A record number of Americans gave up their US citizenship in the first quarter of 2015, according to IRS data. This is blamed on the taxation of income earned outside the US, along with laws expanding offshore bank account and asset reporting.
A total of 1,335 people renounced US citizenship during the first three months of the year, topping the previous record by 18 percent, according to data compiled by Bloomberg.
The new figure puts 2015 on track to exceed last year’s 3,415 renunciations, which is an all-time record.
The data released by the Internal Revenue Service (IRS) includes the names of those who renounced their citizenship, but not their reasons for doing so. However, it comes as the US government is becoming more aggressive when it comes to the assets of the estimated 6 million Americans who live abroad.
The United States is the only country within the Organization for Economic Cooperation and Development that taxes citizens wherever they reside.
American citizens who live abroad can exclude as much as $100,800 in earned income and can receive tax credits for payments to foreign governments. However, US tax liabilities can apply to children born to Americans abroad. In many cases, there are only partial offsets available for double taxation.
The paperwork involved for US citizens living abroad can be so complex that it requires professional help from accountants and lawyers – resulting in incredibly high fees for a relatively simple tax return.
Although these laws were rarely enforced in the past, scrutiny of US citizens abroad has intensified due to the Foreign Account Tax Compliance Act (FATCA), passed by Congress in 2010.
The law, which took effect in July, requires US citizens with foreign assets in excess of $50,000 to report those assets every year. It also requires foreign financial institutions to report the incomes of their US customers to the IRS.
FATCA also requires US financial institutions to impose a 30 percent withholding tax on payments made to foreign banks which don’t agree to identify and provide information on US account holders.
More than 140,000 banks and other firms have signed up to comply with FATCA. However, the law has prompted some banks to decline doing business with people who have ties to the US. If a bank mistakenly fails to report accounts held by US citizens, they can face steep penalties.
The Obama administration has praised the law as the “global standard” in battling tax evasion, though it has come under fierce criticism from many, particularly from Americans living abroad.
Washington’s tax policies for those living abroad have also put two high-profile personalities in the spotlight.
Eduardo Saverin, a Brazilian-born co-founder of Facebook, gave up his US citizenship in 2012. The billionaire moved to Singapore, where top earners are taxed only 20 percent on their earnings, and where capital gains taxes are not be imposed.
At the time, it was estimated that Saverin’s move would save him $67 million in US federal taxes. However, it was never officially confirmed that his citizenship renunciation was for tax purposes.
Meanwhile, London Mayor Boris Johnson – who was born in New York – said earlier this year that he would give up his US citizenship. The statement followed his settlement of a US tax bill which he described as “absolutely outrageous.” However, his name was not on the list released Friday.