I f you are seeking to renounce your American citizenship, it is going to cost you a whole lot more to do so — $1,900.00 more, to be exact.
Due to record numbers of Americans formally renouncing their United States citizenship over the past two years, the fee to do so has increased from $450.00 to $2,350.00 — or greater than 422 percent.
Put another way, the fee is now greater than twenty times the average level in other high-income countries.
The following chart visually shows the trend of the number of published expatriates per year:
As you can see by the chart above, 2013 was a record year; and 2014 could significantly exceed 2013.
Andrew Mitchel of International Tax Blog wrote in this article the following:
We do not believe that the primary reason for the increase in expatriations is for political purposes or for individuals to reduce taxes. Instead, we believe that there are likely three principal reasons for the recent increases in the number of expatriations:
- Increased awareness of the obligation to file U.S. tax returns by U.S. citizens and U.S. tax residents living outside the U.S.;
- The ever-increasing burden of complying with U.S. tax laws; and
- The fear generated by the potentially bankrupting penalties for failure to file U.S. tax returns when an individual holds substantial non-U.S. assets.
The increase in expatriations may also be partly due to a 2008 change in the expatriation rules. Many individuals can now expatriate without paying any U.S. tax and without having to continue to file U.S. tax returns for 10 years. An individual expatriating in 2014 faces an “exit tax” only if he or she:
- Has a net worth of $2 million or more on the date of expatriation,
- Has an average annual net income tax liability exceeding $157,000 for the 5 years ending before the date of expatriation, or
- Fails to certify on Form 8854 that all U.S. federal tax obligations have been complied with for the 5 years preceding the date of expatriation.
If one of these conditions is met, a mark-to-market regime is triggered and all worldwide property of the expatriate is deemed sold for its fair market value on the day before expatriation.
For 2014, an expatriate subject to the mark-to-market regime can exclude up to $680,000 of gain from being taxed under the exit tax. With the $680,000 exclusion, many individuals can expatriate without paying any U.S. tax.
By the way, Charles Schumer and Bob Casey — both senators of the United States — introduced a bill called the Ex-Patriot Act back in 2012 to increase the exit tax by twice the amount to 30 percent for anyone leaving the United States for tax reasons.
It is important to note that when the rules changed in 2008, expatriates can travel back to the United States every year to visit for 120 days or greater without becoming taxed as residents of the United States; whereas before the rules changed, visits to the United States for greater than 30 days during any of the 10 years following expatriation caused the individual to be treated as a resident of the United States for that year.
The fee increase was supposedly a reaction by the Department of State to simple supply and demand for the services provided, which purportedly requires additional labor for the extra workload to process people who are renouncing their American citizenship.
The significant increase of the fee to renounce American citizenship will not affect me, as I have no intention of doing so; but for American citizens who want to expatriate for reasons other than evading taxes they owe — such as for moving to a country where they do not have to be subject to the minimum spend requirements for elite level status being imposed by United Airlines and Delta Air Lines — the increase seems to be unjustified.
By the way, writing about avoiding minimum spend for elite level status was an attempt at a brief moment of levity on my part…
…but in all seriousness, what are your thoughts? Is the Department of State being seemingly usurious in its significant fee increase — or is it simply incorporating the American way of conducting business?
