More American expatriates than ever before chose to renounce their citizenship in the first quarter of 2015 due to a crackdown on foreign tax rules, CNBC reported this weekend.
This upsurge, which has subsided somewhat in the second quarter, has been seen since the Treasury Department and the Internal Revenue Service (IRS) started strictly enforcing tax rules for Americans living abroad. Although the Foreign Bank Account Report law has been around since 1970, it has not been aggressively enforced until now.
The law requires U.S. taxpayers to file if they hold one or more foreign bank accounts holding upwards of $10,000 over a year period.
Andrew Mitchel, an international tax lawyer who analyzes Treasury Department data, says: “Many people have been getting caught up on their U.S. tax filings and then renouncing.”
Now, U.S. citizens and resident aliens must account for worldwide income – whether in U.S. or foreign bank accounts.
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This enforcement comes following the 2009 claim that UBS was assisting Americans hide money overseas. Later, in 2014, Credit Suisse Group was accused of the same. UBS paid out $780 million to the US government and Credit Suisse paid $2.6 billion.
The Foreign Account Tax Compliance Act intends to make sure that the IRS has all relevant information regarding overseas bank accounts held by U.S. citizens.
Mitchel said: “I think that the rise in the number of people renouncing over the past few years has to do with people becoming more aware of their U.S. tax filing obligations and the potential penalties that can be imposed for failure to file certain disclosure forms.”
Those failing to file the FBAR may receive the standard penalty of $10,000 per year.
Now, taxpayers who have previously relied on “tax havens” are faced with the decision of protecting their assets and renouncing their U.S. citizenship, or formally leaving the U.S. altogether.
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