Aggressive enforcement of tax rules for American expatriates and their families has prompted some middle-income earners to renounce their US citizenship rather than risk sizable taxes and penalties.
The tax dragnet has also swept up many middle-income Americans living abroad, prompting some to give up their US citizenship. While people who renounce aren't freed of taxes due for past years, they don't want to risk sizable taxes and penalties for them and their children in the years ahead, experts say. Nearly 8,000 taxpayers have renounced US citizenship in the past five years compared with fewer than 5,000 in the preceding decade.
"We have reached the point where middle-class American citizens abroad are being forced to renounce—especially if they have assets and are moving toward retirement—because of taxes, paperwork and huge potential penalties," said John Richardson, a Toronto lawyer with dual US and Canadian citizenship.
As word spreads, experts said, more Americans are likely to consider surrendering their citizenship. The State Department estimates that 7.6 million American citizens live outside the US, but only a fraction file required financial disclosure forms.
Unlike other developed nations, the US government taxes citizens on income they earn anywhere in the world. The rule dates to the Civil War.
US tax liabilities also cover children born to Americans abroad, extending the reach of the IRS across generations, as well as oceans.