In the relatively unknown world of US expatriate politics, there's a bit of a firestorm going on right now. Right now, the IRS is on a witch hunt to track down Americans living abroad and force them to pay their back taxes. Many people didn't even realize they were Americans and Congressman Tierney, someone who I otherwise like, is trying to drive many expats into bankruptcy (in his defense, I doubt he realizes what he's done, but he's remained silent on this issue). It's gotten so bizarre that the IRS is now claiming that every foreign financial institution in the world has to report to the US. We're getting stripped of our Social Security and Medicaid benefits (even if we've paid for them) and getting hell from the IRS in return. It's gotten to the point where a record number of Americans living abroad renounced their citizenship in 2011.
But it turns out those numbers are wrong. They are seriously underreporting the number of Americans giving up their citizenship.
In order to understand what's going on, you need to know some weird background. Since 1996, the IRS publishes a quarterly report of Americans who have renounced their citizenship. This, oddly enough, is in accordance with IRC section 6039G, as amended, by the Health Insurance Portability and Accountability Act (HIPPA) of 1996.
How does the IRS get this information? To renounce your citizenship, you must fill out paperwork at a US consulate, pay the $450 fee, wait two months, and then complete the process. The State Department reports your name, but no other details, to the IRS. So there's no social security number, no passport number, or any other identifying information. As a result, the IRS published data on renunciants is rubbish (many people report being left off the report and names are duplicated).
Still, the number of people reported as having renounced their citizenship is rather small. As of last year, about 3/100ths of a percent of Americans were reported as having renounced their citizenship. That's the largest in history, but still a small number (it's going to increase next year).
However, this is not the only way to give up your US citizenship. You can also relinquish your citizenship.
Section 349 of the Immigration and Nationality Act (8 U.S.C. 1481), as amended, states that U.S. citizens are subject to loss of citizenship if they perform certain specified acts voluntarily and with the intention to relinquish U.S. citizenship. Briefly stated, these acts include ...What might be a "voluntarily and with the intention to relinquish U.S. citizenship" act that causes you to relinquish your citizenship? How about acquiring citizenship in a country that requires you to give up any other citizenship? That certainly seems to fit the bill. For Europe alone (having roughly one quarter of the world's US expats), we're seeing an average of 900 Americans a year acquiring citizenship in European countries which require you to relinquish your US citizenship (the numbers in that post are slightly off because I didn't know that Denmark usually bans dual citizenship). Please note that I said European countries, not the entire planet (I only had data for Europe). However, only an average of 623 Americans a year for the entire planet are being reported as having renounced.
It's very likely that several thousand Americans are relinquishing their citizenship every year and it's not being reported because no one knows where to look for the data. Plus, it's a hideously complex topic because there are sometimes special cases where you can claim dual citizenship.
Currently, the trend in countries seems to be banning dual citizenship. If this keeps happening and Americans keep becoming citizens of other countries, we'll see even more Americans "calling it quits". It's estimated that around 5% of the US population lives abroad, but between Tierney trying to bankrupt us and the IRS hunting tax scofflaws (many who don't even owe taxes but nonetheless are breaking the law by not filing returns), I expect to see this becoming a bigger story in the future.
For an up-close look at Canadian-Americans fighting against the US, read the Isaac Brock Society Web site.
A few other interesting notes:
- The US and the Eritrean dictatorship are the only countries who tax their expats.
- Finding a US tax advisor when you're living overseas is hard and it's often reported to cost thousands of dollars to file your taxes from abroad (but the base rate is usually around $400 US)
- New US passports now have small print at the back telling expats they still have to file returns, but good luck figuring the laws out for yourself.
2:39 PM PT: Update: there are some pretty whacked-out responses on the blog entry I refer to. Apparently I got linked on infowars.com and whatreallyhappened.com. Those are not indicative of my usual readership, but the comments and pretty damned funny :)