Sixfold increase in Americans giving up their passports.

The ignorant view of renunciation
Image in public domain

Bloomberg has a gloomy article about a sixfold increase in the number of Americans giving up their passports. Unfortunately, it starts out with the following sentence:

Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.

Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Register figures published today. That brought the first-half total to 1,810 compared with 235 for the whole of 2008.

For those of us who following this topic closely, it's very frustrating reading this because it's not accurate. To be accurate, you would state that there's a sixfold increase in the number of Americans the Federal Register reported as having giving up their passports. We in the expat community have known for a long time that the Federal Register reporting is far lower than the actual numbers, but we've never known whether this is incompetence or a deliberate distortion of the data.

Heck, I reported over a year ago that far more Americans are giving up citizenship than reported, but it's hard to prove. However, after numerous FOIA requests from various people, much reporting of numbers that don't match the official tally, and the discovery of the FBI NICS index which gives a much better accounting of Americans who have given up their citizenship (because under US law, they can't own guns), we've finally started getting a better picture of what's going on and it may just be that the renunciation numbers being reported to the Federal Register are being quietly fixed to avoid the continual embarrassment, such as Swiss embassy renunciation figures alone suggesting that Switzerland had over half the reported renunciation figures worldwide, a figure that beggars belief.

However, from what I read on Bloomberg, Forbes, Reddit, and other sources, many Americans are saying "so what? It's such a small number." This shows a lack of knowledge about what's going on. For example, during my trip to Kiev, one American told me he tried to relinquish his US citizenship on the grounds that he took citizenship in another country. The US State Department denied him this because after he took that citizenship, he had to travel to the US and used his US passport. Using his US passport was considered grounds for denying his relinquishment. However, because the State Department hadn't yet approved his relinquishment, he was legally obligated to use his US passport. Now he's forced into the long, tiresome process of renouncing his citizenship formally (see the difference between relinquishment and renunciation). Thus, he's not yet counted as an ex-American.

Other ex-Americans are reporting that they're not showing up on any reports as having given up their citizenship, despite receiving their CLN (Certificate of Loss of Nationality).

On top of that, I've spoken to several Americans here in Europe who want to renounce, but are afraid to do so due to the heavy punitive damages the US often places on renunciants (and some Americans abroad simply can't afford the $450 renunciation fee or the exorbitant cost of getting their international taxes in order).

Then there are Americans like myself. I don't have plans to give up my citizenship, but I am painfully aware that there's a time in the future where I may not have any choice, due to financial considerations. Having expats like myself worried about their financial security due to US tax laws impacting us helps to turn an estimated six million Americans abroad from informal ambassadors abroad to walking advertisements about why you don't want American citizenship.

Another annoying aspect of that Bloomberg article is this misleading quote:

“With the looming deadline for Fatca, more and more U.S. citizens are becoming aware that they have U.S. tax reporting obligations,” said Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich. “Once aware, they decide to renounce their U.S. citizenship.”

While that may appear to be technically correct, it sounds like Americans are renouncing to avoid paying taxes. From my experience, this is generally not the case. Americans are renouncing due to the incredibly punitive nature of the US tax system vis-a-vis expats. For example, let's say you're trying to save for the downpayment for a home. You could well have over $10,000 in your bank account. Even if you've faithfully filed your taxes every year and paid all you owe, you could easily face five figure fines and possible criminal charges because you didn't know about FBAR reporting requirements. What's FBAR? That's the Foreign Bank Account Reporting act which was passed many years ago, but not well-advertised until a couple of years ago. Thus, many Americans are 100% in compliance with their taxes, but face huge penalties for not knowing about this law.

Or maybe you've been living overseas most of your professional life and you've been working for a non-US corporation which has no business in the US. If you have signing authority or significant shares in that corporation, under the new FATCA (Foreign Account Tax Compliance Act) law, you now have to file corporate financial reports with the IRS for this non-US company. I was rejected for one position here in Europe because the company in question didn't want the expense of preparing financial information for a country they don't do business in, but if I took that position and didn't report, I could be facing fines up to $50,000 and possible criminal charges.

I was also in Metz, France a few days ago and spoke with a lawyer from Luxembourg who told me that when he gets a potential US client, as a direct result of FATCA, he often turns them away, saying "I can't help you." With foreign banks now starting to turn away US clients, you have the problem of not even being able to have a bank account to pay your bills! In fact, many companies here pay employees via direct deposit; if you can't get a bank account, the company can't pay you.

Americans abroad giving up their citizenship aren't traitors. When I speak to them, they generally tell me they don't want to give up their citizenship, but they feel backed into a corner. Being denied bank accounts, jobs, or facing bankruptcy-inducing penalties for not filling out the correct paperwork (or making a mistake on said paperwork), is what's driving the renunciants I talk to. We still want to return to the US, visit our family and friends, perhaps even retire their one day, but then we face the harsh reality of US law and have to make a tough decision.

Bloomberg did US expats a disservice by not getting the real facts behind the renunciations.