Thursday, February 20, 2014
Why More Americans Are Renouncing U.S. Citizenship
Posted by Charleston Voice
A few times a year, the Treasury Department publishes a long list of names announcing all of the Americans who have lately abandoned their U.S. citizenship.
According to the legal website International Tax Blog, the number hovered around 500 a decade ago. Last year, it hit a record high of nearly 3,000.
This was not a gradual change. It was a sudden spike. It’s a story of dominoes falling, one after another, leading to an unexpected outcome.
The first domino fell in 2008, when federal prosecutors accused the Swiss bank UBS of helping wealthy Americans hide their money tax-free in overseas accounts. It was a big case, leading to indictments, fines and prison time.
The U.S. Congress wanted to make sure it didn’t happen again. During the economic recession, lawmakers saw a chance to bring in massive sums of money and stop tax cheats at the same time.
“They just found UBS in a terrible scheme to encourage tax evasion,” Barney Frank, the Democratic congressman from Massachusetts, told NPR in 2009.
“I think there are clearly tens of billions that can be recovered there.”
The next year, in 2010, Congress passed the Foreign Accounts Tax Compliance Act. The law affects every foreign bank that does business with the U.S. And not just banks: It also applies to retirement accounts, mutual funds, and more.
Renouncing citizenship is not as easy as throwing a passport onto the fire. It’s a lengthy process, involving interviews, paperwork and legal procedures. So people who do it generally have a compelling motivation.
And while individual reasons for renouncing may vary from person to person, experts in the field say the recent dramatic spike has more to do with the 2010 tax law than any other factor.
Wisconsin financial adviser David Kuenzi works with Americans overseas who are affected by the law.
“[Congress] said to all of these institutions, ‘You need to follow this set of criteria to determine all of the Americans who are your clients,” says Kuenzi, “and you need to report directly to us on their holdings.’ ”