The year 2016 was record-setting for the number of Americans who renounced their citizenship. In total, 5,409 Americans forfeited their citizenship. In the last quarter of that year, 2,364 forfeited. This means a 25 percent increase over the 4,279 who renounced in 2015. The cause of the citizenship forfeitures is the American tax system. Unlike nearly every other country on the planet, the U.S. taxes according to nationality instead of residency. Even though Americans can claim credit with the IRS for taxes paid to foreign authorities, it is not always enough to offset what the US taxman demands.
One of the main reasons, according to international law attorneys, is a law that was passed by the Democrat-controlled Congress in 2010 and signed by Barack Obama. Signed in March 2010, the Foreign Account Tax Compliance Act (FATCA) demands that all Americans living outside of the United States to file annual reports on their non-U.S. financial accounts to the Financial Crimes Enforcement Network (FINCEN). The law also requires all non-U.S. (foreign) financial institutions (FFIs) to search their records for any sign of American depositors, and to report the assets and identities to Department of the Treasury. FATCA was intended to provide revenue for the 2010 domestic jobs stimulus bill: the Hiring Incentives to Restore Employment (HIRE) Act.
Under FATCA, American expatriates can face harsh financial penalties for failure to comply. Approximately 7 million Americans live outside of the United States, many of whom are of modest means and not the wealthy for whom FATCA was supposedly intended. Those who deliberately fail to report foreign accounts to the IRS can be fined $100,000 or half the value of the account—whichever is greater. There are other penalties for small business owners abroad and for those with assets of more than $30,000.
American expatriates, who may have acquired US citizenship as a child, or who married a person of another country and lived abroad for years, are choosing to relinquish their citizenship rather than face the tax hassle. Among those on the list is Boris Johnson, the Foreign Affairs minister of the United Kingdom, who has not lived in the US since the age of five. In a 2014 interview on NPR, he expressed disbelief that he had been hit with a tax bill by the US for the capital gains he earned when he sold his home in London. “The United States comes after me, would you believe it ... for capital gains tax on the sale of your first residence which is not taxable in Britain, but they’re trying to hit me with some bill, can you believe it?"
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