Number of Expatriations Continue to Rise

By:
Alicea Castellanos, CPA, TEP, N.P. and Jack R. Brister, TEP
Published Date:
Sep 1, 2016

American expats continue to renounce their citizenship at an increasing rate, although the overall percentage taking this step remains relatively small. Driving this trend is the fact that the United States is the sole country in the Organisation for Economic Co-operation and Development (OECD) that imposes taxes on its citizens regardless of where they reside. This burden has been magnified with the implementation of the Foreign Account Tax Compliance Act (FATCA), which mandates that foreign financial institutions disclose U.S.-owned accounts or face penalties.

The IRS’s quarterly expat report revealed that 1,158 individuals gave up their U.S. citizenship or terminated their long-term U.S. residency in the first quarter of 2016—up nearly 9.5% from the last quarter of 2015, when 1,058 expatriated.

For the other nearly 7 million U.S. citizens living abroad, the IRS requires that they file tax returns even if they’re paying taxes to their country of residence. And, being an expat can increase the risk of being audited. 2016 has also brought a number of changes that have an impact on Americans living overseas, such as changes to the foreign earned income exclusion and the Foreign Bank and Financial Accounts (FBAR) filing deadline.

As the U.S. expat landscape continues to evolve, it’s important to ensure that accurate and timely advice is received. The IRS has recently become more flexible in its treatment of delinquent U.S. expat tax filers who were unaware of their requirement to file, indicating that filing three years of back taxes is adequate for most U.S. expat tax filers. They are also now allowing a six-year leniency period for those who were unaware of FBAR filing requirements. For many American expats who have been reluctant to file late returns, this creates a greater incentive to settle up with the IRS and avoid penalties and fees.

Further, for those that wish to sever their ties to the United States, it’s important to ensure that the process covers not only one’s immigration status—but also one’s tax residency status. Failure to do so means that the individual will continue to be taxed as a U.S. person. Careful planning is required to ensure that future visits to the United States—even if temporary—don’t trigger what is known as the “anti-lapse rule,” which could result in continued U.S. residency.


This article originally appeared in the May 2016 issue of The International Wealth Tax Advisor. Copyright, International Wealth Tax Advisors LLC, 2016. Reprinted with permission. 



Alicea Castellanos, CPA, TEP, N.P., has more than 15 years of experience. She specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures, which include non-U.S. trusts, estates, and foundations that have a U.S. connection and executives living and working abroad. Alicea also specializes in non-U.S. persons investing in U.S. real property and other U.S. assets, pre-immigration planning, U.S. expatriation matters, U.S. persons in receipt of gifts and inheritances from non-U.S. persons, non-U.S. account and asset reporting, offshore voluntary disclosures, FATCA registration, and non-U.S. companies seeking to do business in the United States. Alicea has been published and has spoken at numerous events on U.S. cross border tax matters. She can be reached at acastellanos@iwtas.com.

Jack R. Brister, TEP, has more than 25 years of experience. He specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures, which include non-U.S. trusts, estates and civil law foundations that have a U.S. connection, and non-U.S. companies seeking to do business in the United States. Jack also specializes in non-U.S. persons investing in U.S. real property and other U.S. assets, pre-immigration planning, U.S. expatriation matters, U.S. persons in receipt of gifts and inheritances from non-U.S. persons, non-U.S. account and asset reporting, offshore voluntary disclosures, FATCA registration and compliance (W-8BEN-E and Form 8966) and executives working and living abroad. He can be reached at jbrister@iwtas.com.

 
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