After Congress sharply raised taxes this year for many Americans living abroad, some international tax lawyers say they detect rising demand from citizens to renounce ties with the United States, the only developed country that taxes it citizens while they live overseas. Americans abroad are also taxed in the countries where they live.
She is a former marine, a native Californian and, now, an ex-American who prefers to remain discreet about abandoning her citizenship. After 10 years of warily considering options, she turned in her United States passport last month without ceremony, becoming an alien in the view of her homeland.
“It’s a really hard thing to do,” said the woman, a 16-year resident of Geneva who had tired of the cost and time of filing yearly United States tax returns on top of her Swiss taxes. “I just kept putting this off. But it’s my kids and the estate tax. I don’t care if I die with only one Swiss franc to my name, but the U.S. shouldn’t get money I earned here when I die.”
Historically, small numbers of Americans have turned in their passports every year for political and economic reasons, with the numbers reaching a high of about 2,000 during the Vietnam War in the early 1970s.
But after Congress sharply raised taxes this year for many Americans living abroad, some international tax lawyers say they detect rising demand from citizens to renounce ties with the United States, the only developed country that taxes it citizens while they live overseas. Americans abroad are also taxed in the countries where they live.
“The administrative costs of being an American and living outside the U.S. have gone up dramatically,” said Marnin Michaels, a tax lawyer with Baker & McKenzie in Zurich.
So far this year, the Internal Revenue Service has tallied 509 Americans who have given up their citizenship, said Anthony Burke, an I.R.S. spokesman in Washington. He said complete figures were still being calculated.
Applications to renounce citizenship are on the rise at the American Embassy in Paris, according to an official who spoke on condition of anonymity. At the embassy in London, the number of applications was reported to be fairly stable over the past two years, though it would be hard to spot a recent surge because applications are taking longer to process there than in past years. Neither embassy would disclose exact figures. A spokeswoman for the American Embassy in London, Karen Maxfield, said Americans living abroad usually took the step “because they do not have strong ties to the United States and do not believe that they will ever live there in the future.”
“All have two citizenships and generally say they would like to simplify their lives by giving up a citizenship they are not using,” she said.
Andy Sundberg, a director of the Geneva-based American Citizens Abroad, has been tracking renunciations dating back to the 1960s through annual Treasury Department figures. He considers the numbers low compared with some stretches in the past, like the early 1970s. But he has also noticed a recent increase in interest among Americans in renouncing their citizenship.
“I think the cup is boiling over for a number of people living abroad,” Mr. Sundberg said. “With the Internet and the speed and the ubiquity of information, people are more aware of what’s happening.” With the changes in the tax laws, he said, some Americans living abroad fear “they’re heading toward a real storm.”
He cited a survey by the American Chamber of Commerce in Singapore, which polled its members in October and November and found that many were considering returning to the United States because of the higher taxes.
Concern about taxes among Americans living abroad has surged since President Bush signed into law a bill that sharply raises tax rates for those with incomes of more than $82,400 a year. The legislation also increases taxes on employer-provided benefits like housing allowances.
The changes, enacted in May, apply retroactively to Jan. 1, 2006.
Matthew Ledvina, an international tax lawyer in Geneva, said demand for legal counsel on the citizenship issue was coming largely from American citizens who held second passports and who had minimal ties to the United States.
“There are incentives to do it before the end of the year so that you can minimize your future reporting,” he said.
Mr. Ledvina said the waiting period for appointments at the American Embassy in London had increased from a few days to more than three and a half months. He said he had recently approached embassies in Vienna, Bern, London, Paris and Brussels before finally getting an appointment in Amsterdam for a client’s renunciation application.
The legal ritual of renunciation is largely unique to the United States because other countries base taxation on residency, not citizenship, according to Ingmar Dörr, a tax lawyer with Lovells in Munich.
“We don’t have that issue,” he said. “We only have the problem that rich people who don’t want to pay taxes in Germany just move to a lower-tax country in Switzerland.”
For some Americans abroad, motivations for renunciation are mixed and complex, involving social concerns, political displeasure with their government and other reasons. But it is clear that taxation plays a large role for many, even though few are willing to admit that because of penalties enacted a decade ago.
In 1996, Congress tried to address a wave of tax-driven expatriation by the wealthy by requiring former citizens to file tax returns for a decade and forbidding Americans who renounced their passports for tax reasons from visiting the United States.
But in practice, the government is mainly interested in wealthier ex-citizens with a net worth of more than $2 million — few of whom pay further United States taxes because they generally avoid making American financial investments after giving up citizenship, Mr. Ledvina said. As for the rule barring entry to tax refugees, he said, it has not been enforced by the authorities.
Still, that possibility prompts ex-citizens to tread carefully and remain discreet about their choices.
“I didn’t give up my citizenship with a sense of hostility,” said an importer in Geneva who renounced her citizenship as President Bush was taking office in 2001. “I gave it up with a sense of fairness.”