Taxpayers Renouncing U.S. Citizenship in Record Numbers
August 29, 2014
More People Than Ever May Relinquish Their U.S. Passports This Year
The Treasury Department just published its latest quarterly report revealing the names of people who have given up their U.S. citizenship or long-term residency. On the list were 577 individuals, bringing the 2014 total so far to 1,577. This mid-year total puts us on pace to exceed last year’s numbers, which hit a record-breaking 2,999 individuals, already a 221% jump from 2012.
Short of asking them outright, we can’t know why those on the list chose to leave, but we might infer that taxes could have been at least one of the factors calculated into their decision-making process. That’s because the U.S. requires citizens and green-card holders to file tax returns no matter where they live. So depending on where expats reside, they may be required to pay taxes in the country in which they live and work while also paying the U.S. government.
The Foreign Account Tax Compliance Act could also be influencing some taxpayers to leave their passports behind. The law took effect this year and requires foreign financial institutions to report account information to the U.S., both for U.S. citizens and green-card holders living in the U.S. and abroad.
In 2012, Facebook co-founder Edward Sevarin was one of the recognizable names who renounced his U.S. citizenship. He headed for Singapore before the Facebook IPO, a move that undoubtedly reduced his tax bill since Singapore doesn’t impose a capital gains tax and has a low 18% tax rate. In 2013, American music icon Tina Turner was also on the list, though she has already been living in Switzerland for the last two decades with her boyfriend and now-husband Erwin Bach, a German music producer.
Individuals aren’t the only ones looking to expatriate. Walgreens, the largest pharmacy retailer in the U.S., considered an inversion from U.S. to Swiss corporate citizenship to cut down on tax obligations. But in this month’s announcement of the company’s decision against it, Walgreens’ chief executive Gregory Wasson told analysts the change “included potentially putting the company in a significantly worse position than if we had not inverted at all, such as a protracted controversy with the IRS.” He also acknowledged the risk of “consumer backlash and political ramifications,” referring to boycotting threats by consumers and the potential loss of almost a quarter of the company’s sales derived from Medicare and Medicaid.
The decision to expatriate should never be taken lightly, and taxes should never be the sole factor in consideration. There are not only indirect costs to giving up residency in one of the world’s greatest nations but direct ones as well, including the exit tax. Fortunately, there are many, many strategies for reducing personal and corporate tax liabilities. By planning well ahead of tax day and working strategically with experienced professionals, we can all save money on our taxes without having to give up our citizenship or green cards.