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Cost Of Renouncing US Citizenship Increases Fourfold

by Mike Godfrey, Tax-News.com, Washington

05 September 2014


At a time when a record number of United States citizens living abroad are handing in their passports or their green cards, the State Department has – without any fanfare – hiked the fees payable for processing expatriation applications by 422 percent with effect from September 12, 2014.

The State Department put the "adjustment" in the application processing fee for renunciation of US citizenship, from USD450 to USD2,350, down to "the findings of a recent Cost of Service study to ensure that the fees for consular services better align with the costs of providing those services."

The fee hike comes a month after Treasury Department statistics had disclosed that a record number of United States taxpayers (1,577) gave up their passports in the first half of this year, up from 576 in the first quarter – a long way towards besting the record level of 2,999 seen in the whole of 2013.

The acceleration in the number of individuals giving up their citizenship has come as actions being taken by the Treasury and the Internal Revenue Service (IRS) to trace American undeclared assets and income held abroad have gathered pace – particularly with the operation of the Foreign Account Tax Compliance Act, intended to ensure that the IRS obtains information on accounts held abroad at foreign financial institutions by US taxpayers, from July 1, and the agreement of Swiss banks to participate in a US tax regularization program. US expatriates are also finding it more challenging to open an account abroad due to FATCA.

It has also been said that more Americans living abroad are becoming aware of their US tax reporting obligations – for example, the requirement to file a Report of Foreign Bank and Financial Accounts – due to the US "worldwide" tax code, which subjects all of an individual's earnings to US taxation.

The State Department has noted that application demand for the renunciation of citizenship has increased substantially, and that, as the process involves a costly use of foreign consular time in processing cases, it should be charged at its cost.

However, Kevyn Nightingale, who is a Partner with the MNP accountancy practice in Toronto, pointed out that the Department's service was free until 2010, and that, calculated at its present "charge-out" rate of USD135 per hour, it now "means that each expatriation is supposed to take over 17 hours of time. Sure, there's some back office work, but 17 hours?" he questioned.

"There are a lot of Americans living abroad who find the US tax system oppressively complicated and difficult," he added. "It's already expensive to comply. So many of [those] who owe no US tax (which is to say most of them) want to get out of the system. This fee has just made it that much nastier. Stay in – get dinged. Leave – get dinged."

CCH FATCA Resource Center
TAGS: individuals | expatriates | compliance | Citizenship | tax | tax compliance | FATCA | fees | United States | services | Compliance | Expats | Working Abroad | Work | Working Abroad | Tax | Working Abroad

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