Expats and passport renunciation: FATCA and the ‘Trump bump’

Congress has required the IRS to come up with a program to deny or revoke passports for individuals with certain types of tax debt. As we noted in yesterday’s post, the program will take effect next month.

This is not, however, the only story in play regarding taxes and passports. In recent years, many people are have renounced their passports because of onerous reporting requirements for offshore accounts.

The number of renunciations has escalated in recent months. Unlike the stock market, which has been up since the election, it’s been a reverse “Trump bump.”

In the last three months of 2016, the number of Americans giving up their citizenship hit 2,365. This period of course included the immediate aftermath of Donald Trump’s surprise victory in the presidential election.

But the increased expat numbers are much more than a reverse Trump bump. They have been building for years, driven in significant part by concerns about the Foreign Account Tax Compliance Act (FATCA).

Congress passed FATCA in 2010, but it has taken several years for its complex provisions to be implemented. For 2016 as whole, the number of renunciations was a record 5,411, up from 4,279 in 2015.

It would be too simplistic to suggest that FATCA is the sole driver behind all passport renunciation decisions. But clearly the compliance burden imposed by FATCA has made it much more difficult for U.S. taxpayers living abroad. For example, many foreign banks refuse to do business with American expats out of concern about inadvertently violating FATCA’s burdensome reporting provisions.