Tuesday, April 17, 2012

Taxed no more


We have long-held that people will act upon their own rational self-interest to shield their income from not only taxes but burdensome and un-specific tax regulations and policies. This is being borne-out as a record number of U.S. citizens have renounced their U.S. citizenship rather than have to deal with this country's byzantine tax regime.

Last year, almost 1,800 people followed Superman's lead, renouncing their U.S. citizenship or handing in their Green Cards. That's a record number since the Internal Revenue Service began publishing a list of those who renounced in 1998. It's also almost eight times more than the number of citizens who renounced in 2008, and more than the total for 2007, 2008 and 2009 combined.

But not everyone's motivations are as lofty as Superman's. Many say they parted ways with America for tax reasons.

The United States is one of the only countries to tax its citizens on income earned while they're living abroad. And just as Americans stateside must file tax returns each April - this year, the deadline is Tuesday - an estimated 6.3 million U.S. citizens living abroad brace for what they describe as an even tougher process of reporting their income and foreign accounts to the IRS. For them, the deadline is June.

The National Taxpayer Advocate's Office, part of the IRS, released a report in December that details the difficulties of filing taxes from overseas. It cites heavy paperwork, a lack of online filing options and a dearth of local and foreign-language resources.

For those wishing to legally escape the filing requirements, the only way is to formally renounce their U.S. citizenship. Last year, IRS records show that at least 1,788 people did, and that's likely an underestimate. The IRS publishes in the Federal Register the names of those who give up their citizenship, and some who renounced say they haven't seen their name on the list yet.

Of course, in response to this, the IRS childishly publishes a list of names of people who have renounced their citizenship and which is known as "name and shame". Have you ever looked at this list to see if perhaps you may know some of these supposed "un-patriotic millionaires"? Yeah, neither have we.

And the ever-changing complexity of the tax code and not knowing what regulations apply to them make it a damned if you do, damned if you don't situation with respect to declaring one's assets.

Marylouise Serrato, head of American Citizens Abroad, a nonprofit organization based in Geneva, says that many members feel scared about reporting requirements they did not know existed. Their disenchantment, she says, is pushing some to renounce.

"Americans abroad are terrified. We've had people pay tens of thousands of dollars in fines. We've had people … pay huge amounts of back taxes," she says. "Up to this point, we never heard of anyone renouncing, or if they did, they didn't talk about it," says Serrato, who says her group does not advocate renunciation.

"Now," she says, "we're seeing a lot of people speak openly about it and come to us for information."

And if all that weren't enough, foreign banks, fed up with the American tax code will close American customer accounts or simply, up front, refuse their business.

Francisca N. Mordi, vice president and senior tax counsel at the American Bankers Association, says she has received a number of calls from Americans in Europe complaining about banks closing their accounts. "They're going to drop Americans like hot potatoes," Mordi says. "The foreign banks are upset enough about the regulations that they're saying they just won't keep American customers, and it's giving (Americans living abroad) a lot of sleepless nights."

Again, Americans renouncing their citizenship, are merely acting in their best interests and not wanting the headaches and frazzled nerves of dealing with an effectively harrassing tax code proves it's not merely financial interests that are being looked after here.

Maybe if the administration ever got serious about tax code reform instead of pursuing election year gimmicks like the Buffett Rule, they might otherwise capture some of that revenue, the holders of which are high-tailing it away from this great country of ours.



Shane Atwell said...

IBD had an a propos editorial on this today http://news.investors.com/article/608156/201204171850/irs-taking-away-your-passport-obviously-unconstitutional.htm

B-Daddy said...

Thanks for exposing one more area of mindlessness of our federal tax code.

Doo Doo Econ said...

The IRS passport confiscation bill S1813 is an obvious tie in to this article http://blog.doodooecon.com/2012/04/obey-obama-passports-suspended-in.html

Road Dawg said...

Seeing the reach of the truly "long arm of the law" is quite disturbing.

Secular Apostate said...

The wife and I have given very serious thought to emigrating permanently. I love the idea of America, but not the banana republic it's turning into.