Why Are Americans Giving Up Their Passports?

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Record numbers of taxpayers are giving up their US passports – but no one is sure why or even if they are Americans or why they are leaving the country.

In the three months to September 2016, 1,380 taxpayers renounced US citizenship, says the US Treasury.

All their names were provided in an official listing, but no one knows whether they are Americans are not as the list includes green card holders and does not show who is a US citizen.

Right wing commentators mostly in the Republican Party claim indignant taxpayers are fleeing the country due to intrusive Foreign Account Tax Compliance Act (FATCA) laws.

FATCA demands foreign financial institutions must tell the Internal Revenue Service (IRS) about any cash or investments US resident taxpayers hold overseas that add up to more than $50,000.

FATCA and expats

They must also tell the IRS about US expat financial affairs, but only if their cash and assets total more than $200,000.

The IRS says FATCA has prompted around 100,000 errant US taxpayers to update their tax filings or to confess they had secret overseas cash and investments.

The rush to beat FATCA has triggered a windfall of $10 billion in undeclared taxes, interest and penalties for US Treasury coffers.

The number of Americans renouncing citizenship sharply spiked when FATCA came to the statute book.

Until the last quarter of 2012, the peak was 560 Americans handing back their passports in the second quarter of 2010 and an average of 261 a quarter from January 2008 until December 2012.

In 2013, the trend started to head upwards.

US citizenship comes at a cost

In Q3 2015, renunciations hit a new high – 1,426 in the quarter.

Since January 2013, the average has soared to 911 Americans leaving the USA for good.

FATCA has probably focussed Americans on how much their citizenship is costing them in comparison to other countries.

US tax rules dictate that Americans must pay tax to the government wherever they live in the world, even if they already pay tax on their income there.

For an American retiring to Dubai, which has zero income tax and no capital gains tax, retaining a US passport is an expensive luxury.