As regular readers know, I’ve lived abroad most of my life. I take it for granted that there’s an intrinsic value to spending time in foreign countries, amongst unfamiliar people. I’m not a gung-ho American nationalist. I respect all nations and people more or less equally. And when the U.S. does something I don’t like, such as spying on its citizens or making war on other countries for no good reason, I criticize Uncle Sam. None of this “my country right or wrong” nonsense for me.
But so far I’ve never seriously considered abandoning my U.S. citizenship and becoming an official expatriate.
Now, however, I’m seriously starting to wonder … and I’m not alone.
A Paper Exodus
There are a lot of Americans living abroad. The U.S. government doesn’t report official numbers, but estimates are as high as eight million citizens. That’s almost the entire population of metro Chicago, and double the number of just 20 years ago.
Many of these people aren’t really “emigrants” from the U.S. Instead, like Lord Mayor of London Boris Johnson, they are people who happened to be born in the U.S. when their parents were here for some reason. Many are Canadians born in American hospitals near the border because they were closer when Mommy went into labor.
Of course, there are also Americans like me, who went abroad, settled down and made a life for themselves somewhere else. There are lots of us in Western Europe, Israel and Latin America. The one thing most of us have in common (other than me, of course, who returned in 2008) is that we’re already living outside the U.S. We’ve already “emigrated.”
The problem is that we’re still Americans on paper … including our IRS tax 1040 forms.
No Fools for FATCA
The Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report details of their American citizens at the risk of bankruptcy-level fines, is an unmitigated disaster. Even IRS Taxpayer Advocate Nina Olson is aghast. “Why are we doing this to folks? Why are we tormenting them in this way?” she asked at a recent meeting of the Securities Industry and Financial Markets Association.
Torment is exactly what it is. A recent survey of Americans living abroad speaks of the “intense impact” FATCA is having on innocent American citizens who have done nothing wrong. For Americans living abroad, “their financial accounts are being closed, their relationships with their non-American spouses are under strain, (and) some Americans are being denied promotions or partnership in business.”
The survey found that “nearly one in six respondents had had a financial account closed by a bank or brokerage house. More than two-thirds of the checking accounts that were closed had a balance of less than $10,000. Nearly 60% of the closed investment accounts had a value of less than $50,000. Other people were unable to open accounts.”
When you consider that some of these people are only American by accident, you can see why they’re doing what they are: telling Uncle Sam to get stuffed and turning in their passports. Indeed, a new survey shows that a shocking 73% of Americans abroad are actively considering renouncing their U.S. citizenship, largely because of FATCA.
Expatriate Taxation … A Pound of Flesh
Not to be outdone, the U.S. Department of State recently hiked fees for processing renunciation of citizenship to $2,350 from $450. They say that’s the true cost of the “service.” More likely it’s just an indication that the IRS knows that demand for expatriation is exploding, so they can hike their prices.
Under these circumstances, Americans of a sovereign bent would be well-advised to explore other residence and citizenship options. I was on the Caribbean island of Dominica last week examining their citizenship program.
But there are other ways as well. For example, countries like Uruguay — where I’ll be in March with the rest of the Sovereign team — grant immediate permanent residence to many foreigners and citizenship after a few years.
The bottom line is this: you can’t expatriate without a second passport. The time to start working on getting one is now … so one day, if you wish, you too can have an IRS-free future. As the Beach Boys used to sing, “Wouldn’t it be nice …”?
Offshore and Asset Protection Editor
The $54 Trillion Skeleton in Obama’s Closet
Nine months ago, this ex-Wall Street Journal veteran spotted an unusual pattern in a regularly published, though patently ignored government document. What he’s flushed-out is quite possibly one of the best-disguised paper trails in accounting history. Until now it’s been the State’s deepest, darkest secret. Click to find out why this maverick financial reporter believes this scandal is set to explode this month with strikingly devastating consequences for America…
Enter your email below to get The Sovereign Investor Daily absolutely Free!