Thousands of Americans abroad are giving up their citizenship as the implementation of a complex new tax law causes banks to shut down accounts for US expatriates.
Until 2012, Moon was actually an American – albeit one who had lived in Canada for 32 years. She settled in so well that in 2008, she added Canadian citizenship to her US one.
But Moon cut ties with America three years ago, after new banking laws aimed at tax evaders required expats like her to file more thorough US tax returns. She was five years behind on the news. “I was terrified we’d lose all our money,” she says.
After back-filing years of tax returns, Moon renounced her US citizenship in 2012. It was a defiant act she describes as being one of the first canaries to leave the coalmine as US banking laws make life more difficult for American expatriates. She wasn’t pleased she had to do it.
“It was like cutting off my right arm,” to not be American any more, says Moon, who only became a Canadian citizen in 2008. “Now, I’m simply angry.”
In February this year, the US and Canadian governments signed an intergovernmental agreement to co-operate on Fatca. The Foreign Accounts Taxation Compliance Act required all foreign banks to disclose the financial information of any American with assets over $50,000 sitting in banks outside of the US.
Steep penalties add muscle to the law. If a foreign bank – not just in Canada, but anywhere – fails to report even a single US citizen as a customer to the IRS, the US Treasury department would withhold 30% of the banks’ US income as penalty.
Foreign banks, some of whom earned a reputation as tax scofflaws, are now deeply afraid of the Internal Revenue Service. Scared of running afoul of US banking laws, foreign banks are taking extreme steps to limit US citizens to a narrow range of services.
The complications have become so prevalent that, as a last resort, thousands of Americans have asked US Consulates abroad to cancel their citizenship. In 2013, 2,999 Americans renounced their citizenship; in 2014 so far, it’s a little more than 1,500 people.
Possibly to stem the tide, the state department raised the fee for citizenship renunciation fourfold on September 12, from $450 to $2,350. Officials seem to be hoping the steep fee will discourage more people from giving up their passports.
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