Official IRS statistics published in the Federal Register show that the number of U.S. citizens or long-term residents losing U.S. citizenship increased from 45 in the last quarter of 2012 to 679 in the first quarter of 2013. In 2012, according to IRS expatriation statistics, 932 Americans officially expatriated.

The United States is one of only two countries that taxes citizens or permanent residents wherever they reside, including an estimated six million Americans living outside the country. (The other country, incidentally, is Eritrea, a single-party dictatorship.)

Citizens or permanent residents of every other country end their obligation to pay income tax after a sustained period of non-residence from that country, generally one year or longer. This won’t work for those with U.S. nationality.

To end U.S. tax liability on their worldwide income, they must not only leave the United States permanently, but also give up their U.S. citizenship and passport. In most cases, simply leaving the United States also doesn’t relieve long-term U.S. residents from worldwide taxation–they must formally give up their green cards.

Did expatriation really increase by more than a factor of 12 over the first three months of 2013?

Not likely. What’s more likely is that the IRS forgot to publish the names of some of 2012’s expatriates, so it simply moved them to 2013.

Wild variations in the official numbers of expatriations the IRS publishes are nothing new. Official expatriations dropped by more than half from 2005 to 2006, and then more than doubled from 2009 to 2010. Quarter-by-quarter variations are even more extreme. For 2012, first-quarter expatriations totaled 460, verses just 45 in the last quarter.

Given these extremes, it seems reasonable that the official statistics compiled by the IRS don’t reflect the actual totals of Americans giving up their citizenship or long-term residence. Indeed, they appear to be much higher.

According to the FBI, 4,385 Americans renounced citizenship in 2012. That number only counts persons renouncing U.S. citizenship. That’s one option for giving up U.S. citizenship, but you can also relinquish U.S. citizenship. The FBI statistics also don’t include abandoning long-term U.S. residence.

A news article in the South Korean media states that 2,158 of their citizens gave up U.S. passports or green cards in 2011. If these statistics are accurate, then more people expatriated from a single country in 2011 than appear on the official IRS list for the entire world for that year.

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The Swiss news media reports that for the first three quarters of 2012, a total of 411 individuals expatriated at the U.S. consulate in Berne, Switzerland. If reconciled with the official IRS statistics, this would mean that Switzerland alone accounted for over 40% of the total expatriations in 2012.

Numerous public figures never appear on the official IRS list. They include Ukraine’s former first lady Kateryna Yushchenko (2007); Jamaican politicians Daryl Vaz (2008), Michael Stern (2009), and Danville Walker (2011); Hong Kong actors Jaycee Chan (2009) and Erica Yuen (2012); and Korean actors Yoo Gun (2011) and Yoo Seung-chan, among other examples.

Why are the IRS numbers so low? I don’t know, but just based on the FBI statistics, I think a more realistic number of individuals expatriating is probably at least 10 times the figure official IRS statistics report. That would mean close to 10,000 Americans give up citizenship or long-term residence annually. If the South Korean statistics are accurate, the numbers could be even higher–perhaps 50,000 or more annually.

Less important than the number of persons giving up U.S. citizenship or green cards is why they do it. Tax is one factor, but several non-tax factors make it increasingly difficult for U.S. citizens or permanent residents to live outside the United States.

A case in point is the overwhelming compliance burden U.S. taxpayers living overseas face. The information reporting regime they face is complex, overlapping, and constantly evolving. Even minor violations are subject to draconian penalties.

Take for instance, the ubiquitous Treasury Form TD F 90-22.1, the “foreign bank account reporting form.” Fail to file this form and you could face a five year prison term and a $500,000 fine. True, sanctions typically are much less severe, but many other mandatory disclosure forms exist, all of them easy to miss, and all with significant penalties for non-compliance.

U.S. laws also force foreign banks and other financial institutions to enforce U.S. tax and reporting rules with respect to their U.S. clients. If the banks fail to do so, they face a 30% withholding tax, starting in 2014, on many types of U.S. source income, and possibly on other capital transfers. In many cases, it’s easier for foreign banks to “fire” U.S. clients than deal with this risk.

The upshot is that many Americans, especially those already living outside the United States, have decided that their U.S. citizenship or permanent residence is more trouble than it’s worth.

Clearly, the decision to turn in your U.S. passport or green card is a big one. It requires that you acquire a second passport, if you don’t already have one. It also requires that you live permanently outside the United States, if you don’t already do so.

And, if Senators Bob Casey(D.-Penn.) and Chuck Schumer (D.-N.Y.) have their way, wealthy expatriates would be banned from ever returning to the United States. Congress declined to pass this proposal in 2012, but you can count on its re-introduction. Expatriates don’t get a lot of sympathy on Capital Hill–or on Main Street, USA.

If you think you’re a possible candidate for expatriation, The Nestmann Group, Ltd. can assist you in every step of the process, as we have for dozens of former U.S. citizens or long-term residents.

We can help you acquire a suitable citizenship and passport, choose a country in which to acquire permanent residence, and assist with every phase of your expatriation.

And if you’re not ready to expatriate, we can help you take advantage of tax breaks in the Tax Code that apply to U.S. citizens and permanent residents living overseas. Contact us today for more information atinfo@nestmann.com.

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.