Tax and Asset Disclosure: Primary Reasons for U.S. Expatriation.

At least 4,279 persons in 2015 had the privilege of navigating the labyrinth of US tax laws imposed on those who terminate their United States’ citizenship or lawful permanent residence status[1].  The 2015 exodus broke the 2014 record of 3,415 published expatriates.  In a striking comparison, just 231 persons turned in their citizenship in 2008. The United States has seen an 18 fold increase in the number of expatriations between 2008 and 2015.  This did not occur gradually, rather, the number of people renouncing their citizenship spiked in response to particular events.  Why?

The speculation is that people expatriate primarily to escape US taxation.  The United States, after all, is one of the few countries in the world that taxes its citizens’ (and residents) worldwide income.  Unsurprisingly, the data suggests tax avoidance is a primary factor.

Enter 2008:  federal prosecutors accused Swiss bank UBS of helping Americans hide their wealth in foreign accounts.  Bradley Birkenfeld, a manager at UBS, pleaded guilty to helping Mr. Olenicoff, a wealthy American, evade $7.2 million in taxes on $200 million in hidden offshore assets[2]. Additional indictments, fines, and prison time followed.

As the world was embroiled in an economic recession, the United States Congress was especially motivated to bring concealed cash and assets back to US shores by shutting down the use of foreign bank accounts utilized in Switzerland and elsewhere. In 2010, Congress enacted the Foreign Accounts Tax Compliance Act (“FATCA”). FATCA was enacted as part of the 2010 domestic jobs stimulus bill, the Hiring Incentives to Restore Employment (HIRE) Act, and requires every foreign bank doing business with the United States to disclose bank accounts held or controlled by US persons. At least 1,534 people renounced their citizenship during 2010, more than double the number in 2009.

Renouncing one’s citizenship is not as easy as burning a passport. It is a tedious process involving paperwork, interviews, and lengthy legal procedures including a robust examination by the IRS. While it is impossible to know with certainty what motivates people to endure this process, the numbers show a strong correlation between the passage of laws requiring disclosure of financial assets and expatriation.  It appears that many taxpayers would rather relinquish their citizenship than risk substantial fines and imprisonment should they misrepresent their offshore financial holdings to the IRS.


— By Michael S. Cooper, Esq., Barnes Law

Michael S. Cooper is an associate attorney with Barnes Law, licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Quarterly Federal Register, pursuant to IRC 6039(G)(d)