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The number of American renouncing their U.S. citizenship each year has increased nearly 200 percent per year over the last four years, the vast majority of who do so to escape the long arm of the IRS. Granted, we’re only talking about 1,800 expats out of more than 6 million living abroad; however, it’s not the quantity as much as it is the trend that has taken on alarming proportions.
At the current rate, the number could rise to the tens of thousands seeking refuge from the IRS. We’re not talking about your typical tax dodgers here; most of these expats are honest, hard working people who feel they have no choice but to break their national ties over the oppressive treatment they receive from the IRS.
To the typical American on Main Street, the idea of expatriates renouncing their citizenship might seem both extreme and unpatriotic. After all aren’t we all supposed to pay our taxes? Yes, but what most Americans don’t realize is that many expats working overseas are being forced to pay taxes twice; once to the government of the country in which they are working, and then again to IRS even though their earnings never touched American soil.
In fact, the U.S. is the only country of all developed nations that taxes its citizens living overseas; a fact that should make us feel a little embarrassed considering how much we preach the virtues of economic freedom to the rest of the world.
Expats Hunted Like Tax Dodgers by the IRS
The justification for the strong arm treatment of honest American citizens comes through the U.S. government’s efforts to crack down on tax cheats who deliberately hide their assets overseas to escape taxation. In what the government has described as an effort to reduce the budget deficit, the IRS has, essentially, been given a free reign to track down American citizens wherever they reside and force a full accounting of their assets and earnings.
While many expats end up not paying any taxes to the IRS because of a $95,000 exemption of foreign earnings, they suffer under a tremendous paperwork burden in order to comply with the complex provisions of the tax code relating to expatriates.
Expats are required to disclose all of their accounts and assets, including those held jointly with non-U.S. citizens. And, if they don’t the Foreign Account Tax Compliance Act (FATCA) of 2010 requires foreign banks to withhold 30 percent from “certain U.S.-connected payments” to some accounts. For expats, the punishment for non-compliance is stiff – as much as $50,000. FATCA also imposes more stringent reporting requirements on foreign banks which have forced many of them to simply quit doing business with American citizens. In essence, through FATCA, the U.S. government is exporting a big brother police state that would be opposed both here at home and in the countries where expats reside.
Unquestionably, the U.S. government has escalated its war on tax evaders, but in its zealousness it fails to make any distinction between the true tax dodgers and expats who are simply exercising their right to life, liberty and the pursuit of happiness. The perception from abroad is that the IRS considers any expat as a potential tax evader, so they need to be treated with the same contempt.
Expats are being forced to make a difficult choice based on economics as well as the assault on their liberties. At some point, paying the $450 fee to renounce their citizenship seems like a no-brainer. For many, the decision is made easier when they look back at the country of their birth and no longer recognize it as the “land of the free”.
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