A huge number of Americans are giving up their citizenship according to a report by a New York accountancy firm.
The first two quarters of 2020 also ranked as having the first and second highest numbers on record at 2,909 and 2,907 respectively.
Under the IRS rules (section 6039g), every three months the U.S. Government publishes the names of all Americans who give up their citizenship. Bambridge Accountants reports that 5,816 people gave up US citizenship in the first half of 2020 which was a 1,210 percent increase on the previous six months. It is far more than the total of the four quarters for 2019 in which 2,072 Americans renounced their citizenship. That is more than a ten-fold increase from the last six months of 2019 when 444 citizens gave up their passports.
There are approximately 9 million U.S expats. Greenback Expat Tax Services polled Americans expats. More than 20% said that they are considering giving up their U.S. citizenship but they must pay a fee of $2,350 to renounce their citizenship.
Alistair Bambridge, partner at Bambridge Accountants New York, explains: “There has been a huge turnaround during coronavirus of U.S. expats renouncing, where the figures have been in steep decline since 2017.”
“The huge increase in U.S. expats renouncing from our experience is that the current pandemic has allowed individuals the time to review their ties to the U.S. and decide that the current political climate and annual US tax reporting is just too much to bear.”
“For U.S. citizens living abroad, they are still required to file U.S. tax returns each year, potentially pay U.S. tax and report all their foreign bank accounts, investments and pensions held outside the U.S. For many Americans this intrusion is too complicated, and they make the serious step of renouncing their citizenship as they do not plan to return to live in the U.S.”
“There has been a silver lining for U.S. expats that they have been able to claim the stimulus check of $1,200, and $500 for each child. For those individuals and families, the proposed second stimulus check will be very welcome once the HEALS Act is approved.”
The increase in renunciations during the first half of 2020 also breaks a record set in 2016 when 5,409 Americans gave up their citizenship over the course of the year.
The reasons for the renunciations is not provided in any of the reports but federal tax rules can explain many of the renunciation. Because the US impose tax based on nationality rather than residence. It means that the Americans expats are forced to file with the IRS.
The process of renunciation is not cheap nor simple. In order to give up their citizenship, they must pay a $2,350 departure fee. And as Fortune earlier reported, Americans must also pay any back taxes they owe the IRS before they can renounce their citizenship.
“These are mainly people who already left the US and just decided they’ve had enough of everything,” Alistair Bambridge.
“What we’ve seen is people are over everything happening with President Donald Trump, how the coronavirus pandemic is being handled, and the political policies in the US at the moment.”
He further added, “A lot of people are waiting for the November election to see what’s going to happen,” he said. “If President Trump is reelected, we believe there will be another wave of people who will decide to renounce their citizenship.”
Bambridge believes that the increase is because of COVID-19, as well as politics and taxes.
“The huge increase in U.S. expats renouncing from our experience is that the current pandemic has allowed individuals the time to review their ties to the U.S. and decide that the current political climate and annual US tax reporting is just too much to bear,” he said in the report.
“US citizens living abroad are still required to file tax returns every year, report their foreign bank accounts, investments, and pensions”, he said.
“The reporting requirements can carry some life-changing penalties for people,” said David McKeegan, co-founder of Greenback Expat Tax Services.
Single taxpayers living abroad must file Form 8938 if the total value of their foreign financial assets exceeds $200,000 on the last day of the tax year ($400,000 for spouses who file jointly) or if it exceeds $300,000 at any time during the year ($600,000 for spouses filing jointly).
Married taxpayers residing in a foreign country and filing jointly must submit the form if their foreign assets are valued at more than $400,000 on the last day of the tax year or if they exceed $600,000 at any time during the year.
Those thresholds are lower for Americans who live stateside and have foreign assets.
In that case, singles must report their foreign assets to the IRS if the value of those holdings exceeds $50,000 on the last day of the tax year ($100,000 for joint filers) or if they go over $75,000 at any time during that year ($150,000 for spouses filing jointly).
Failure to report carries a penalty of $10,000, and you could be on the hook for an additional $50,000 penalty if you continue to miss your reporting requirements.