More and more Americans renounce US citizenship for tax reasons
This year’s US passport ditchers will probably include rock star Tina Turner, who took out a full Swiss passport last April.
This growing expatriation trend has nothing to do with offshore tax evasion that the US is so keen to have stamped out because it actually reflects sophisticated and absolutely legitimate tax planning.
The problem is the US is one of only two countries – the other is Eritrea – to tax their citizens on their worldwide income, regardless of where they live or work. Accordingly, dumping your passport can save you a lot of money if you are a US citizen with financial or business interests abroad.
Other expatriation stimuli include exorbitant American inheritance taxes and new US Treasury reporting requirements that put off many small and medium-sized foreign banks from dealing with American customers.
Many of those who dump their passports already have dual citizenship in countries like Switzerland and Canada.
US authorities have begun hunt for American citizens suspected of evading taxes by hiding assets in offshore bank accounts.
Thus, a US District Judge in New York has issued an order authorizing the Internal Revenue Service to issue summonses requiring Mellon, Citibank, JP Morgan, HSBC Bank USA and Bank of America to produce information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom.
The court authorized so-called John Doe summonses that the IRS has used to obtain information about possible tax fraud by individuals.
"These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their US tax obligations," Assistant U.S. Attorney General Kathryn Keneally said in a statement.
Now investigators got authorization to serve the summonses on four US banks and one London-based bank.
Martin Schulz, president of the European parliament, told CNBC that growing concerns over tax evasion was leading to a loss of trust among the European public.
Authorities used similar summonses in 2011 to seek information about American clients of London-based HSBC's India division. They also won court approval in 2009 to serve John Doe summonses on Swiss banking giant UBS. That led to UBS turning over information on an estimated 4,450 American clients. The bank, Switzerland's largest, also paid a $780 million fine under a deferred prosecution agreement after acknowledging it had held clients duck US taxes.
"These cases once again demonstrate the department's resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes," Keneally said. " US taxpayers still holding accounts who have not come clean should come forward and do the right thing before it's too late."
"Today's action show that the use of foreign banks for tax evasion remains a high investigative priority of this office and US citizens should understand that loud and clear," said US Attorney Bharara. "By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes."
There are many ways to avoid tax burdens and one of them is ditching a US passport. This year will hit the record in the highest number of expatriations ever by US citizens, according to new government figures. Some 560 Americans joined the exodus in the third quarter of this year, putting the total number at 2,369, according to Treasury Department data published by the Federal Register. That is already 33% more than the 1,781 who left in all of 2011, the previous record. The reason is – The US, along with Eritrea, is one of only two countries in the world to tax its citizens on their worldwide income, regardless of where they live or work. A US citizen living and working in, say, Russia, still owes the US tax man money on income he earns overseas.
Many of those who dump their passports have dual citizenships in other countries, such as Switzerland or Canada, immigration lawyers say.
The expatriation trend has grown in recent years amid a widening US crackdown on offshore tax evasion, which requires foreign banks to identify and scrutinize Americans with accounts containing at least $50,000 and either report those accounts to US tax authorities or withhold 30% of dividends, interest, and other payments and send that money to the US Treasury.
The law has made it tough to do simple financial things abroad and is hated by those Americans who live and work abroad.
"Local banks don't like dealing with Americans, so it makes it harder for Americans abroad to live normal lives," said Phil Hodgen, an international tax lawyer in Pasadena, Calif.
"Americans are realizing that their businesses are likely to be torn apart by the US estate tax even if that business never touched the US," Hodgen said.
So new rules are more than likely to add to the exodus of overburdened tax-payers.
Voice of Russia, CNN Money