Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Mar 12
2014

As the Foreign Accounts Tax Compliance Act Takes Hold, U.S. Sees Expatriates at All-Time High

Are you living the American dream … abroad? If so, you may be considering joining forces with Superman[1] and changing your nationality. You face some unique burdens if you earn a cent while soaking up the sun in Saint Tropez or make a rupee while navigating the marketplace in Mumbai. The most obvious, from a financial perspective, is double taxation. America is one of the few countries to tax its citizens on their global income. That means that Americans must contend with tax liability and report requirements of the country where their income is earned. Also, they then must pay Uncle Sam taxes on that same foreign-based income. (The foreign tax credit offsets some of this burden, but it generally does not eliminate all double taxes.)

Now Americans abroad are facing a new financial challenge: finding places to park their money. Thanks to the Foreign Accounts Tax Compliance Act, which Congress passed in 2010, banks in foreign countries are refusing to hold accounts for American citizens. FATCA aims at enforcing American tax law on its citizens and ensuring those citizens are disclosing all income and assets to Uncle Sam. To confirm full disclosure, the law imposes reporting requirements on the foreign financial institutions that do business with Americans. Many of these banks have decided that the regulatory burden and penalties for non-compliance are too onerous so they have opted to refuse Americans’ money. The problem Americans face banking abroad has become big enough that members of Congress have called hearings on the matter. [Of course, unless Congress repeals the reporting mandates that FATCA imposes on foreign financial institutions, what impact could hearings have? Congressional members could acknowledge the problem, but there is really only one solution. Superman, where are you when we need you?]

Of the many concerns Americans have over FATCA, the law is seen as too intrusive, especially to bi-nationals who identify culturally with another nationality. The law requires individuals to file – in addition to FBARs – the already-notorious Form 8938, which demands details on foreign assets such as life insurance contracts, loans, and holdings in non-U.S. companies. Additionally there are the hefty civil and criminal penalties of $50,000 or one-half the value of accounts for individuals who have not complied with all reporting requirements (many Americans abroad, apparently have struggled with compliance).

So as FATCA takes hold (the U.S. is actively negotiating intergovernmental agreements with foreign jurisdictions to ensure enforceability of its laws), Americans abroad increasingly face the question: are the benefits of American citizenship worth the cost? More people are answering “no” and choosing to renounce their American citizenship. In fact, so many are answering “no” that we are breaking renunciation records.  In 2011, more than 1,800 Americans renounced their citizenship, which was more than 2007, 2008, and 2009 combined. In 2013, that number jumped to almost 3,000, which is an all-time record. The number of American citizens wanting to renounce their citizenship is so high in Switzerland there is a waiting list (reported as 18-months long).

Some may think that 3,000 people renouncing their citizenship is a drop in the bucket, nothing to sneeze at, and small potatoes. The number of renouncers doesn’t compare to the 1 million who are legally immigrating to the U.S. every year. “Goodbye and good riddance,” some have commented.

But the trend is more troubling than it may appear. By raw numbers, the U.S. may be averaging a 997,000 surplus in immigrants versus emigrants, but Uncle Sam’s tax roll will not reflect the same surplus. The people who are renouncing their citizenship tend to be on the wealthier side. Not all are Eduardo Saverins (the Facebook co-founder who emigrated to Singapore “for business reasons” i.e. to reduce his tax liability). But expatriates are undergoing the pains of renunciation because they have greater than average networths and they see the writing on the U.S. budget deficit’s wall (many surmise that FATCA is an attempt to curb the deficit). The people who are immigrating to the U.S. tend to be those who are looking for opportunity, education, etc. They are bringing wallets full of hope, not gold. And when you recognize that the top 1 percent of American earners pay about 37 percent of all the federal taxes, a few thousand on the wealthier side become statistically significant.

A very popular phrase bandied about by politicians is that you can tell the health of the nation by the number of people who want to come and stay. That immigration reform is an issue, to many, means we have a good thing going here in the U.S. that others want to be a part of. But when the nation’s wealthy start opting out of the American dream, when they start thinking our borders as made of kryptonite, it’s time to pause and reflect.


[1] See Action Comics No. 900 in which Superman renounces his U.S. citizenship after a clash with the federal government.

Ifrah Law is a leading white-collar criminal defense firm that focuses on financial services.

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  • Bubblebustin says:

    I suppose by some standards if you can afford to pay the $450 renunciation fee and the costs involved in filing the requisite 5 years of tax returns and possible exit tax in order to completely extricate yourself from the US tax system you might be considered wealthy. Hopefully the remaining millions of “US persons” will be able to remain under the US’s tax radar in order to be left alone to survive on their modest earnings in other countries.

  • SwissTechie says:

    While I greatly appreciate this perspective, I find that most expats (those renouncing) are not wealthy and they are not a part of the US system, given that they live in other nations. As such, it is more likely that the US is losing valuable diplomats of US culture and economics. The US might not notice much taxwise, but it may very well notice the unintended consequences without being able to connect the dots to understand the extent of the problem.

  • AtticusinCanada says:

    I agree with the above commenters. There’s a myth that expats are rich and living on islands when the evidence is that most of them are in Canada or Europe which are high tax countries. Most are abroad due to marriage or a job and there is no evidence they rich.

    That said, if the U.S. has created such an issue that Americans aboard find they cannot keep their citizenship then perhaps that issue ought to be looked at. I don’t care if the number is one or ten thousand. Something is wrong here and it’s not the expats who are the problem.

  • Will says:

    Honestly, I cannot fathom the logic or the nerve of the US government. I was born in the US but have lived in Canada for the past 17 years. This is my home and this is where I’ll stay to the end of my days. I am a Canadian citizen. I don’t feel that I am “US” property until “death do us part.” (In some cases even after that!) I am not some young calf who has been branded because of the location of my birth.
    I owe my good fortune solely to God and my beloved parents who reared me. Period. And I am not speaking of mere money, my friends……….

    Plus the added headache of having to sit down myself each year (it would cost a fortune otherwise) to fill out 30 pages of diabolic tax forms in order to show I owe ZERO taxes is the ultimate in silliness. Wasn’t there a song “30 ways to leave your lover?” It (sadly) looks like it’s time to “slip out the back, Jack. Make a new plan, Uncle Sam.:

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, healthcare, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen, David Deitch, and associates Rachel Hirsch, Jeff Hamlin, Steven Eichorn, Sarah Coffey, Nicole Kardell, Casselle Smith, and Griffin Finan. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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