What Drives Americans to Renounce Citizenship?

By Expat News

There was a 221% increase in American citizens renouncing their citizenship in 2013.

This figure has been reported by the U.S. Treasury Department; however, the actual number is much higher. It is alarming that citizens are leaving the U.S. in droves.

Is it the overwhelming desire to escape the high tax rates, global tax reporting and FATCA?

Accidental Americans

There are many who renounced their citizenship because they are accidental Americans. Although born in America, they never lived in the USA. Some who renounce their citizenship are very happy and relieved about their decision, yet there are others who are deeply concerned about what they have done. Do note that once you have renounced your American citizenship, it is impossible to get it back.

FATCA drives Americans to renounce citizenship

Another reason for Americans leaving the country in droves is FATCA, the sweeping campaign by the IRS to halt tax evasions. As a result of introducing the OVDP (Offshore Voluntary Disclosure Program), the IRS has collected more than $6 billion in taxes plus interest and penalties from over 43,000 U.S. taxpayers.

Collection of past due taxes and penalties is intensifying under the Foreign Account Tax Compliance Act, or FATCA, passed in 2010. Provisions of this law require foreign financial firms, including banks, to report to the IRS the foreign accounts owned by Americans. Moreover, some foreign financial institutions do not take clients with an American passport to avoid FATCA issues.

Various life issues

There are those Americans who decide to renounce their citizenship due to life issues. These people may be angry with the government, live in fear of crime, and hold high indignation at the state of the country. There are thousands of Americans who are law abiding and pay their taxes; they just want a less expensive and simpler life.
With so many citizens becoming expatriates, the citizenship renunciation is becoming extremely costly. A minimum of two interviews, a multitude of forms to fill out, and the resources of tax and immigration lawyers bring expatriation costs near the $10,000 mark. Additionally, the cost of renouncing US citizenship has just recently been raised by over 422%. If you believe that the exit fee is still $450, think again. Currently this fee is $2350.

According to the State Department, the rate increase reflects the high costs involving intensive interviews, paperwork, and final documentation. Let’s review the steps.

Steps to Renounce U.S. Citizenship

  • US citizens and long-term residents must file 5 years of past returns so they are not considered a covered expatriate. Additionally, if the net worth is 2 million or less and annual tax bill for the last five years was under $157,000, they are not subject to the exit tax.
  • U.S. consular officers must confirm that the US citizen understands the consequences of renunciation.
  • Two interviews are conducted. Consular officers will administer an oath of renunciation after two or three consular system reviews, finalized paperwork and fee payment.
  • When you lose your nationality, final approval is done within the Directorate of Overseas Citizens Services in Washington, D.C. The case is then returned to the consular officer overseas. The overseas consulate has the responsibility for the final delivery of the Certificate of Loss of Nationality.
  • Consequently, since the process takes significant time, the fee to renounce citizenship now stands at $2,350.

The number of renunciations is on the rise. In 2013 alone, 2,999 U.S. citizens and green-card holders put aside their allegiance to the U.S. Right now 7.6 million Americans live abroad. How many of them will actually renounce the citizenship? The number is unknown, however, quite a few are considering this step.

Due to the high number of citizenship renunciations, the wait time for an expatriation interview is six months in some areas. The majority of renunciations are processed by consular officers in the U.K., Switzerland and Canada. Fees are to be paid upon application. The US government issues a quarterly publication of individuals who have chosen to renounce citizenship.

Be prepared to have an emotional reaction. When you see the American flag, how will you react? Will you instinctively place your hand on your heart when you hear the “Star Spangled Banner?” The decision to renounce US citizenship should not be taken lightly.