 1,001 U.S. citizens and greencard holders cut the knot in the first quarter, according to an analysis of Treasury Department data by Andrew Mitchel, a lawyer in Centerbrook, Conn., The Wall Street Journal reports.

If that pace continues for the rest of the year, the 2014 total would smash the 2013 record (under Mitchel's calculations) of 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, tells The Journal.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

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