Tax experts believe record numbers of expat Americans handing back their passports is down to financial problems abroad rooted in the Foreign Account Tax Compliance Act (FATCA).
The US Treasury has confirmed 4,279 Americans renounced citizenship last year – the highest number ever and an increase of a fifth on the year before.
The number of hand-backs has risen each year to a new record high since 2010.
The US government does not give any reasons for why people give their passports back, but tax experts say the rise in numbers coincides with the passing of FATCA and implementation over the passing years.
What is FATCA?
FATCA requires overseas financial institutions to report balances and changes to accounts controlled by US taxpayers.
For US residents, the IRS wants to know about any accounts with a balance of more than $50,000, while for expats, the threshold is higher – at $200,000.
Accountants and tax professionals report expats complain that foreign banks are closing their accounts to they do not have to make FATCA reports to the IRS.
Some say loans and mortgages have also been called in.
Giving up a US passport is often the last resort for many expats facing financial hardship due to FATCA.
“More Americans than ever are cutting their official ties with the United States. For the third consecutive year, a record number of people have handed back their US passports or green cards and it is widely recognised, even by Treasury officials, that this increase is largely due to the burden of FATCA,” said Nigel Green, CEO of one of the world’s largest independent financial advisory firms deVere Group.
“This highly controversial piece of legislation has had the unintended consequence of turning millions of hard working, law abiding Americans based outside the States into financial pariahs. Foreign financial institutions now routinely refuse to handle American clients even if they have been clients for years as it is too much trouble and too costly to comply with FACTA’s onerous rules.
“Most Americans abroad are proud of their citizenship and indeed many find it an integral part of their identity when living overseas. Therefore, giving up citizenship is a distressing idea and something they wouldn’t do unless they felt there was no alternative.”