More U.S. taxpayers have either renounced their citizenship or returned their green cards in 2013 than ever before, primarily high net-worth individuals who sought to avoid higher taxes on income and capital gains. The major driving forces of the sharp increase are new changes to the tax law, including the Foreign Accounts Tax Compliance Act (FATCA), a law designed to assist the U.S. government in identifying unreported offshore bank accounts.
Many high profile individuals have renounced U.S. citizenship, including legendary musician Tina Turner, a longtime resident of Switzerland who renounced her citizenship earlier this year. Last year, Facebook co-founder Eduardo Saverin renounced his citizenship and moved to Brazil shortly before Facebook's IPO, which made him an instant billionaire. Saverin's departure was highly criticized and has led Congress to consider passing a new law that would set a 30% capital gains rate for expatriates on all future investment gains in the U.S.
In addition to tax increases, many individuals are concerned about the onerous reporting requirements for offshore accounts and foreign-source income, as well as the stiff penalties that could result if the requirements are not complied with. Unlike many countries, the United States taxes citizens and residents on their worldwide income, rather than just income earned in the United States. If an individual has $10,000 or more in offshore bank accounts, they must also file an FBAR each year, even if they are living in the foreign country.
Recognizing that many taxpayers are confused by the complicated regulations, and hoping to ensure future compliance, the IRS rolled out its Offshore Voluntary Disclosure Initiative in 2009. This program allows U.S. persons to voluntarily disclose their offshore accounts and pay taxes and penalties to the IRS, in exchange for immunity from prosecution. The 2009 program was so popular, that the IRS had a similar program in 2011. In 2012, the IRS announced that the program would be opened up indefinitely. Since the program could be terminated at any time, taxpayers with unreported offshore accounts are encouraged to come forward as early as possible.
Once the U.S. government has information leading to a taxpayer's offshore accounts, the taxpayer is no longer eligible for the voluntary disclosure program. As the U.S. authorities continue to sign tax treaties with foreign countries and prosecute foreign banks who assist U.S. taxpayers in concealing their offshore assets, the noose is tightening around those who still have not come forward.
To learn more about our international tax practice, including the Offshore Voluntary Disclosure Program, visit our website. We represent individuals across the United States and around the world.