With the U.S. implementing new foreign asset reporting requirements under FACTA, there has been a large increase in the number of U.S. citizens making the decision to renounce their citizenship rather than comply with the new laws set to take effect next year. The new foreign reporting will not only require U.S. citizens to report more of their foreign owned assets but also it will allow the IRS to work with foreign financial institutions to gather relevant information. As a result, according to Bloomberg.com, in the last three months ended in June, 1,131 American expatriates visited a U.S. embassy to give up their U.S. nationality. This compares to only 189 people over the same period in 2012.
However, as mentioned in our previous article, “U.S. Citizen – IRS Tax Returns Forever, State Returns Maybe,” deciding to give up your citizenship is not a decision to be taken lightly. Not only are there many potential immigration issues (you cannot decide tomorrow to become a citizen again), but there are also tax consequences of leaving the U.S. that have to be considered. If a U.S. citizen has no ties to the U.S. and does not plan to return, this might be a potential option, however, taxpayers should avoid a knee-jerk reaction to simply avoid new informational reporting that does not in itself carry additional taxes or expense.
If you have any questions regarding your foreign tax filings or U.S. tax obligations contact us at Hone Maxwell LLP. Also, you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.