According to some international financial experts, recently implemented American tax rates and policies may cause more Americans living abroad to renounce their U.S. citizenship. A recent conference in Israel on the subject of tax changes saw several speakers agree that more and more people will begin to seriously consider renouncing their American citizenship to avoid expected tax hikes and closer scrutiny of their overseas bank accounts by the IRS.
Motivation to Renounce Citizenship?
This is especially true in cases involving high net worth individuals who rarely travel to the U.S. In such cases, the value of an American passport may not be enough to justify the hassle of rising tax rates and compliance with recently implemented financial regulations.
International Banks Required to Reveal Depositor Identities
One such recently enacted bit of legislation is the Foreign Account Tax Compliance Act, or FATCA, which takes effect this year (2014). The Act requires that foreign financial institutions divulge certain information with the IRS about accounts held by U.S. taxpayers or face steep penalties for their failure to comply. Passage of this bill means that if Americans are not currently claiming such accounts, they are going to have to start because their international banks are going to be forced to reveal their identities to the IRS.
Breaking Point is $50,000
The burdens of FATCA primarily fall on the major international banks. The Act will mean millions of dollars in compliance costs for several global financial institutions, as it requires that foreign financial institutions to report the holdings of American taxpayers whose foreign financial assets exceed $50,000 to report those holdings to the IRS.
The Treasury Department decided to ignore a request made by various business, banking and foreign financial groups to delay the January 2014 start date. Beginning this year (2014), big fines will be levied against those individuals and firms who refuse to comply with the FATCA law.
Exceptions to the Law Revealed
Though the law is tough, it’s not without loopholes. Certain retirement funds, life insurance policies and other relatively low-risk financial products that exist internationally and are not considered vehicles for dodging American taxes are exempted from the FATCA reporting requirement. This represents a small victory for the financial firms and wealthy Americans living abroad that had been aggressively lobbying for their exemption.
Need for an Estate Plan
Whether you have few assets or a multi-million dollar estate, you need to have an effective estate plan that works for your family. As a board certified estate planning, trusts, and probate lawyer, I have the skills and knowledge to handle complex estate planning matters (certified as a specialist by the California State Bar Board of Legal Specialization). To schedule a consultation to discuss your estate planning goals and needs, please contact us.
Source: U.S. issues final tax anti-evasion rules, enforcement ahead by Patrick Temple-West, published at ChicagoTribune.com.