More Rich Americans Renounce U.S. Citizenship for Lower Taxes
While such a move is drastic, it's also becoming increasingly common. In fact, so many people are eager to renounce their U.S. citizenship for tax reasons, that in some U.S. embassies there's a waiting list to escape from the clutches of Uncle Sam.
Part of the reason for the rising interest in renunciation is burdensome rules like the one about foreign accounts designed to catch people who use quitting their citizenship as a way to illegally duck their tax obligations, says Bruno, who is based in Palm Beach Gardens, Fla. The Irish resident, whom she declined to name, was slapped with a penalty of several thousand dollars.
"These penalties that they came up with are oversized when compared to the misdeeds that were committed," Bruno says.
Triple the Number in a Year
As many as 743 people with American citizenship or legal resident status renounced their U.S. citizenship in 2009 -- three times as many as in 2008 -- which resulted in a waiting list for people to say farewell to the red, white and blue at the U.S. Embassy in London, according to the Financial Times. That represents a tiny fraction of the 7 million or so Americans living abroad, but does underscore the growing unease about the Obama administration's taxation policies among the wealthy, according to experts.
Many of those leaving the U.S. behind have dual nationality and may not have lived in the country for years. Others have lived overseas for so long that America no longer feels like home. As Bruno points out, rescinding American citizenship is something not to be taken lightly. Not only do you lose the protection of the U.S. government, but the financial benefits don't kick in for several years. In fact, a former U.S. citizen is required to file tax returns to the IRS for several years after giving up citizenship.
"Also, persons who wish to renounce U.S. citizenship should also be aware that the fact that a person has renounced U.S. citizenship may have no effect whatsoever on his or her U.S. tax or military service obligations," according to the U.S. State Department's website. "In addition, the act of renouncing U.S. citizenship will not allow persons to avoid possible prosecution for crimes which they may have committed in the United States, or escape the repayment of financial obligations previously incurred in the United States or incurred as United States citizens abroad."
The Wealthy Have Been Quitting for Years
Wealthy people have been quitting their American citizenship for tax reasons for years. Tennessee-born mutual fund investor John Templeton did it in 1968. He died in 2008 in the Bahamas at the age of 95. John Dorrance III, grandson of the founder of Campbell Soup (CPB), quit being an American, as did members of the Getty Family. Companies including Tyco (TYC) and Transocean (RIG) have done the same thing. Some worry whether the newest crackdown will encourage more taxpayers to quit the U.S.
"U.S. citizens are in a uniquely horrible position as expatriates, wherever they reside, since the U.S. is just about the only major nation which taxes its citizens regardless of their residential status," according to Tax-News.com.
The crackdown on wealthy taxpayers is continuing. In April, IRS Enforcement Chief Steve Miller told members of Congress that tax revenue continues to be lost to offshore loopholes despite efforts to shut them down. Senate Finance Committee Chairman Max Baucus urged the IRS to be more vigilant. That may wind up driving more wealthy Americans overseas.
David Lesperance, a Canadian attorney, says he has seen a seven- or eightfold increase in cases of people looking to renounced their U.S. citizenship. The advantages of doing so are too great to pass up for financial and personal reasons such as divorce.
"They are not bound to a particular location to maintain their wealth," Lesperance says, adding that many people have found they can recreate their lifestyle abroad, and in some cases -- heaven forbid -- improve it. Wealthy expatriates know that "government at all levels are going to need money" and that "things are not going to get better for us."