Thinking of renouncing your U.S. citizenship?
Expatriated U.S. citizens and Green Card holders may want to think twice before renouncing their U.S. citizenship in order to end U.S. tax reporting obligations. (And yes, expatriates and Green Card holders are required to report their annual income and foreign investments to the U.S. government – annually.)
It may sound like a sound strategy, particularly if you are a long-term expat, but, take heed. As the Foreign Account Tax Compliance Act (FATCA) globally takes root into the foreign banking institutions, expatriated U.S. citizens and Green Card holders will begin receiving mandatory self-certification forms to establish their U.S. tax status. In the Netherlands, for example, where I currently reside, ING bank has started collecting just such data. ING is obligated to report your status to the Dutch Tax Authority — then the Dutch Tax Authority in turn reports this information to the IRS.
As a result, any scheme to obtain a ‘Loss of Citizenship and Nationality’ is perhaps a bit over-simplified and misunderstood in terms of tax and foreign investment reporting. If a tax is recognized under the U.S. tax law, the only way to discharge the liability with the U.S. federal government is to pay the tax owed. The IRS generally can collect – indefinitely – an income tax owing against a taxpayer who lives outside the U.S., as the 10-year statute of limitations for collection does not apply when the individual resides outside the United States for a continuous period of at least six months.
Expatriation is a complex matter and involves both the Department of State and the Internal Revenue Service. As further explained on the Travel.State.Gov website, one can plainly see that this isn’t a matter of walking into the Consulate in your host country and surrendering your U.S. passport. Legal advice may be wise. At Tax-Expatriation you will find an additional in-depth article further explaining U.S. Citizen Renunciation.
Yes, the new regulations under FATCA are complicating matters for expatriates and Green Card holders worldwide, but it’s advisable to know your position before you set renunciation into motion. It’s also advisable to update your reporting obligations while you can still volunteer to do so.