The recent efforts of the IRS to curb tax
evasion are having an unintended side-effect. Due to stricter laws on reporting
taxes, many American citizens are renouncing their U.S. citizenship. According
to data analysts, the number of U.S. citizens renouncing their citizenship will
have risen by 33 percent compared to 2011 numbers.
In 2008, only 235 individuals renounced their citizenship or gave up their green cards. In 2011, the number rose to over 1,500. In 2013, 560 renounced their citizenship in one quarter alone. The sudden hike in the number of those who have renounced their U.S. citizenship must be due to the change in tax regulations because the immigration laws have not been changed.
The IRS has been pushing overseas banks in tax havens
to share the bank details of U.S. taxpayers. Along with it, the agency has made
it mandatory for U.S. citizens residing overseas to report certain foreign
financial accounts and offshore assets. For many taxpayers who are not hiding
income or assets to evade taxes, but seeking to reduce their tax workload will
now need to carry the additional burden. Many are renouncing their U.S. citizenship
because of the paperwork that they will need to do to remain in compliance
every year. After the current strictness, U.S. citizens residing overseas
anticipate further changes.
Along with harsher tax law enforcement, there is also
an increase in taxes. When taxpayers weigh the expenses of renouncing or
staying compliant, they find that renouncing is cheaper.
Under Foregin Account Tax Compliance Act
(FATCA), every U.S. citizen, U.S. individual resident and some non-resident
individuals will need to report their assets to the IRS. Penalty is charged for
failure to file or filing inaccurately. Tax evasion, on the other hand,
attracts heavy penalty and/or imprisonment.