Considering renouncing citizenship? You may want to think again!

By David McKeegan

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Summary: The number of US citizens living abroad who are renouncing their citizenship is on the rise. David McKeegan discusses 5 things to consider before tossing your passport.

Considering renouncing citizenship?  - You may want to think again!

If you are thinking about renouncing your US citizenship, you are amongst a growing number of US expats. Consider this: Last year, 2,999 Americans renounced their US citizenship, which was a 221% increase over 2012. And the trend continues, as renunciations are on pace to exceed 2013, with 1,577 renunciations reported in the first half of 2014. It may seem like the right thing to do in order to avoid the hassle of US taxes, but here are 5 things to consider before you toss your passport.

1. The decision is permanent.

Once you renounce your US citizenship, it is nearly impossible to get it back.

2. Travel to the US may not be as easy.

Prior to renouncing you need to obtain citizenship status in another country, as the US won't allow you to be "stateless" after renunciation. However, this doesn't mean it's simple to travel back to the US--it can be more difficult, depending on the citizenship. After renunciation you need to obtain visitors' visas to enter the US and visits may be limited to 120 days or less.

3. It now costs 422% more.

You read that right. The US State Department just hiked the fee to renounce from $450 to $2,350. So if you are looking for a way to shed costs long-term, you'll pay up front!

4. It may take a while.

In Canada, Americans are flocking to embassies to renounce their citizenship. But certain cities simply don't have enough appointments available. In Toronto you'll have to wait until the end of January, 2015 for an appointment!

5. You may not be immediately clear of US tax obligations.

In order to renounce, you are required to present proof of at least 5 years' worth of tax compliance. If you are not currently up to date on your taxes, you'll need to file your returns (and FBARs if required) in order to renounce. You may even be subject to an exit tax if you are what's considered a ‘covered expat'. You are a covered expat if your total tax liability exceeded $157,000 in 2014 ($147,000 for 2011, $151,000 for 2012 and $155,000 for 2013) or your income was in excess of $2 million.

The Rise in Renunciations Explained

Many blame FATCA, the Foreign Account Tax Compliance Act, for the sharp rise in Americans seeking to shed their US citizenship. FATCA is part of the US initiative to uncover tax cheats hiding money overseas. Unfortunately, many innocent US expats are feeling the effects of this Act, simply by their location. With FATCA requiring foreign financial institutions to report on the accounts of their American clients, many foreign banks are refusing to work with Americans altogether. This is causing series banking issues for expats, which may be one of the reasons they seek to shed their ties to the US.

Whatever the reason for Americans leaving the US in their rear view mirror, the trend is expected to continue. With the new fee increase, however, it may become financially impossible for some to take this step. They will be forced to comply with US tax obligations each year or risk an unpleasant call from the IRS. While you may fly under the radar for a period of time, FATCA's implementation makes it much more likely that you will be discovered. And if they find you before you come forward and file your tax returns, you will be ineligible for any IRS amnesty program. You will be at the mercy of the IRS--and no one wants that!

So whether you choose to renounce your citizenship or hold on to your passport, it is still important to remain compliant with your US tax obligations. With recent IRS program changes, you won't likely pay any late filing or FBAR penalties when you get caught up. Take advantage of this opportunity now so if you ever DO choose to renounce, the high fees and excessive wait time will be your only hurdles!

About the Author

This post was written by David McKeegan, co-founder of Greenback Expat Tax Services. Greenback specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and IRS Enrolled Agents who have extensive experience in the field of expat tax preparation. For more information, please visit www.greenbacktaxservices.com.

More About Greenback Expat Tax Services For more information about Greenback Expat Tax Services or other US expat tax issues, please email us at info(at)greenbacktaxservices(dot)com.

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Comments about this Article

Aleck
Sep 29, 2014 10:18

Sadly slanted piece. Gives one a skewed version of the truth. Here are some comments from a non-American without an axe to grind. The truth is that the 99%+ of the people effected by FATCA draconian rules are dual citizens and most of those have never resided in the USA. They are "Americans" by accident...for example, by having a parent born in the USA. The FATCA is first law in the world that demands tax returns from non-residents and requires bankers to feed everything on them to the IRS directly. To compound this nonsense, the US now charges these poor slobs 2500 CDN to get out from this breach of the privacy of their personal information and their "failure" to file tax returns to another country, the US. There are 1,000,000 dual US/CDN citizens in Canada. The amounts involved as renunciations alone are in the billions..the extra accounting far more. It beggars any amount expected to be recovered from tax evaders residing in Canada.. (Canada's personal taxes are much higher than the USA) Can you imagine the reaction if Canada or the UK demanded US bank account access from dual citizens living in the US?!! This is how the American government treats the world.

GreenbackExpatTaxServices
Sep 30, 2014 11:57

Hello Aleck, Thank you so much for your comment. We are definitely hearing a lot of frustration from expats around the world about the impact of FATCA and many people believe that renouncing their US citizenship is the answer. Our article wasn't intended to be a commentary on the fairness of FATCA, but merely a look at what it takes to renounce your citizenship and what it truly means to relinquish it. Whether we agree with it or not, it appears the FATCA is here to stay and US taxpayers WILL be required to comply with US tax regulations so long as they remain citizens. Our goal is always to ensure that US expats understand the laws they are required to adhere to as it relates to taxes and the possible consequences if they choose not to be compliant.

Aleck
Oct 4, 2014 20:33

Then, to be clear, you should indicate the effect of the FACTA for those who remain US citizens. Apparently, they must file annually. That means engaging a US tax preparer and filing every year. What will that cost annually? What is the effect of filing? What is the effect of not filing?

GreenbackExpatTaxServices
Oct 6, 2014 14:58

Agreed Aleck, fortunately we have many articles and resources that detail just that on our website (http://www.greenbacktaxservices.com/blog/fatca-and-your-foreign-bank/ for example). This article however was focused on the effects of renunciation. If you have any questions, feel free to let us know.

EcuadorDean
Jan 16, 2015 07:46

Once renounced can you still collect your social security?

GreenbackExpatTaxServices
Jan 19, 2015 13:13

EcuadorDean thanks for your comment, we hope you are enjoying the article! With regards to your message, if you have qualified to receive SS benefits, and then you renounce, you may still receive those benefits, but you will be treated as a non citizen. Non citizens have their own set of rules and regulations and you can learn more about that at http://www.socialsecurity.gov/ssi/spotlights/spot-non-citizens.htm. If you have questions specific to your situation, I would recommend contacting the SSA directly. I hope this helps! The Greenback Team

guest
Feb 19, 2016 09:04

Treasury has now provided the means to file FUBARs electronically online. We still have our tax guy do it so we have a witness in the event of accidental loss of data from notoriously unreliable government databases. (Yes, I know they are FBARs, but FUBARs is a far more apt description which all citizens should adopt to more accurately describe them.)

First Published: Sep 22, 2014

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